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What are HMRC looking for?

25 February 2019 3147 Views
What are HMRC looking for?

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)

In our second blog, Director of Agency Services, Ben Robinson, considers how agents could be identifying money laundering risk in their business.

  1. What are HMRC looking for?

Money launderers come in all shapes and sizes. It’s easy to think this a London-centric issue and primarily because of foreign investment but the reality is money laundering happens everywhere.

The challenge is identifying the red flags and risk.

These red flags are fluid depending on your own business and circumstances. Ultimately the Money Laundering Regulations 2017 require estate agents understand who their customer is, and why they are involved in the transaction.

Although in most cases this will be reasonably self-evident, you are required to have process in place for assessing whether the individual and/or transaction is being carried out for the purposes of money laundering. This Risk Assessment should be completed on every transaction.

This process informs the level of due diligence you undertake to verify the individual and/or transaction. HMRC talk about taking a “risk-based approach”… in other words, where there is a low risk you conduct a thorough but lesser level of investigation than a high risk check, where you would be required to demonstrate that you applied greater scrutiny before proceeding.

To help identify where an individual and/or transaction could pose a risk see below a brief outline of indicative red flags. These are not hard and fast rules, rather transactions that display any of the characteristics outlined below may be considered to medium or high risk.

Business Source

  • Unusual introducer

  • Direct approach where reason for contact questionable

  • Proximity of the party to estate agent and/or their legal representation – if there is a distance, why?

Seller Characteristics

  • Absent owner or landlord

  • Owner/seller living abroad

  • Recently issued (new) ID documents/driving licence etc

  • Seller’s lack of knowledge about the property

  • Where the seller lives at a different address from the property and has no documentary evidence such as bills or buildings insurance schedule linking seller to the property

  • Proximity of a signatory to the witness – if there is a distance, why? What is the relationship between the signatory and the witness?

  • Email contact (remote client)

  • Sole proprietor

  • Long-time owners (high equity)

  • Use of intermediaries to conduct the transaction

  • Difficulty in identifying beneficial owners through complicated legal entities

Buyer Characteristics

  • Buyers you do not meet or are reluctant to meet

  • Difficulty in conducting Customer or Enhanced Due Diligence

  • Foreign investors/ buyers living abroad

  • Property has not been inspected prior to purchase

  • Value of the purchase is apparently beyond their means, with no satisfactory explanation of source of funds

  • Proximity from estate agent and/or legal representation – if there is a distance, why?

  • Use of intermediaries to conduct the transaction

  • Where you have an existing relationship, the transaction is different from the normal business of the customer

Property Characteristics

  • Empty

  • Tenanted

  • Unencumbered (no mortgage)

  • High value

  • Unregistered

  • Where there is no restriction on the register to comply with

Other Characteristics

  • Quick sale required

  • Quick, back to back sale (increased price)

  • Funds going abroad or to an unusual destination

  • End of chain transaction

  • Value of property is unusually low without a good/plausible and verified reason

In our final blog we’ll consider how to put together your risk assessment, including a FREE example Risk Assessment Template, and what steps you can put in place to ensure you comply with the Money Laundering Regulations 2017.

Missed Blog 1? Click here to view again

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

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