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Money laundering in the property market– how can developers comply with the latest AML regulations?

Organisations in the property sector, must address the risks of money launderers by ensuring their businesses are compliant with the UK’s Money Laundering Regulations. Failure to adhere to the Regulations can ruin a business, as fines for non-compliance are substantial.

 

Estate agents are vulnerable to having their services abused by criminals. The high value of UK property enables the criminal fraternity to launder large amounts of money. Although a minority activity, the criminal exploitation of the property market is sufficiently serious to warrant legislation requiring estate agents to operate anti-money laundering procedures.

When these regulations were first introduced there was speculation about how property developers would be affected. The launch of the 4th Anti-Money Laundering Directive provided clarity for Property Developers, including them within the broad definition of estate agency work.

Property developers may be Estate Agents if they help a potential buyer sell their current property by:

  • Introducing the potential buyer to another Estate Agent; or acting as an Estate Agent
  • Introducing the potential buyer to a company who may wish to purchase the potential buyer’s current property, e.g. a company in the house builder’s group

Anyone who engages in estate agency work, including Property Developers or plot sale vendors (now also regarded as ‘supervisors’), must conform to the Money Laundering Regulations. Not complying with the Regulations has already resulted in large fines handed out by HMRC (who supervise Estate Agents for compliance with the MLR).

Regulation changes consolidated

The keywords here are ‘Due Diligence’. Completing appropriate Due Diligence is now a requirement of property developers. In most cases, basic client Due Diligence is insufficient, therefore businesses are obliged to carry out extensive ID verification to both contracting parties in a real estate transaction, including domestic Politically Exposed Person checks (PEP). Developers are also required to determine the origin of buyer’s funds.

Compliance – putting AML procedures into place

Procedures demanded by the 4th Money Laundering Directive include:

  • Confirming a client’s identity before entering a business relationship (buyers and sellers)
  • Ongoing monitoring of a business relationship (especially in high risk transactions or high risk jurisdictions)
  • Checks and controls to anticipate and prevent money laundering (including company-wide AML evaluation)
  • Staff training
  • Appointing a nominated officer or money laundering reporting officer (MLRO) and giving them suitable resources to carry out that function
  • Retention of Client records in-keeping with GDPR 2018 Regulations

The consequences of not complying

The news of three estate agents being collectively fined £246,665 by the Office of Fair Trading (now replaced as supervisor by HMRC) for "significant and widespread" anti-money laundering oversights was widely covered in the press at the time. It is understood that HMRC’s policy to date has been not to publish the details of fines levied.

How Jordans can help

Property businesses who fail to follow the regulations could face considerable financial sanctions or a prison sentence for individuals within the firm. Damage to the firm’s reputation also shouldn’t be underestimated.

With the 5th Anti-Money Laundering Directive currently under development it seems that AML legislation will only become more rigorous. Finding a system that allows meticulous checks to help make informed business decisions is now more important than ever.

Should you like to further discuss your ID & AML requirements, our specialist AML & Compliance Team can be contacted on 0117 918 1468.

 

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