Laundering money through property is a major problem, particularly in larger cities, and especially in London. Fraudsters and criminal gangs look to hide the proceeds of their crimes, by buying into the property market. It’s felt to be an easy target and there’s no doubt it’s a profitable area for the criminals. Managing AML compliance in the property sector is therefore extremely important.
However, on the flipside, to avoid censure, fines and sanctions, property firms must have a robust risk assessment in place. They must have adequate processes to identify fraudulent activity, if the regulators come knocking.
Fines are not an irrelevance, and neither is reputational damage.
According to The Negotiator estate agency AML fines are on the rise. Estate agents still account for the largest number of AML fines issued by HMRC since the introduction of AML supervision, accounting for nearly half (45.4%) of all fines issued. This is followed by accountancy service providers (41.1%) and money service businesses (4.6%).
Since 2017, estate agents have also paid the second largest overall penalty sum of £1.6m.
Only the money service businesses sector has been more heavily fined at a total of £4.7m, while accountancy service providers rank third with total fines valuing £510,000.
AML compliance requirements in the property sector
Any and every business involved in the property chain has obligations to contribute to this effort. Whether that’s as an agent or as a solicitor. There are duties under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to:
- identify and verify the identity of the client
- identify and take reasonable steps to verify any beneficial owners of the client
- get information on the purpose of the client’s business relationship with you
Causes of AML property compliance breaches
Inadequate risk assessments have been flagged as one of the common compliance issues. Additional breaches include failures to:
- carry out adequate customer due diligence from the point of onboarding
- carry out source of funds/wealth checks
- lack of adequate client verification
- lack of sufficient AML policies, processes and controls
Spotting the signs of AML property fraud
Knowing what to look out for is key. There are often warning signs that money laundering is occurring. We’ve listed some here:
- buyers that are cash-only
- funds provided by unknown third parties. Or funds that are provided by one person and yet registration is in another person’s’ name
- an unusual sale price or process, such as direct payments between buyers and sellers
- payments from a number of different individuals or sources
- transactions involving nominee companies or multiple owners
- sudden or unexplained changes in ownership
What AML regulations should be considered for the property market?
When undertaking property transactions, there are several regulations that your property business needs to comply with:
Simple steps to take to manage AML compliance in the property sector
- Know your property clients
When processing a property transaction, you must ensure that your client is who they say they are. From the point of onboarding through to any continued monitoring if it’s a rental, lease, landlord etc, that requires an ongoing relationship.
Using an electronic third-party verification solution will deliver biometric identity verification in real-time. It will also verify different types of documents.
- Source of funds identification
Your risk profile and knowledge of the client goes some way to support the verification process. But proving source of funds in just a few clicks is way more efficient than manually checking through Google, Companies House or other open sources. Partnering with a company such as NorthRow, allows real-time checks from global data points, held in one single platform.
Continually monitoring for international PEPs and Sanctions across international databases can also be managed more efficiently, in real time.
- Keep an audit trail for AML property compliance
Keeping manual paper trails, or electronic notes across different platforms, doesn’t instil confidence if the regulators visit to run an audit.
Thankfully, a much easier solution is one single source of truth that can be held in your electronic third-party verification solution.
- Suspicious Activity Reporting
If you know or suspect a money laundering offence is taking place, you must make a disclosure to your firm’s Money Laundering Reporting Officer (MLRO).
If you are the MLRO and you know or suspect a money laundering offence, you must submit a suspicious activity report (SAR) to the National Crime Agency. With automation, this process is made far simpler – from the initial incidence through to final reporting.
How to manage AML compliance for the property sector
NorthRow’s WorkStation provides IDV/AML due diligence to the UK Property sector. We have a proven track record in reducing manual compliance processes for estate agents, lettings agents and property management firms.
We remove the burden of manual AML compliance. With a single platform that enables ID&V checks to be delivered remotely, in real time with access to data from multiple data sources.
Your firm can stay compliant by using us, a certified IDSP, as recommended within HMRC guidelines.
