The property market, and therefore, estate agents have been accused of being the 'weak link' in the UK’s money laundering defences.
This is, in the main, because people can buy UK property in the name of a company, rather than an individual. This enables those looking to turn illicit money into clean money through the value of the property and selling it on, or by earning money by renting the property.
And it is for this very reason that HMRC has been cracking down on estate agents, with record-breaking fines levied on estate agents over the past 18 months.
How is money laundered through estate agents?
Money launderers are able to use illicit cash to purchase property by providing misleading or false information about their identity, income or other funds and their sources.
Often, money launderers will not even buy the property outright, but use false information to obtain a buy-to-let mortgage and then clean the dirty cash either through rent or by taking out numerous mortgages on the same property and using them to inflate the value and in effect sell it back to themselves.
They may also use a complicated corporate structure to buy the properties in order to hide the ultimate business owner.
So, what should estate agents do to prevent it?
1. Identification and Verification
The most important part of any anti-money-laundering (AML) procedure is identification and verification.
You must identify and verify the client you are working with, as well as any businesses they own or work through and, where relevant, the ultimate beneficial owner of those businesses.
This means checking that they are who they say they are. To be truly robust, this process will ideally include facial recognition and OCR so that you can compare the ‘real person’ with the documents provided to ensure the information provided is genuine.
2. Screening and enhanced due diligence
The next step is to assess the risk the client poses to your business, so you need to perform sanction, PEP (Politically Exposed Person), SIP (Special Interest Person), RCA (Relatives and Close Associates) and adverse media screening on them.
If anything comes up, you will then need to undertake enhanced due diligence to ascertain if they are true matches or false positives. If they are true matches, you will then need to decide what this information means in terms of the risk that individual or business poses.
3. Anti-fraud checks
While the initial AML checks will identify and verify the client, and the screening and enhanced due diligence will let you know their status in terms of any sanctions on them or if they are in a vulnerable position, you also need to complete fraud checks to ensure there is nothing suspicious going on with their bank accounts, phone records, IP addresses and other devices.
You will need to therefore run checks against global fraud data lists to ensure there is no record of any fraudulent activities against their name or any of their associates or associated businesses.
4. Ongoing monitoring
While identifying and verifying the client, and screening them for sanctions and PEPs is absolutely vital, just checking the client once will not protect your business on an ongoing basis.
In addition to those initial checks, you will also need to continually monitor your client base to ensure that their status does not change and create an AML risk.
You will also need to ensure you have comprehensive records of all initial checks and all ongoing checks to prove you are meeting requirement.
5. Make the switch to electronic verification
The easiest, cheapest, quickest and most reliable way to ensure that you are meeting all your anti-money laundering and anti-fraud requirement, and therefore protecting your business from becoming victim to financial crime is to ditch manual checks and processes and switch to an electronic AML platform.
Electronic verification not only offers estate agents peace of mind that their AML obligations are being met but also enables them to continue to meet those obligations, even if another lockdown is imposed, because all checks can be performed remotely in a matter of seconds.
*Martin Cheek is managing director at anti-money laundering experts SmartSearch.