Scale of money laundering in UK real estate
Transparency International UK, the anti-corruption organisation, highlighted the risk of money laundering in the high-end UK real estate market in its report published last week. The problem is not new, but the report is a stark reminder of the risks faced – and often ignored or misunderstood – by property professionals and the need for them to implement, review and stress test their businesses’ anti-money laundering controls.
The Metropolitan Police is carrying out money laundering investigations into a number of UK properties, although this is likely to be a small proportion of the problem. One indicator of the scale is that of the 40,725 residential and commercial properties in London that are registered to overseas companies, 89% are held by companies incorporated in offshore secrecy jurisdictions.
High property prices and values at the top-end of the UK real estate market enable considerable amounts of criminal funds to be cleaned in a single transaction, whilst increasing the value of the sums in the process and transferring them to the security that the UK affords. False tenancy agreements can then provide criminals with the ability to continue to launder funds using the property.
The anti-money laundering regime for estate agents consists of 2 elements:
- The primary offences of money laundering and funding terrorism
- Offences of breaching regulations that require estate agents to have systems and checks to prevent their involvement in money laundering
Criminal offences include those for senior officers of companies consenting to or conniving in their company’s breach of the regulations or whose breach is as a result of the senior officer’s neglect.
Common misconceptions amongst estate agents include:
- “Due diligence is only required into our clients”
In fact, estate agents are required to scrutinise transactions and in particular to carry out enhanced ongoing monitoring wherever a situation presents a higher risk of money laundering (which the TI report shows includes high value real estate transactions) and to take additional steps where a client proposes to do business with a politically exposed person.
- “It’s enough if we carry out due diligence before accepting fees”
That is too late. If an estate agent waits until contracts are exchanged, any money laundering offence has already been committed. It is no defence for an agent to say that it has not been paid in respect of a transaction that involved money laundering or in respect of which due diligence was not carried out properly.
Reviewing your risk
Points to consider when reviewing your exposure in the light of TI’s reminder include
- Does your business have an up to date risk assessment that enables it to take a risk based approach to anti-money laundering controls?
- Does your business carry out due diligence on customers at the outset of a relationship and before business is transacted?
- Does your business carry out a risk assessment on individual transactions?
- Does your business know the identities of the beneficial owners of its clients?
- When was the last time your employees were trained on their obligations?
- Is there top management support for anti-money laundering controls?
- Are due diligence checks recorded and retained?
The full Transparency International report is at http://www.transparency.org.uk/
This information sheet is prepared for general informational purposes and is not intended to provide advice. For further information and advice on reducing exposure to money laundering in UK real estate transactions, contact Nick Burkill or Sloan Kelly.