On 1 April 2014, HMRC replaced the Office of Fair Trading as the public body responsible for supervising estate agents under the Money Laundering Regulations 2007 ("MLR"). On 20 June 2014, HMRC published guidance for estate agents to assist them in minimising the risk of money laundering under MLR.
The HMRC guidance should be reviewed by anyone involved in selling, buying or letting property where this is done in the course of a business and pursuant to instructions from a customer.
Money Laundering Regulations 2007: supervision of Estate Agency Businesses ("Guidance")
The Guidance provides examples of money laundering in the property sector such as buying a property with the proceeds of crime and selling it on, paying an estate agent a deposit then claiming it back and mortgage fraud.
- Proceeds of Crime Act 2002
("POCA"). Under the POCA money
laundering offences include concealing, disguising, converting,
transferring or removing criminal property from the UK; entering
into or becoming involved in an arrangement which facilitates the
acquisition, retention, use or control of criminal property by or
on behalf of another person; or the acquisition, use and/or
possession of criminal property.
These offences can be committed if an agent knows or suspects that the property is criminal property. Estate agents must report suspicious activity.
- Terrorism Act 2000: Estate agents must report any suspicion of offences related to terrorist financing such as fundraising, using or possessing money for the purposes of terrorism.
- MLR: The MLR sets out what estate agents must do to prevent their businesses from being used for money laundering purposes. Failure to comply with the MLR can lead to civil or criminal prosecution and could result in imprisonment.
Senior managers (including directors) are personally liable for protecting their businesses from money laundering and terrorist financing. They should ensure that their businesses have risk-based policies and procedures to help reduce exposure. A nominated officer should also be appointed to deal with reports of suspicion activity from within the business and decide whether to report them to the National Crime Agency. Senior managers should inform staff about anti money-laundering and counter terrorism-financing obligations and provide training on how to spot suspicious activity. The Guidance provides an extensive list of warning signs such as:
Customer Warning Signs
- undertaking work for international customers or customers you do not meet
- accepting business from abroad, particularity tax havens, or countries with high levels of corruption
- where payments are made to or received from third parties
- where the customer is reluctant to provide ID details
- where the size and frequency of the transaction differs from the customer's normal pattern
Transaction Warning Signs
- sale price significantly above or below market price
- an unknown third party appears at a late stage
- an immediate resale (flipping) of property at higher value
- you are asked to hold large cash sums in your client account and then refund it
- unusual sources of funds
These circumstances may well not be suspicious. The customer may have a legitimate reason for any of the above, but it will depend on the circumstances. Common sense with a touch of caution should prevail.
Customer Due Diligence ("CDD")
Identifying your customer is crucial. Estate agents must check customers' identification and carry out CDD for all customers. It is important to establish who the beneficial owner of the customer is and the Guidance provides assistance with this.
If estate agents do not comply with CDD they should not carry out a transaction with or for the customer or establish a business relationship with them. They should terminate the existing business relationship and consider making a suspicious activity report. For greater detail, please view the HMRC guidance in full by clicking here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.