Money laundering customer due diligence on buyers – is it an obligation?

There is a substantial amount of misunderstanding over this question, which needs clarifying.  

In general terms, the Money Laundering Regulations require sales agents to carry out customer due diligence (CDD) on their ‘customers’.  

Customers are defined as the individuals or businesses that enter into contracts with sales agents to market properties.  

In the case of acquisition or buying agents, it would be the individuals or businesses they enter into contracts with contracts to acquire properties. 

There is a further obligation with regard to beneficial owners, but I will cover that one in a later article.

Therefore, there is absolutely no obligation on sales agent to carry out CDD on buyers, or acquisition agents to do this on sellers.

The misunderstanding has arisen because HMRC enforcement officers have been indicating that it would be ‘best practice’ to obtain this ID confirmation and this has also been a theme in the ongoing HMRC money laundering webinars.  

Why they are pushing it during the webinars I really have no idea, except to say that HMRC have advised me and I quote: “We have found that doing CDD on both parties is regarded as good industry practice and we wanted to share that with the audience”.

 So, who I wonder might have led them to believe it was good industry practice?

It is not good industry practice and could not be seen as such, firstly because most agents do not do it and secondly, because in many instances, at best, it would be difficult.  

Many of you have little contact with buyers and often do not meet them personally. Add to this the fact that the agents who do go down the route of obtaining buyers' ID could well be in all kinds of trouble.  

As I said there is no requirement under the Regulations to obtain it and so advising a buyer that they must provide it due to Money Laundering obligations is not true.  

Furthermore, advising buyers that ID confirmation is required or their offer cannot be considered potentially breaches at least 3 pieces of legislation –

1. The Consumer Protection Regulations – You are misleading consumers about your legal obligations and their legal obligations;

2. The Estate Agents Act – You have no choice but to pass on written details of every offer you receive quickly. To delay, because you are awaiting ID documents will mean a breach of the Act occurs.

3. The Data Protection Act – You are taking sensitive personal data from a consumer and misrepresenting the purpose. Storing that data could also create problems under the Act.

My advice to agents is do not initiate procedures within your business to routinely obtain ID from buyers.  

You might do it in certain situations where you believe it may assist or protect your client.  

If, however, you want to continue to obtain ID from buyers – ensure you do it correctly.  

Do not mention obligations or Money Laundering Regulations.  

Clearly explain that it is voluntary and that you are doing it to provide your client with added protection and by providing it your client may view the offer more favourably as they may believe the offer has more credibility. 

For me, that is as far as any agent should go with it.

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

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

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