Money laundering customer due diligence: Beneficial owners

Straightforward money laundering customer due diligence (CDD) is a worry for agents, but then also having to identify beneficial owners and conduct CDD on those individuals can be seriously difficult.

Let’s start with a simple one. An owner occupier instructs you to sell their home. It couldn’t get any simpler! Or could it?  

Five months in and you find the client owns the house with their brother. Well, you've breached your obligations by not identifying all the beneficial owners at the start.

Paying just £3 to the Land Registry for a copy of the title register of the property is the solution. HMRC believes that this is a reasonable route from a due diligence point of view.  

Once you have this you can move on to the next problem, which is confirming the ID of all the registered owners.  

As with all ID confirmation, there are a few routes open to you depending on the person’s location and co-operative nature, but I will explore those routes in my next article.

The term beneficial owners has a wide definition. HMRC made great play of the requirement to confirm the identity of beneficial owners at a London seminar a few months ago.  

The meeting descended into chaos when it reached the subject of beneficial owners and sub-agency. 

When you are a sub-agent your client is the main agent. CDD is therefore required by that agent but, as HMRC outlined, the property owners themselves are the beneficial owners.  

This means the sub-agent has an obligation to conduct CDD on the property owners. HMRC could not have envisaged the reaction it would get from the audience. 

From the outside it looks simple. The truth is, it isn’t simple. It is massively controversial. Principal agents would never want to give their sub-agents personal access to their clients for obvious reasons.  

The controversy around this issue will run for a long time; however, many agents in London are currently taking a risk-based approach.

Who are the beneficial owners when acting for a company? Well it isn’t necessarily simply the directors, it can also be shareholders dependant on whether they have a 25%+ shareholding.  

How do you find out who the shareholders are? Not an easy task in the simplest of cases and so acting for a business with a complex set up is almost impossible.

Apparently, help is at hand because the Small Business, Enterprise and Employment Act 2015 will require all businesses to hold a register of people with significant control. 

In theory, therefore, agents will be able to ask to see this register and then easily identify beneficial owners – time will tell if this actually works.  

For clarity, because there has been a little misinformation around about this new legislation, it has nothing whatsoever to do with money laundering obligations. It is a general piece of company law applying to all businesses.

The Government says: “This reform will increase transparency around who ultimately owns and controls UK companies. It will help deter, identify and sanction those who hide their interest in UK companies to facilitate illegal activities. Enhanced transparency will also promote good corporate behaviour.”

Great news for agents trying to identify beneficial owners  - maybe!

As a compliance consultant the best advice I can give is for you to refuse instructions if you cannot identify beneficial owners and complete your customer due diligence.  

In theory, that will mean the client cannot market their property, because every other agent would take the same stand.  

Unfortunately, the estate agency world is not the banking world! 

Someone will take those instructions if you don’t, so I know most agents are taking a risk-based approach, much like those London agents.

(This article is the fourth in a five-part series on money laundering, you can read part one here, part two here and part three here.)

*David Beaumont is a compliance expert and a director of Compliance Matters and the recently launched Property Professionals Support Centre

For more details email: david@compliance-matters.co.uk