The industry has been abuzz in recent months about the Government’s proposed Money Laundering Regulations 2017, with speculation rife that the lettings industry will be featured in their proposals fighting money laundering in the UK.
According to the National Association of Estate Agents (NAEA), following an HMRC take over of the supervision of estate agents from The Office of Fair Trading in April 2014 it is an offence to trade as an estate agency unless you’re registered with the HMRC for anti-money laundering supervision, in accordance with Section 1 of the Estate Agents Act 1979.
However it seems like that’s not enough as the market is still rife with funds obtained by illegal means. The implications of money laundering in the property market were put under the spotlight by a Channel 4 documentary, From Russia With Cash in 2015, which exposed foreign nationals ploughing laundered money in buying and renting UK property.
That said, it seems that the Government is not keen to add further bureaucracy to an industry already laden with red tape. HM Treasury has published a consultation on their draft of a new regulation—Money Laundering Regulations 2017—and within it they have made their intentions very clear not to regulate the activities of lettings agents.
As stated in Section 6.2 of the Money Laundering Regulations 2017 Consultation: “While it should be noted that the majority of respondents to the consultation supported the inclusion of letting agents within the regime, intelligence and evidence was not provided to justify the inclusion of lettings activity and the attendant costs of this proposal for those affected. The Government will only ‘gold-plate’ where there is good evidence that a material Money Laundering/Terror Financing (ML/TF) risk exists. In line with the directive, lettings agents will continue to be within the scope of the regulations where they carry out estate agency work in accordance with Section 1 of the Estate Agents Act 1979 (as amended). However, the applicant of the Money Laundering Regulations will not be extended to include lettings activity”.
Given the Government’s abrupt declaration that the lettings industry will not be included in the regulations for money laundering, that doesn’t mean that landlords and lettings agents can’t arm themselves with information necessary to fend off potential money laundering. The Royal Institution of Chartered Surveyors offers comprehensive advice for detecting potential money launderers which is extracted from The Financial Action Task Force’s 2013 report ‘Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals’:
The following indicators may raise suspicion when dealing with a client.
1. The client is overly secret or evasive about:
- Who the client is
- Who the beneficial owner is
- Where the money is coming from
- Why they are doing this transaction this way
- What the big picture is
2. The client:
- Is using an agent or intermediary without good reason
- Is actively avoiding personal contact without good reason
- Is reluctant to provide or refuses to provide information, data and documents usually required in order to enable the transaction’s execution
- Holds or has previously held a public position (political or high-level professional appointment) or has professional or family ties to such an individual and is engaged in unusual private business given the frequency or characteristics involved
- Provides false or counterfeited documentation
- Is a business entity which cannot be found on the internet and/or uses an email address with an unusual domain part such as Hotmail, Gmail, Yahoo etc., especially if the client is otherwise secretive or avoids direct contact.
- Is known to have convictions for acquisitive crime, known to be currently under investigation for acquisitive crime or have known connections with criminals.
- Is or is related to or is a known associate of a person listed as being involved or suspected of involvement with terrorist or terrorist financing related activities.
- Shows an unusual familiarity with respect to the ordinary standards provided for by the law in the matter of satisfactory customer identification, data entries and suspicious transaction reports – that is – asks repeated questions on the procedures for applying the ordinary standards
3. The parties:
- The parties or their representatives (and, where applicable, the real owners or intermediary companies in the chain of ownership of legal entities), are native to, resident in or incorporated in a high-risk country
- The parties to the transaction are connected without an apparent business reason
- The ties between the parties of a family, employment, corporate or any other nature generate doubts as to the real nature or reason for the transaction
- There are multiple appearances of the same parties in transactions over a short period of time
- The age of the executing parties is unusual for the transaction, especially if they are under legal age, or the executing parties are incapacitated, and there is no logical explanation for their involvement
- There are attempts to disguise the real owner or parties to the transaction
- The person actually directing the operation is not one of the formal parties to the transaction or their representative
- The natural person acting as a director or representative does not appear a suitable representative