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Spot the money launderer

Money laundering imageMoney laundering regulations have been around for some time now but the government recently flagged up its intention to get serious about enforcing them within the property industry. It’s not surprising; organised criminals last year earned £24 billion from property.

HMRC says it has always viewed the property market as a ‘known high risk area’ where criminals are likely to convert their crime-soaked cash into legitimate funds. But now it seems that the taxman is getting tough.

The National Association of Estate Agents was recently informed that HMRC is to make significant changes to what it calls the Anti Money Laundering System (AMLS). Soon, fines are to increase for agents who don’t comply properly. And the consequences of non-compliance are already high, as one Leicester based agent discovered in 2013 – to the tune of £12,000.

One of the high profile groups HMRC wants agents to look out for is PEPS: Politically Exposed People. It may sound like a category of John Le Carré traitor but HMRC is perfectly serious.

Also, HMRC is going to take a more robust approach with agents who haven’t registered with the system (only around 6,000 have so far), while on a more procedural note it is to also make the application process for agents wanting to join available only online.

And while some agents may disregard the regulations, statistics show that not enough agents who ARE registered seem able to report clients to the National Crime Agency (NCA). During a recently online poll of 400 agents only six per cent of them had recently contacted the NCA about a client, something the NCA is worried about.

What has prompted the HMRC to act, as many agents are speculating, is last year’s Channel 4 documentary From Russia with Cash, which caught a London agent on camera appearing to agree to help a Russian ‘minister’ launder stolen state funds through a property purchase. The agent later robustly denied this.

It showed how easily some agents can forget their money laundering training – which has been compulsory for all new recruits for some time – and get pulled along by a persuasively crooked politician, criminal or terrorist looking to launder dirty cash.

Global Anti-Corruption Summit

These subjects will be in the headlines again very soon. In May the government is due to host a global Anti-Corruption Summit in London, while RICS has been working closely and seriously with government on anti-money laundering measures and that an announcement is due on this at any moment, says RICS Property Director Andrew Bulmer.

In the meantime, NAEA Chief Executive Mark Hayward has been racing up and down the country delivering a seminar on the subject. This may be partly because the association recently revealed that the number of agents who have appointed a person responsible for reporting suspicious activity (known as a nominated officer) as required by the regulations, is very low.

“We are in regular contact with HMRC and I’m pleased that they are continuing to engage with us and the industry as a whole about changes to Anti Money Laundering supervision,” says Mark.

“Last year the NAEA contributed to the Government’s Cutting Red Tape review of anti-money laundering and over the next few years there will be important changes in AMLS. Some of these are starting to be rolled out now and in the longer term we know that the introduction of the EU’s 4th Money Laundering Directive in 2017 will create some wide ranging changes.”

To help readers refresh their memories on the subject before everything changes again here are some of the more important (and sometimes surprising) facts and rules within the Money Laundering Regulations 2007.

Who to watch out for

HMRC says that, in particular, agents should watch out for clients who want to turn around a sale very quickly, deposit large sums in a client account or who are reluctant to provide identification. Other signs of money laundering are buyers or sellers who try to conduct the transaction through intermediaries or are not keen on meeting in person and those who try to pay for a property partly or fully in cash or foreign currency.

One of the high profile groups HMRC want agents to look out for are Politically Exposed People (PEPs). While this might sound like a category of John Le Carré traitor, HMRC is perfectly serious. They include members of parliament from overseas, foreign heads of state and government ministers or their partners, and high ranking foreign armed forces personnel. The reasoning is that such people are, because of their lofty positions, more likely to (or be persuaded to) launder money particularly if they come from countries with histories of corruption.

Read the sanctions list

The government publishes a list of people and organisations with whom agents cannot do business. In theory all your customers who fit the profile of these 8,000 or more of non-UK citizens and organisations should be checked against the list. This includes a dazzling array of political enemies of the UK including, rather bizarrely, several assassinated Afghan politicians. To find the list, search online for ‘HM Treasury Consolidated list of targets.’

It’s more than just money laundering

The Regulations cover more than just criminals trying to clean their dirty money. It also includes those attempting mortgage fraud when buying a property, or trying to evade tax by – for example – using the ‘furniture and fittings’ method to get a property under a particular Stamp Duty threshold.

Another area of criminality that many agents may not realise the regulations cover is terrorist financing. If you have good reason to believe money from a sale, or a property, is being used to support terrorism then you must report it and document your suspicions.

It doesn’t matter where the money comes from, either, or how much it is.

Which forms of identification are OK?

These includes the usual forms of personal ID such as a driving licence or passport, but they also include a valid firearms certificate.

You can’t tip anyone off

One mistake some agents make – and which can attract fines, is to tip off a potential criminal that you’re going to report them, or are thinking of doing so – even if it’s done by mistake. If a client is acting suspiciously and you think they may be attempting to launder money gained through criminal activity, then carry on as normal and contact a more senior member of your team or your company’s nominated officer and report your suspicions.

Keep records for five years

It might seem like a long time, but any records you keep when carrying out Client Due Diligence must be kept for this long. This includes everything from a basic identity check to records of the transaction plus any actions you take after someone inside or outside your business reports suspicions about the client, including if they’re reported to your nominated officer.

There are heavy penalties for noncompliance.

In the past agents have escaped with a large fine, but the HMRC says you could face a prison term of up to two years. Details of the increased penalties are due to be published soon.

Get some back-up

You have to have either paper or electronic copes/back-ups of your paperwork, so a decent sales progression software system is a good idea. You can’t claim a few years down the line that you’ve lost the due diligence paperwork for a transaction – you’ll be in trouble with the HMRC and could face a hefty fine.

Happily, most of the main property software systems enable agents to keep documentation and transaction details for this length of time. And they also enable identity checking to some degree of automation, depending on the provider.

Although they can’t help you decide whether to report someone or not, they do offer ‘compliance in a box’ bolt-ons or features that enable users to check a person’s identity and any documents they supply to you, services which the main credit checking agencies such as Experian supply.

How to report a suspicious transaction or client

If a transaction or one of your clients has aroused the suspicions of a member of staff or the nominated officer (or their deputy if they are away) then call the NCA on 020 7238 8282 and make a Suspicious Activity Report (SAR). If it is possible to suspend the transaction without tipping off the buyer/seller, then the NCA recommends that you do.

Get registered!

If your company has not been registered with the HMRC then do so as soon as you can. The easiest way to do this is at www.gov.uk/guidance/money-laundering-regulations-register-with-hmrc

Further reading

Cross-industry co-authored guidance: www.nfopp-regulation.co.uk/media/148686/money_laundering_guidance.pdf HMRC introduction to Money Laundering Regulations: www.gov.uk/guidance/moneylaundering-regulations-introduction

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