Money laundering regulations require estate agents to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) where they suspect fraudulent activity.
‘Flag it Up’ has been launched following the publication of updated figures showing just 0.7% of SARs submitted to the NCA are from estate agents; compared to 83% by banks.
Property is a prime target for those wishing to legitimise illegal funds due to the vast sums that can be laundered in a single transaction.
HMRC, which regulates the anti-money laundering regime for the estate agency sector, has provided some interpretation and guidance, acknowledging the position agents are in:
‘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)’
Know Your Customer
HMRC’s guidance makes it clear that a multi-faceted approach to identifying and dealing with money laundering risk is required, known as Know Your Customer (KYC).
Indeed, HMRC outlines that KYC involves several avenues of enquiry; identifying and verifying vendors and purchasers, checking ownership, identifying beneficial owners when dealing with companies and trusts and establishing the motive behind the transaction.
Each of these steps help to establish any risk and inform the level of due diligence required to be completed on the transaction.
HMRC’s guidance identifies appropriate channels of enquiry to help estate agents complete their Know Your Customer obligations.
HM Land Registry
HM Land Registry holds the only definitive resource for the identification of property owners.
It may be appropriate in cases where a risk is identified to use the registry to verify ownership. This could be in instances such as a vacant property being sold by an absent landlord as a result of a marital separation, or through a third party or company.
In its guidance, HMRC provides the following advice:
It is common for property to be owned by more than one person. You must identify any co-owners as these will be beneficial owners.
The customer you are dealing with may be either an owner or is acting for the owners. You will need to carry out customer due diligence on the owners and any person acting on behalf of the owners.
Ownership can be established through land registry and examining documents such as mortgage statements. (*4.60)
Where a sale or purchase is being conducted through a company it is necessary to identify and conduct Customer Due Diligence on all beneficial owners; all those with 25% or more of the shareholding.
An analysis of high risk transactions reported as SARs identified that:
- 27% highlighted the presence of companies and trusts in property transactions, 36% highlighted attempted use of professional intermediaries and 17% reported high cash payments.
- The key typologies identified from SARs were unusual transactions relating to the same property in rapid succession (often involving the use of cash or third-party intermediaries), and the use of companies or overseas trusts to conceal property ownership.
Beneficial ownership information is now available on Companies House (beta.companieshouse.gov.uk) by searching under ‘People’ and ‘Persons with significant control’ also known as the ‘PSC Register’.
However, where there are complicated ownership structures, or if the business has subsidiaries, you may need to do some digging to understand the shareholder statuses.
Foreign national ID
When it comes to foreign nationals, HMRC requires agents to:
- obtain the same types of identity documents for non-UK residents as for UK residents. If you have concerns that an identity document might not be genuine, contact the relevant embassy or consulate or use the link to PRADO below.
- If documents are in a foreign language, you must satisfy yourself that they do in fact provide evidence of the seller or buyer’s identity. HMRC may require official translations when inspecting your customer due diligence records. (*4.48)
Where paper ID is sought, evidence must be provided that demonstrates efforts to verify the legitimacy of the documentation.
Politically Exposed Persons
HMRC requires estate agents to demonstrate a process to identify whether their client is a Politically Exposed Person (PEP).
With no central database of PEPs, HMRC have provided guidance on who might be considered to be a PEP:
- Politically Exposed Persons are persons that are entrusted with prominent public functions, held in the UK or abroad (4.21).
The organisation has not, however, been very forthcoming with guidance on how to introduce a process for identifying PEPs; instead suggesting:
Information is available in the public domain that will help you to identify politically exposed persons. You can make use of a number of sources, for example:
• news agencies and sources
• government and parliament websites
• Electoral Commission
• Companies House Persons of Significant Control
• Transparency International
• Global Witness
It adds that ‘you are not required to, but you may decide to use a commercial provider. (* 4.22)’
Landmark’s Compliance in a Box service delivers solutions for each of these challenges under one roof, with one central system for recording and audit purposes.
Through one pay-as-you-go account, agents can access a range of compliance tools; electronic client verification including identifying PEP risk, Land Registry checks, Company Checks, and Foreign National ID checks.
Compliance Packs ensure you demonstrate and record your processes and procedures remain the right side of compliance, leaving you to focus on the business of selling houses.
*Ben Robinson is Director of Agency Services at Landmark