Estate agents and money laundering

For most of us, estate agents are key when it comes to the biggest sales and purchases of our lives.

With the average price of a house in the UK now somewhere around the £280,000 mark, the trust we place in them to ensure our home buying or selling goes smoothly is arguably more important than ever. We expect them to be a “clean pair of hands’’.

So it may come as a shock to some would-be buyers and sellers that more than 250 estate agencies were fined a total of over £1.6 million in the 2023-24 financial year for anti-money laundering failings.

The fines imposed by HM Revenue and Customs (HMRC) – which has published the details of the agencies concerned – ranged from £1,500 to over £50,000. They are for a range of breaches of money laundering regulations. These include not having adequate firm-wide documentation and not carrying out complete, correct customer checks (known as customer due diligence) within the required timeframe. Some estate agents were fined for failing to recognise risks posed by countries with unsatisfactory money laundering and terrorist financing controls (known as high-risk jurisdictions) or by those in public positions in such countries (known as politically exposed persons). The use of secretive companies and trusts in money laundering had also not been recognised by some estate agents.

Legal Requirements

Such failings cannot be seen as a criticism of the whole estate agency sector. But they are certainly a sign that some within it need to be doing more to meet their legal requirements to both identify and prevent money laundering.

Money laundering is the process used by criminals to disguise the source of their wealth so it cannot be identified as having been gained through illegal activity. For many, investing in property is their chosen method of money laundering. The fact that HMRC has had to penalise so many estate agents for money laundering failings is, therefore, quite troubling.

To put it in clear legal terms, companies and individuals in the property sector are regulated companies - they are subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These regulations require a company to register with HMRC if it carries out any activities defined as estate agent activity in accordance with section 1 of the Estate Agents Act 1979. They need to carry out due diligence on their customers, conduct money laundering risk assessments of the business, put in place internal controls and monitoring systems and submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) if they have knowledge or suspicion of money laundering activity.

The information that HMRC has published shows that hundreds of estate agents are failing to meet at least one of those obligations. Such companies are supposed to be part of the defensive wall that the law has built against money launderers. Yet their failures have to be viewed as an open door to those looking to use the property sector to hide their ill-gotten gains.

Seek advice

It should also be remembered by those in this sector that failure to comply with the Money Laundering Regulations can, if it results in a criminal prosecution, lead to two year’s imprisonment and/or a fine. The maximum prison sentence for money laundering in the UK is 14 years and there is no limit on the fine that can be imposed. Any resulting reputational damage to an estate agency found to be at fault in this way could also hamper its ability to survive.

It is imperative, therefore, that everyone in the estate agency sector is meeting their money laundering obligations. It is understandable if some do not know how to do this. But if that is the case, they have to seek advice on what they need to do to ensure they are complying with the law. That means assessing the money laundering risk, introducing measures specifically designed to tackle that risk, and reviewing and – when necessary – revising those measures so that they remain fit for purpose.

Not doing this or doing it inadequately will leave an estate agency vulnerable to money laundering – and with little or no defence if it ever comes under investigation. And that will leave any property business on very shaky foundations.