New figures highlight estate agents’ money laundering failings

For most people, buying a house or flat is the largest financial commitment they will ever make. Which is why many of us have spent many, many hours poring over websites, reading closely every detail of properties for sale and scrutinising the accompanying photographs for any tell-tale signs of problems.

The chances are that most of us do this with information that has been provided by an estate agent – a business sector in which millions of people place their faith as they look to get onto or move up that all-important property ladder. So it may come as a surprise to some that the taxman is taking a particularly close interest in many of those working in the estate agency sector – due to the money laundering risks they are running.

The 2022-23 financial year saw a 49% increase in the size of the average fine HM Revenue and Customs (HMRC) imposed on estate agents for money laundering failings. The average fine estate agents are having to pay for such shortcomings is now £5,350. This is a figure that is lower than the average 2022-23 money laundering fine for letting agencies, money service businesses and those in the art markets. But it is telling that when it comes to individual money laundering fines issued by HMRC since 2017, estate agents have the worst record. They now account for almost half (49.8%) of the total of 544 penalties that have been issued across all sectors.

Shortcomings

Such data should not be dismissed as mere statistics. And failures to prevent the risk of money laundering should not be viewed as minor bureaucratic mishaps. Research published earlier this year estimated that as much as £100 billion is being stolen in the UK each year, with a large proportion of this being possible because of companies’ anti-money laundering (AML) shortcomings.

Failures to conduct proper checks on documents, such as passports and utility bills - the type of documents that can be easily forged – are making financial crime possible. Estate agents have also been accused of not changing their approach to new customers since Russia’s invasion of Ukraine early last year. This has to be seen as ill-judged, at a time when sanctions have been imposed on many of those with links to Russia, many of whom may be looking to invest in property without attracting the attention of the authorities.

Let us not forget, money laundering involves disguising the source of  wealth so that it cannot be identified as having been gained from criminal activity. Anyone with even a passing interest in financial crime knows that buying property is an extremely popular money laundering tactic. The lack of checks being carried out in the estate agency sector and the resulting fines that are being imposed are, therefore, rather worrying.

Responsibilities

We have all made mistakes through either naivety or misjudgement. But those operating in the property sector are like any other regulated companies – they have legal responsibilities to ensure they are doing everything possible to prevent money laundering.

They are subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These make it compulsory for them to register with HMRC if they conduct any activities defined as estate agent activity in accordance with section 1 of the Estate Agents Act 1979. They must carry out due diligence on customers to ensure they are who they claim to be,  conduct appropriate money laundering risk assessments in relation to their activities and, as a result, devise and put into practice internal controls and monitoring systems that are proportionate to both the risks they face and the size, complexity and nature of their business. They must also submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA) if they have knowledge or suspicion of money laundering activity.

These are important commitments. The HMRC penalties paint a far from pretty picture of many in the estate agency sector not meeting those commitments. There is no excuse for anyone in the sector either not knowing that it is attractive to money launderers or knowing it but failing to take the appropriate action required of them. Not complying with the Money Laundering Regulations can, if it results in a criminal prosecution, mean up 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.

When all this is considered alongside the reputational harm of a money laundering conviction, it makes no sense to ignore the obligations that are in place. If there are those in the sector who, for whatever reason, are not sure how to go about meeting their obligations, they have to seek advice.

The vast majority of house buyers want everything regarding their purchase to be legal and above the board. They are unlikely to want to place their trust in an estate agent that is failing to meet its own legal obligations.