Advice about anti-money laundering in the UK property market provided for agents
Updated guidance on anti-money laundering has been issued by HMRC to estate agents as concerns are being raised about loopholes in new legislation to make ownership more transparent.
The new advice rounds up the various laws that estate agents have to comply with and it also heads off an argument long advanced by sales agents that they do not handle money.
The new advice says that while this may be so, estate agents have knowledge of both sides of a transaction and how a purchase is funded and agents that take deposits, including auctioneers, do handle money.
The new advice spells out the policies, controls and procedures that agents must put in place, and says agents must ‘devote enough resources to deal with money laundering and terrorist financing’.
The advice also deals with risks where there are non-face to face customers, and where agents accept introductions from another agent, as in cases of sub-agency, as well as spelling out the relationship with the ‘counterparty’, ie, the buyer, who is not the customer of the sales agent, or a seller who is not the customer of a relocation agent or property finder.
However, concerns have been raised that new legislation aimed at preventing the property market in the UK being used for money laundering has loopholes that need to be fixed before it becomes law.
According to the Joint Committee on the Draft Registration of Overseas Entities Bill a lack of information about anonymous owners needs to be addressed. It points out that between 2004 and 2015 some £180 million of UK property was subject to criminal investigation as suspected proceeds of corruption, and this may be just the tip of the iceberg.
In 2017 some 160 properties worth over £4 billion were identified as being purchased by high corruption-risk individuals, and 86,000 properties in England Wales have been identified as owned by companies incorporated in secrecy jurisdictions.
It has been more than three years since the Government pledged to introduce a transparent register of the foreign entities that own UK property, and of the individuals who actually control them.
‘Time is of the essence and regardless of the effect of Brexit on the parliamentary timetable, this legislation is needed now,’ the committee said in its recent report. In particular it is concerned that the current Bill allows the Government to exempt certain entities from publishing their information, and in some cases from disclosing it at all.
It is also concerned that any register will not be fit for purpose due to information being out of date and to be transparent sellers of property should be required to update their ownership information once a year, but also update information about proposed transactions before they take place, thus capturing information at the point where most money laundering occurs.
The committee also says that the current proposals lack verification checks to deter individuals, including criminals, who want to submit false information. Without such checks the draft Bill risks failing to achieve its primary aim of increasing transparency about who really owns land and it believed that enforcing this new law may be difficult. The report therefore suggests that civil penalties will be easier than criminal sanctions to enforce abroad, and against land or other assets in the UK.
Martin Cheek, managing director of anti-money laundering firm SmartSearch, said that going forward, properties in the UK that have already been purchased using the proceeds of crime need to be identified and that while the unexplained wealth orders are an attempt to address these, it will be a very slow process.
He also pointed out that the UK needs to have a robust system in place for foreign purchases of high value property and whilst other countries, including the Crown Dependencies such as the Cayman Islands, allow opaque ownership, the process will never be 100% watertight.
According to Tom Beak, associate in the real estate team at legal firm Kingsley Napley, the current draft Bill is unlikely to make it impossible to launder money, just much harder.
‘It it seems inevitable that the Bill’s effectiveness will rely on the enhanced due diligence of acting solicitors to ensure that proposed buyers or sellers are appropriately registered,’ he said.