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What is the risk?

20 February 2019 31173 Views
What is the risk?

The Money Laundering Regulations require estate agents to risk assess their business relationships and apply an appropriate level of investigation to ensure that they understand who their customer is, and why they are involved in the transaction.

In its guidance ‘Anti Money Laundering Supervision: Estate Agency Businesses’ HMRC outline agents should have a process in place to

assess the risks that your business may be used for money laundering or terrorist financing, and put in place appropriate measures to manage and lessen those risks. (3.1)

Over the course of 3 blogs, Director of Agency Services, Ben Robinson, will consider what estate agents should be thinking about when it comes to identifying and managing risk, and what processes they can put in place to ensure they comply with the AML regulations.

  1. What is the risk?

Money laundering is the process of legitimising illegally obtained funds or terrorist financing. Rather than stockpiling cash, criminal organisations invest in legitimate business ventures to distance themselves from the source of the funds.

These investments pump funds back into illegal activity, perpetuating the cycle.

Property is a prime target for money laundering given the vast sums that can be legitimised in a single transaction, and on an ongoing basis through rental income.

Although we might consider the issue to be primarily London-centric, the reality is that criminal organisations exist in every town, and their funds can come from drugs, fraud or organised crime etc. This is not an issue associated solely with foreign investors.

It is estimated that £100bn is laundered through the UK every year.

In response the UK government has taken steps to tackle the issue head on. It has introduced greater scrutiny on those who sit on the front line of property transactions, with a particular focus on estate agents, solicitors and accountants.

In guidance produced by HMRC for estate agents, they outline why the focus on estate agents:

Estate agency businesses do not commonly handle the funds used to buy a property. However, they are a key facilitator in a property sale and come into contact with both parties to the transaction at an early stage and so are in an ideal position to identify suspicious activity (4.2)

And the scrutiny isn’t going away any time soon.

Regulated entities are required to submit a Suspicious Activity Report (SAR) where there is any suspicion of money laundering. In its 2018 Annual Report The National Crime Agency, who are responsible for policing the UK’s anti-money laundering regime, report that of the 463,938 SARs submitted from April 2017 to March 2018, just 710 were from estate agents.

In our next blog we will look at what steps you might take to identify money laundering risk in your business.

For more information about how to understand the risks posed by money laundering

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