Agents face a 'perfect storm' for money laundering

Recent research estimated that up to £100 billion is being stolen in the UK each year, with much of it due to companies’ anti-money laundering (AML) shortcomings.

The research, by tech company, SmartSearch, painted a picture of companies failing to carry out proper checks on hard-copy documents, such as passports and utility bills – the type of documents that can be easily forged. It also stated that more than three quarters of property firms have not changed their approach to new customers since the invasion of Ukraine and the resulting sanctions that were imposed on individuals and companies with connections to Russia – even though many of those sanctioned may be looking to furtively invest in property. And nearly half of all regulated firms - those that have particular legal responsibilities because they provide financial services - are not checking to see if “ghost’’ companies are being used by criminals in transactions to disguise exactly who is involved.

It is not being melodramatic to say that those three factors are creating a perfect storm for money laundering. Money laundering is the process by which criminals disguise the source of their wealth so it cannot be identified as having been gained through illegal activity. Investing in property is a common tactic of those looking to hide their proceeds of crime. The lack of checks highlighted by the aforementioned research, therefore, has to give cause for concern.

Number of obligations

Companies and individuals operating in the property sector – like other regulated companies - face a number of obligations in relation to money laundering. They are subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These require a business to register with HM Revenue and Customs (HMRC) if it carries out any activities defined as estate agent activity in accordance with section 1 of the Estate Agents Act 1979. Such businesses need to carry out due diligence on customers to ensure they are who they claim to be. They must also conduct money laundering risk assessments of the business and put in place internal controls and monitoring systems to reflect the size, complexity and nature of the business.

Like other regulated companies, estate agents have an obligation to submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) if they have knowledge or suspicion of money laundering activity.

If, as the research suggests, a large percentage of those in the estate agency sector are falling short when it comes to these commitments, it is an alarming situation.

Very large risk

Like many other areas of business where large amounts of money change hands, the estate agency sector will always be attractive to the money launderer. If estate agents fail to recognise this and / or do not conduct their business accordingly, they are running a very large risk. If they, either knowingly or unknowingly, help criminals launder their money, they themselves could be prosecuted. Failure to comply with the Money Laundering Regulations can, if it results in a criminal prosecution, lead to two year’s imprisonment and/or a fine. The maximum prison sentence for money laundering in the UK is 14 years and there is no limit on the fine that can be imposed.

Regardless of the size of any punishment that follows a money laundering conviction, the reputational damage to an estate agency would be immense.

Those in the estate agency sector, therefore, have to ensure they are legally compliant. If they are unsure how to go about this then they must seek advice, as it is essential to take steps to prevent money laundering. Putting it simply, such steps involve assessing the money laundering risk and devising and introducing the most appropriate measures to tackle it. But the process is not a one-off. Making sure those measures are properly enforced has to be an ongoing activity, as does reviewing the effectiveness of such measures and, when necessary, revising them to ensure that they remain effective.

Not taking those steps - or approaching them as a half-hearted box ticking exercise - will make any organisation more vulnerable to money laundering than it should be. It will also leave it with less scope for challenging allegations or mounting a defence if and when the authorities start investigating.

Of all the potential customers who go to estate agents with the aim of buying a property, only a tiny percentage will complete a purchase without making all the necessary physical and legal checks. That is because such an approach carries a huge financial risk. The risk money laundering poses for estate agents is far bigger. Which is why they must ensure they get their own house in order.