Barrister Jessica Sobey explains how it is imperative that an example is set for the industry in order for the aims of the EU’s 2017 Money Laundering Regulations to be achieved, noting that the UK property market has consistently been used by criminals to launder the proceeds of their crime.
Jessica’s article was published in New Law Journal, 29 May 2019, which can be found here.
The UK property market has consistently been used by criminals to launder the proceeds of their crime. The sheer size of the market, especially in the capital, means that significant sums of money can be ‘cleaned’ in one single transaction, making it an attractive prospect for those seeking to hide their large sums of dirty cash.
26 June 2017 saw the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) (MLR 2017). Within the regulations there are specific obligations for estate agents, no doubt aimed at cracking down on criminals who seek to launder their money through the UK property market. Failure to adhere to regulations could result in the committing of a criminal offence.
As with other sectors coming within the umbrella of ‘relevant’ person for the purposes of the MLR 2017, the increased emphasis on a risk-based approach is aimed at ensuring that estate agents take a risk-based assessment when considering property purchases to ensure that they are not taking place using ‘dirty money.’
Regulation 4 represents a significant change in the law that places an obligation on the estate agent to conduct due diligence on both the buyer and the seller, consequently having an impact on the level of work required during the course of each transaction.
Risk assessments must now be carried out in the course of every property transaction, with Regulation 18 giving a list of factors that agents must take into consideration.
Perhaps most significantly insofar as the aims of the MLR 2017 are concerned, is that the regulations apply not only to estate agents but their subsidiaries located outside the UK (Reg 20). Perhaps not such a difficulty in the EU where arguably stricter regulations were already in place, but where subsidiaries lie in countries where anti-money laundering regimes are not as strict as the UK’s, the estate agents must ensure those subsidiaries apply measures equivalent to those required by the MLR 2017.
The regulations bring in internal controls that require the appointment of one individual within the company who is responsible for compliance with the MLR 2017 (Reg 21). There is also, under the same regulation, an obligation to ensure that where appropriate to the size and nature of the business, the skills, confidence and conduct of employees who are involved in identifying, preventing or detecting money laundering and or terrorist financing, should be assessed. It follows that there is also a requirement for regular training to ensure that employees are up to date with the relevant law and data protection (Reg 24).
The supervising authority with whom estate agents must register, namely HMRC, offered assistance by way of the Money Laundering Supervision; Estate Agency Business guidance updated on 26 June 2017, when the MLR 2017 came into force. The guidance is aimed at helping estate agencies or property related businesses meet their requirements for money laundering supervision, including customer due diligence, record keeping and reporting suspicious activity.
Recognising that the implementation of the MLR 2017 was a very quick process, with only one day between the legislation being laid before parliament and its implementation, a pragmatic approach was initially taken when reviewing businesses.
However, following that initial offering of an olive branch, HMRC have now proceeded to crack down on a number of institutions, conducting unannounced inspections that have revealed a failure to comply with regulations. After a period of leniency therefore, during which estate agents grappled with legislation which was arguably rushed through parliament, HMRC are now using the powers afforded to them under the MLR 2017 to enforce compliance.
In a Corporate Report updated on 4 March 2019, HMRC published a list of businesses that received a penalty notice for failure to comply with the MLR 2017. Countrywide was fined £215,000 over failing to ensure that its money laundering procedures and record keeping were in line with the regulations. The company, which in August 2018 received £140m of emergency funding approved by its investors, told the BBC it had ‘conducted a full review of its anti-money laundering controls and has taken thorough measures to strengthen the processes that support and monitor compliance throughout the business.’
Ben Wallace, Minister for National Security and Economic Crime, said: ‘Criminals who seek to use this country as a place to launder money should be in no doubt that they have nowhere to hide. Estate agents are a crucial line of defence against them and that’s why they’re under a legal—and moral—obligation to file a report when they spot something amiss.’
With Countrywide being the UK’s largest estate agency owner, it is, of course, imperative that an example is set for the industry in order for the aims of the MLR 2017 to be achieved.
It would seem, therefore, that the initial period of grace is well and truly over. Simon York, director of HMRC’s Fraud Investigation Service, said: ‘These inspections are a wake-up call that if you continue to trade illegally, we will come knocking.’ With HMRC recently carrying out unannounced visits to 50 branches across England, 35 of which were in London, estate agents need to ensure that they are compliant with the regulations to avoid the imposition of hefty fines, prosecution, or at the very least a serious damage to reputation.