The Fourth Anti-Money Laundering Directive (4AMLD) is due to be implemented by 26 June 2017. 4AMLD hardens the approach that regulated firms must take toward money laundering and terrorist financing, especially after the outrages in Paris and Belgium.
The real estate sector is increasingly a target for criminals. Indeed, the House of Commons was specifically consulted on money laundering in the middle of last year and the property market was singled out as the main culprit. For instance, evidence was given that the sector is “without question a destination for laundered money”. To quantify this, the House Select Committee heard that “at least £100bn is being laundered through the UK every year” and that “it is astonishing that just 335 out of some 1.2m property transactions last year were deemed to be suspicious”.
What can happen
The conviction of Achilleas Kallakis in 2013 for an extensive campaign of fraud committed during the property boom stands out as a particular example of where important lessons can be learned. Kallakis’s name may ring bells to those in the property sector: dubbed “Britain’s most successful serial confidence trickster” or “The Don” by newspapers as diverse as the Guardian and the Daily Mail, his case paints a vivid picture of just how badly the sector can get it wrong. Using a number of forged and fraudulent documents and claims, Kallakis was able to obtain a 16-property portfolio amounting to £740m, all on the back of misrepresentations made to Allied Irish Bank, the Bank of Scotland and others. Using the money to buy the central London headquarters of the Daily Telegraph and other landmarks, Kallakis was able to dupe a range of professionals, including property agents, lenders, account managers, tax advisers and lawyers, despite having a criminal record and having crudely altered his name.
4AMLD changes
A notable change for the sector is that “estate agents could now be understood to include letting agents”, bringing them into the regulated sector. Lettings agents are an increasingly attractive target for money launderers. Imagine the very conceivable scenario whereby a politically connected person relocating to the UK uses ill-gotten gains to rent a property. It is for this reason that letting agents are now part of the regulated framework.
Enhanced due diligence shall now also be applied to family members of and persons close to politically exposed persons (“PEPs”), which now will include domestic PEPs. The rationale behind the change is that domestic PEPs in many countries can present a higher risk than foreign PEPs.
Another major change causing consternation is that estate agents will – unless the consultation overturns the proposal – be forced to carry out customer due diligence on both buyer and seller, doubling the work and cost.
4AMLD even says that, depending on the size and nature of your business, you may be required to have your internal risk assessment policies tested by an external audit.
Take action now
All of this means that there are steps to take. Now is an excellent time to do a full “MOT” of your internal policies and to assess your risk because June will speedily be with us – and to address it then will be too late. In the meanwhile, if nothing else, consider the checklist of actions that can be taken.
In summary, 4AMLD represents a further tightening of the financial landscape, which has been happening over the past five years or so. The message from government and law enforcement agencies is that globalisation means the places to hide criminal proceeds are shrinking dramatically. Criminals will still need to launder money and property professionals need to be alert so that they are not caught out when the inspector comes calling.
Alex Ktorides is a partner in Regulatory Solutions at Gordon Dadds
Ten steps to take to comply with 4AMLD
• Carry out a risk assessment for your business as required by 4AMLD
• Sign up to an online verification system
• Seek evidence of source of funds, not just a copy of someone’s ID
• Test riskier transactions and targets far more deeply, such as those involving higher-risk countries of origin, back-to-back transactions or third-party
payments
• Train your staff
• Arrange for your money laundering reporting officer to document decisions and reflect on how many suspicions they have officially reported in the past six months
• Don’t take an explanation at face value
• Don’t be scared to ask for evidence, even if the client raises a quizzical eyebrow
• Keep riskier clients – especially PEPs and those on a sanctions list – under regular monitoring
• Say “no” if you can’t get confirmation that a crime isn’t being committed, and seek advice when your instincts say something isn’t right
