Money laundering compliance is a growing concern for agents.
The latest figures from Q4 last year suggest that hundreds of agents continue to fall foul of their regulatory obligations, resulting in fines and regulatory reprimands from HMRC. At the same time, fraud and money laundering risk continues to evolve.
Given these developments, what questions do estate agents commonly have regarding anti-money laundering (AML) compliance?
I don’t want to annoy my client. How do I explain the necessity of AML to them during a transaction?
The UK property market involves high-value transactions that can be used to ‘clean’ large amounts of criminal funds, making them appear legitimate. While many mistakenly believe money laundering is a victimless crime, the reality is quite different. The cost of money laundering is borne by the victims of the crimes which generate dirty cash. Drug dealing and trafficking, fraud, modern slavery, cybercrime, and corruption, among so many others, all leave a wake of suffering, and it is this that policymakers and the wider industry are fighting to stop.
The property sector has a part to play as gatekeepers by undertaking the necessary due diligence.
Giving clients something to support will help them ultimately get on board. However, it’s important not to blame the law or compliance team. Ultimately, Regulation 31 provides that if an agent cannot complete CDD, they cannot establish a business relationship with a client.
Is relying on copies of passports, utility bills, and basic online searches enough?
At the heart of AML compliance is the process of verifying identity and assessing risk. Agents must gather and verify sufficient information about a client’s identity and address. This goes beyond merely photocopying a passport and utility bill. A risk-based approach is essential. Agents should ask themselves whether their processes are proportionate to the risk. For example, if dealing face-to-face, would staff recognise a forged document? If relying on copies or electronic checks, are additional steps required to verify authenticity?
For overseas clients, this becomes more challenging. Third-party digital ID solutions can assist in verifying identity and address where reliable data sources exist. Otherwise, firms often require certified documents. However, certification carries its own risks—particularly when the certifier’s credentials cannot be verified. Firms should specify in their policies who may act as a certifier and ensure the wording of certification meets regulatory requirements.
How should I approach out-of-the-ordinary transactions, e.g. involving powers of attorney or similar?
Transactions involving powers of attorney can pose additional risks, especially when vulnerable individuals, such as those in care homes, are involved. In cases where attorneys are solicitors acting in their professional capacity, verification is more straightforward. Agents should confirm their credentials with the Solicitors Regulation Authority (SRA).
Similarly, dealings with Politically Exposed Persons (PEPs) require enhanced due diligence. Agents must obtain senior management approval, establish the PEP’s source of funds and wealth, and monitor the relationship. Importantly, regulatory changes in January 2024 introduced a more nuanced approach to domestic PEPs, recognising that not all PEPs present the same level of risk. The focus should always be on the specific risk factors associated with each individual.
What’s the difference between proof of funds and source of funds?
One area of persistent confusion concerns proof of funds versus source of funds (SoF). Proof of funds is often requested early in the process to ensure a buyer has the means to proceed. However, AML regulations require a deeper investigation. Agents must understand not just where the money is coming from but how it was accumulated.
There is no universal rule on how far back agents should examine financial records. Three months of bank statements may suffice in low-risk situations, but higher-risk transactions may require a more comprehensive picture extending back several years. The key is proportionality: the greater the risk, the more thorough the inquiry.
When verifying SoF, agents should watch for red flags such as funds originating from high-risk jurisdictions, unexplained income, third-party payments, large cash deposits, or cryptocurrency transactions. Full bank statements are preferable to account overviews, as the latter may conceal irregularities.
Harriet Holmes is AML services manager at compliance platform Thirdfort
Read the orginal article: https://propertyindustryeye.com/common-anti-money-laundering-concerns-what-do-estate-agents-need-to-know/
