A guide to the anti-money laundering rules and requirements for estate agents.
Spot checks by HMRC on 50 estate agencies in a week; Countrywide estate agency group hit with a fine of £215,000 by HMRC. The consequences of failing to comply with the Money Laundering Regulations 2017, are becoming clear, and estate agents really need to get to grips with the latest requirements to avoid similar penalties. In this blog, we ask what do the Money Laundering Regulations 2017 demand of estate agents, and what sanctions, fines or otherwise, can the HMRC impose?
Why do the Money Laundering Regulations 2017 impose obligations on estate agents?
Property is often used by criminals and terrorists to conceal money obtained unlawfully or to finance criminal or terrorist activity. Property deals, whether acquiring property, leasing or selling it, mortgage fraud, paying large sums to estate agencies and reclaiming it later, are all ways that criminals and terrorists finance their operations, or dispose of the proceeds of crime. Estate agents are at the cutting edge of this activity – whether involved in sales or lettings, so while these requirements may seem onerous, they are a vital piece of the jigsaw in place to combat crime and terrorism in the UK.
What are the obligations?
Registration with HMRC
HMRC now has responsibility for supervising estate agencies (it took over from the Office of Fair Trading in 2014). To carry on ‘estate agency business’ you must be registered with HMRC for anti-money laundering supervision.
It’s a requirement that, as an estate agency, you carry out a risk assessment and have policies, controls and procedures in place to reduce the risk of criminals using your business for unlawful activity. There is a national risk assessment and an HMRC risk assessment that can help you with this.
Your risk assessment must be related to your business – your customers, the services you offer, your delivery channels and the geographical areas you operate in. Remember that you may be required to show your risk assessment to the HMRC, so keeping it up to date is essential.
A key aspect of your obligations under the Money Laundering Regulations 2017 is the need for robust policies, controls and procedures in place to guard against money laundering. Policies should cover, among other things:
- Customer due diligence checks
- The appointment of a nominated officer to liaise with the National Crime Agency in the case of suspicious activity
- Policies to ensure that all staff are trained to recognise money laundering and terrorist financing risks, and to understand how they can manage these risks
- Proper record-keeping, and storage of information.
Having put in place policies and procedures, it’s important to keep these under review and to update them depending on any change in the risks faced by your estate agency. Staff at all levels in the agency need to understand how the anti-money laundering procedures work, and policies etc need to be communicated across all levels of your organisation, including subsidiaries and branches outside the UK. Ongoing education and training of staff will be vital to ensure compliance.
Nominate a Money Laundering Reporting Officer (MLRO)
As mentioned above, it’s a key requirement to have in place a nominated officer to receive reports of suspicious activity from staff and make suspicious activity reports to the National Crime Agency. There must also be contingency arrangements in place to cover periods when this person isn’t available.
In addition to a nominated officer, larger and more complex estate agency businesses need to consider appointing a compliance officer to keep compliance with the Money Laundering Regulations 2017 under review and to ensure they are not being breached.
Once a nominated officer (and if appropriate, a compliance officer) has been appointed, the HMRC needs to be informed or the details.
Pro-active controls and procedures
With risks identified and policies in place, a further important piece of the compliance jigsaw to ensure you don’t fall foul of HMRC and face huge fines is to ensure controls and procedures are in place to combat the risks. These can include
- guidance of staff on identifying lower and higher risk transactions and what to do;
- how to carry out customer due diligence and the identification requirements
- how to report suspicious activity
The controls and procedures that are appropriate will depend on the circumstances of your business and your clientele, which makes it even more important to have a clear understanding of the risks facing your business.
Customer Due Diligence
Due diligence applies to your customers and to the other party – so if you represent the seller, not only will you have to verify the identity of your own customer, but that of the buyer, before the contracts are exchanged. Additional rules may apply to a politically exposed individual, and there are specific rules that apply if the transaction is to be through sealed bids or auction.
There is some flexibility in some cases to carry out a simplified approach to customer due diligence, but equally, in more complex cases, a requirement to carry out enhanced due diligence. Keeping the situation and position of your business under review is vital to ensure that correct procedures are being applied and followed.
Reporting Suspicious Activity
A key aspect of the regulations is reporting suspicious activity to the National Crime Agency. Failing to report when required could lead to criminal charges. Staff have a responsibility to raise an internal report if they are suspicious which must, in turn, be referred to the nominated person, who will consider whether the National Crime Agency should be informed. This reinforces the need to make sure all staff understand what their individual responsibilities are.
The Money Laundering Regulations 2017 require estate agencies to keep records back 5 years from the end of the business relationship, including in connection with occasional transactions.
What are the consequences of failing to comply?
As we’ve already mentioned, estate agents can be fined significant sums of money by HMRC for failing to comply with the requirements of the Money Laundering Regulations 2017. Perhaps even more concerning, you may be exposed to being arrested and face criminal charges relating to money laundering under the Proceeds of Crime Act. You may also be at risk of criminal prosecution under the Terrorism Act if you fail to report suspicious activity. Senior managers can be personally liable for any failure to comply.
Having proper procedures and system in place as required by the Money Laundering Regulations 2017 will help ensure that your estate agency and those working for you, are properly complying with their obligations.
Where can I find more information?
This is just a brief overview covering the different areas touched on by the regulations. Detailed guidance on complying with the Money Laundering Regulations 2017 are included on the HMRC website.