The UK is getting to grips with anti-money laundering (AML), according to a number of recent reports.
Earlier this month, HM Revenue and Customs (HMRC) officers raided 50 estate agents across England that were suspected of trading without being registered.
HMRC has said it will take action against any businesses that fail to comply with AML regulations. Actions can include fines, the publication of names, and criminal proceedings.
The raids sent shockwaves through a property market that is struggling with Brexit uncertainty as buyers wait to see what happens to house prices and the wider economy.
Unscrupulous practices include agents poaching properties from other companies without carrying out due diligence and know your customer (KYC) checks. Anecdotal evidence from some companies suggest that the luxury end of the London property market has been depressed by money laundering fears.
Last year, Countrywide Estate Agents was fined £215,000 under AML rules for “failing to ensure policies, controls and procedures at group level” and for “failures in conducting due diligence, timing of verification, and proper record keeping”.
This was the highest single penalty last year. However, with the average UK property price hitting £243,639 in 2018, the figures are a drop in the ocean in financial terms.
Online estate agent Tepilo Ltd was fined the second largest amount, £68,595, for AML failures, including not carrying out risk assessments, and not having the correct policies, controls, and due diligence practices in place. Tepilo Ltd went into administration in December 2018 and the company that now owns the Tepilo brand was not involved in the breaches, said HMRC.
Sheridans, an estate agent in Suffolk and North London, was fined for “failures in conducting due diligence, verification of identity, and proper record keeping”, while another agent, Vail Williams, was penalised for failures in risk assessments, policies, controls, and procedures, and for not conducting due diligence and proper staff training.
In both cases, fines amounted to roughly £3,500. However, the government published the companies’ names, alongside those of a number of accountancy and financial services firms that also breached AML rules in 2018.
John Glen, Economic Secretary to the Treasury, said, “The vast majority of estate agents play by the rules and help us to crack down on dirty money. But I have zero tolerance for firms prepared to turn a blind eye to the law. Money laundering regulation exists to help protect honest business, so anyone who flaunts the law should know that swift action will be taken.”
Ben Wallace, Minister for National Security and Economic Crime, added, “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.
“It’s wrong to think of money laundering as a victimless crime. Those with dirty cash to clean don’t just sit on it – they reinvest it in serious organised crime, from drug importation to child sexual exploitation, human trafficking, and even terrorism.”
Simon York, Director of HMRC’s Fraud Investigation Service, said, “Estate agents need to understand that criminals prey on weaknesses, so it’s vital they take all steps to protect themselves.
“The money laundering regulations are key to that, but there’s still a minority of agents who ignore their legal obligations. These inspections are a wake-up call that if you continue to trade illegally we will come knocking.”
Meanwhile, HMRC has launched its first criminal investigations under a new money laundering offence: failure to prevent the facilitation of tax evasion, which was introduced under Article 45 of the Criminal Finances Act 2017.
The so-called ‘tax gap’ was estimated at £33 billion in 2016-17, according to government figures. However, a Freedom of Information Request by law firm Greenberg Traurig has found that “less than five” criminal investigations are currently underway under the new rules, according to a report in the FT.
“Although many will welcome the fact that HMRC is utilising its powers of criminal investigation to consider behaviour that may be caught by the UK offence, it is surprising that the number of investigations involving this offence is so low, particularly given the furore surrounding its inception and entry into law,” said the firm.
Despite recent praise for the UK’s AML stance from the Financial Action task Force (FATF), the UK’s efforts to tackle money laundering are “highly fragmented”, according to Parliament’s Treasury Committee.
The National Crime Agency (NCA) has estimated that £100 billion of dirty money is laundered through the City of London alone each year. The government’s efforts to tackle the problem risk being undermined by Brexit as the UK struggles to put new trade deals in place, said Treasury Committee Chair Nicky Morgan, who added that leaving the EU would bring “both risks and opportunities”.
She recommended two key areas of investigation: new companies, since Companies House is not currently required to carry out AML checks, and estate agents’ registration, which may have been the spur for the raids this month.