Is a passport enough for AML? (Part 2)
02 July 2018 3021 Views
The Money Laundering Regulations 2017 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.
This investigation is known as Know Your Customer (KYC) and you may have come across it if you have recently had dealings with your bank, or have looked at moving with an IFA/mortgage broker. According to HMRC, for estate agents KYC involves several avenues of enquiry:
· identifying all sellers and all buyers and verifying their identity
· identifying all beneficial owners, where applicable, and taking reasonable measures to verify their identity to satisfy yourself that you know who they are
· obtaining information on the purpose and intended nature of the business relationship although in most cases this will be self-evident for estate agency businesses
· conducting ongoing monitoring of the business relationship, to ensure transactions are consistent with what the business knows about the seller and buyer, and the risk profile
· retaining records of these checks and update them when there are changes. (4.9)
The ultimate objective is to prevent the use of illegally obtained funds or terrorist funding from being legitimised through the sale and purchase of property.
In our first blog (available here: https://www.estateagenttoday.co.uk/sponsored-content/2018/6/is-a-passport-enough-for-aml) Ben Robinson, Director of Agency Services at Landmark, considers how electronic checks can help speed up your listing process and improve your customer experience.
In blog 2 he will consider how electronic checks make dealing with foreign nationals easier.
AML – how to deal with foreign nationals
Identifying and carrying out due diligence on foreign sellers and purchasers can be tricky at best. Your business circumstances (including size, demographic, location, clientele, attitude to risk etc) will inform your own policies procedures and risk assessments.
According to HMRC guidance:
· Individuals not resident in the UK
o You should 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 you are dealing with foreign nationals who are resident in the UK due diligence will be broadly similar to UK nationals living in the UK; for example an eastern European family settling in the UK. In such cases it is likely Customer Due Diligence (CDD) can be applied.
This is unless other factors in the transaction arouse suspicion; for example significant cash payments, unusually large or complex transactions, properties bought through multiple companies to hide assets etc. In such cases your risk assessments should identify that Enhanced Due Diligence (EDD) is undertaken.
You may encounter an overseas vendor or purchaser, or have an existing overseas landlord who decides to sell their property. Where a low/medium risk client is identified, Customer Due Diligence can be applied. Typical examples are outlined below
Existing clients you have met: In this case you have a pre-existing relationship you can cite in your risk assessment; as long as you have a record of the due diligence when your relationship started and nothing else has changed. It is likely your client risk will be low/normal risk and you can complete Customer Due Diligence in line with your procedures
Non-resident Landlord Scheme: A non-resident landlord is someone who owns a rental property but spend more than 6 months of the year living outside the UK. Under the scheme, a landlord can have UK tax residence, but their ‘usual place of abode’ in another country. Non-resident landlords are registered with HMRC which may be used to evidence a lower risk when it comes to applying due diligence.
According to HMRC guidance:
· As part of your customer due diligence measures, you must identify individuals. You should obtain a private individual’s full name, date of birth and residential address as a minimum. (4.36)
This may involve your client’s providing their full names, home addresses, date of birth plus one acceptable form of photographic ID and/or verifying your customers electronically.
Here a high risk client is identified; Enhanced Due Diligence (EDD) can be applied. Typical examples are if you have existing clients you have not met. In such cases your pre-existing relationship is important and you must assess if your relationship has changed in any way. HMRC are clear that any client not met is high risk and therefore your procedure will be to follow your own Enhanced Due Diligence procedure.
Where new client is resident overseas and/or cannot be seen face to face Enhanced Due Diligence (EDD) must be undertaken. How this differs from your standard Customer Due Diligence should be outlined in your risk assessment and AML Policy.
Typically EDD will involve;
· verifying the identity of the individual you are dealing with as you would with CDD
· verifying an accompanying photo ID document
· This may involve the client providing their identity documents to a recognised independent professional such as, a bank, financial institution, lawyer or notary for authentication. They must forward the authentication statement and copies of the ID document on to you
· And/or verifying the validity of the documentation electronically.
It may be your policy to implement additional checks such as
· confirming ownership details of the property with Land Registry
· take steps to verify the source of funds
· ensure any payments are made through a bank account with the same name as the seller/purchaser
This list is not exhaustive but indicative steps that can be taken. As with all compliance activity, it is important to establish a process, have your staff trained and evidence your activity.
Compliance in a Box from Landmark is a simple pay-as-you-go toolkit to help agents fulfil their KYC obligations. From one account you can undertake and evidence:
· Verification of buyers and sellers within a minute inc PEPs and those on sanctions lists
· Enhanced due diligence where your risk assessment identifies it is needed
· Confirmation of home owners and boundaries
· Identification of beneficial owners in cases where businesses are involved
· Support with verifying foreign national both in the UK and abroad
For more information about undertaking and evidencing your compliance with the Money Laundering Regulation 2017 please contact Compliance in a Box on 01524 220013
AML Fines for estate agents...
Implementing your risk assessment ...
What are HMRC looking for?...
What is the risk? ...