Anti-money laundering: the key myths and misconceptions

The UK property market can be seen by criminals as an effective vehicle to conceal the proceeds of economic crime. Criminally derived money is filtering out across the UK, especially in those areas that have bigger and fast-moving property markets including London, Manchester, Leeds, Birmingham and Edinburgh.

Not only is money laundering an illegal activity in itself, as it seeks to legitimise the proceeds of crimes, but it is also a pathway to other serious crimes such as modern slavery, human trafficking, fraud and corruption.

As a result, an estate agent’s role in following anti-money laundering procedures is not only a lawful responsibility but a moral imperative; yet misconceptions still exist around the roles and responsibilities of agents in preventing it.

As someone whose daily responsibilities involve providing legal advice to property professionals regarding compliance with anti-money laundering (AML) procedures, I hope I can shed some light on the most common myths and misconceptions within the industry…

Are Know Your Customer (KYC) checks all about obtaining passports?

KYC checks are more than just checking someone’s identity. You need to make sure you question and understand who are you really acting for, why they want to do the deal and why they have come to you.

It is likely that these questions will naturally arise, for example, you’ll want to know whether a buyer looks like they’ll complete or whether a buyer depends on external finance. This information can help you identify anything out of the ordinary and whether your customer has any untoward motives.

But I don’t handle any money in a transaction?

It is not necessary to handle the money to be complicit in money laundering. It is the asset being bought or sold that is the focus.

If this asset is the proceeds of crime then an estate agent involved in the deal is effectively helping to transfer criminal proceeds from one party to another.

For example, a seller could have acquired property with money saved by not paying tax to HMRC or money defrauded from their employer. Helping to put the deal together would then be money laundering as you would be transferring criminal property from one party to the other.

What are signs of suspicious transactions?

There are many signs of suspicious transactions. These can include quick sales, unusually high or low prices, unnecessarily complex structures or unusual instructions. For a full list of red flags, it is worth visiting the Flag It Up website.

If something does seem suspicious, that’s not to say it’s automatically reportable, but you need to rationale carefully why you should proceed. If you do proceed, then you ought to think about obtaining a defence against money laundering from the National Crime Agency (NCA) to be a party to the transaction.

Can’t I rely on the fact that my client’s banks and lawyers have conducted KYC checks?

While banks and lawyers do have their own responsibility to carry out KYC checks, this does not diminish the responsibility of an estate agent to carry out their own checks. An agent’s involvement may occur well before the banks or lawyers are instructed, and those organisations may take a different approach when it comes to KYC.

The law does provide a mechanism for relying on checks undertaken by someone else but the formalities surrounding this must be adhered to. This involves a formal reliance letter under which you retain the right to request the underlying documents at any time. The same applies if you want to give reliance to a third party; again this needs to be in writing, and you must hand over your KYC documents when requested.

Should I automatically be suspicious of all Politically Exposed Persons (PEPs)?

PEPs are not automatically suspicious but they are higher risk, meaning you should be on alert. However, the most important thing to do in these cases is to add some context.

For instance; a PEP from a country with a strong anti-corruption regime, who is buying a primary residence for a price within their known means is not automatically suspicious.

Conversely, a PEP who is buying or renting a place far away from home with no intention to live there, and does not have the obvious means based on their public salary, would be suspicious.

If you cannot obtain a reasonable explanation (e.g. proof of an inheritance, evidence of legitimate business ventures), then report it to the NCA. The key is being proportionate in your risk assessment and checks.

My client is very private and reluctant to answer my questions. What should I do?

Conducting KYC checks can be done in a sensitive and privacy-compliant way. We have obligations to complete these checks under anti-money laundering laws but we also have data protection obligations. These obligations dictate how we keep and use KYC documentation.

During my career I have been able to obtain the passports and utility bills from numerous high profile and secretive people. If they do ever raise concerns, simply let them know that these checks are required by law and reassure them that their documentation will be kept securely and confidentially and it will only be used for your own legal obligation.

If a potential client ever suggests that a competing agency would not ask for this same information then rest assured that this isn’t true and that the reality is that all estate agents must and will do these KYC checks.

In Summary…

Anti-money laundering procedures are critical within the property sector and estate agents need to be aware of their role in carrying out thorough checks and reporting suspicions to the correct authorities.

The above advice is hopefully a useful starting point but for any further information I recommend visiting the Flag it Up campaign website.

*Luis Campbell is a qualified solicitor and head of compliance of JLL in the UK and EMEA