Author: Nicola Sharp
2 June 2015
4 min read
Since the start of the 2014-15 financial year, HM Revenue and Customs (HMRC) has been responsible for monitoring the risk of money laundering among estate agents. Which is why estate agents have to take precautions.
Property is synonymous with wealth. But handling wealth brings its own responsibilities.
Bricks and mortar can lead to a lucrative income for investors and those involved in the property industry. Estate agents, surveyors, mortgage brokers and developers are all ideally placed to benefit from the fortunes poured into the property sector each and every year. But this can lead to problems.
There has been no shortage of media reports of mortgage brokers, financial advisors and developers who have been accused of using their position to make fraudulent gains. But there are other, equally serious legal risks, facing those working in this sector – especially estate agents.
Property professionals have to be aware of – and act in accordance with – legislation relating to financial crime. The Money Laundering Regulations of 2007, the Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000 place clear responsibilities on those working in property to know the origins of the money they are handling.
Estate agents have come under increasing scrutiny in the last year, thanks to the tax man. As of 1st April 2014, HMRC has been the supervisor of estate agency businesses under the Money Laundering Regulations 2007. The UK Money Laundering Regulations 2007 apply to anybody working in what is known as the regulated sector – areas of work where professionals are believed to be at risk of coming into contact with criminals who are looking to launder money.
Estate agents are certainly considered to be part of the regulated sector, as they are in regular contact with people looking to spend large amounts of money on property. The HMRC’s recent acceptance of responsibility for estate agents in relation to money laundering is no empty gesture. Estate agents who have read the 41-page HMRC document “Money Laundering Regulations 2007: supervision of Estate Agency Businesses’’ will be aware that the tax man is keen to enforce compliance in this area.
The document places a list of obligations on estate agents, which HMRC believes are necessary to “prevent their services being used for money laundering’’. As anyone working in estate agency can face unlimited fines and up to two years in prison for failing to prevent such money laundering, the HMRC’s document has to be read, understood and adhered to. It makes it clear that senior managers can be held personally liable if an estate agency does not do everything necessary to protect against the risk of money laundering and terrorist financing.
To avoid such punishment, the document states that estate agents must identify and manage any such risk. They should take a risk-based approach that focuses more effort on high risk areas and involves appointing a nominated officer to report any suspicious activity. Estate agents are legally obliged to devote resources to reducing the risk of money laundering by devising and enforcing procedures to prevent it happening. HMRC expects estate agents to make ID checks, enforce due diligence, assign responsibilities to tackle money laundering and keep comprehensive, up-to-date records of all such activities.
It is a tall order. The estate agent in a rural hamlet may not face too many challenges in meeting these standards. But the agent in a busy city with a very mobile population, customers coming from abroad or being represented by third parties and little regular face-to-face contact with clients could find it difficult to manage and monitor its obligations under the HMRC.
Estate agents are legally obliged to report any suspicions of money laundering immediately; whether or not the person who they suspect goes ahead with the property deal.
But estate agents are not only bound by regulations on money laundering and an increasingly vigilant HMRC. POCA makes all types of money laundering an offence, as well as making it an offence to fail to report suspicion of money laundering. The Act makes it clear that professionals in the regulated sector – such as those in property – have to submit a SAR as soon as possible, if they know, suspect or have reasonable grounds to know or suspect that a person is engaged in , or attempting, money laundering or terrorist financing.
POCA defines money laundering offences as:
It is clear that the offences under Sections 327 and 328 of the Act are the ones most likely to affect estate agents who do not pay due care and attention to the nature and origins of property purchasers’ wealth.
Some professionals working in property may feel it is not their place to be carrying out checks on where or how people obtained their money. They could argue that it should be the other professionals in the chain carrying out such diligence on individuals. As a company that has often represented people working in the property sector accused of business crime, we understand this viewpoint. But what has to be remembered is that money laundering carries a maximum sentence of 14 years in jail. Arguing that it shouldn’t be your responsibility for carrying out such checks will cut no ice with those authorities if they are looking to prosecute.
As we write this, the authorities both here and abroad are looking to stem the flow of the proceeds of crime. Tackling money laundering is a key part of this. They know that property attracts billions in legitimate and ill-gotten wealth and are looking at all possible ways to prevent criminals using the property sector to clean their cash.
In addition, the Terrorism Act 2000 places a legal obligation on all individuals and companies to report their suspicions or knowledge of terrorist financing. Failure to do this could lead to allegations that a person is facilitating terrorism, or at least raising or possessing funds for it. As this also carries a maximum sentence of 14 years, the need to be sure of the nature of the wealth you are handling cannot be emphasised enough.
So what can those in property do? Ignorance of the law is never a defence and, in the case of estate agents, ignorance of laundered money in a property deal will also provide little defence. Anyone working in property has to take steps to make sure they can know how to identify – or, at least, suspect – money laundering. Verifying the identity of clients, making sure the true beneficiaries of any deal are clearly recognised and basic checks on the origins of the money involved are all activities that the authorities will expect to have been carried out should they ever open an investigation.
If property professionals are unsure how to approach these issues, they can seek expert legal advice. Professing ignorance or turning a blind eye will only lead to trouble.
Money laundering and other financial crime is never obvious. Estate agents may not be able to stop every instance of it. But by exercising caution and a little legal knowledge they can at least make it clear to the authorities that they have done their utmost to prevent wrongdoing.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.