It is estimated that £4.4bn of property in the UK has been purchased using dirty money. While it is not entirely up to estate agents to prevent this illicit money movement, they are certainly a part of the chain of responsibility for spotting and preventing such activity. But what’s stopping them from doing so?
A recent report from LexisNexis Risk Solutions, On the Frontline: The UK’s Fight Against Money Laundering, based on research conducted by the Economist Intelligence Unit, found that three-quarters (74.5%) of estate agents think enough is being done by the UK regulator and regulated businesses collectively to tackle the issue of money laundering.
Some 58.8% of those surveyed feel the existing UK regulatory framework on anti-money-laundering (AML) is effective, and only a relatively small minority (14%) think that it is “not effective”. In the eyes of the agents themselves, the actual rules and regulations aren’t the barrier to stopping these dirty money flows – so what is?
Cracking the whip
HMRC, the regulator responsible for overseeing AML compliance in agents, has recently begun a crackdown on those agents who turn a blind eye to financial crime. In the period 2017/18, HMRC issued 655 penalties totalling £2.3m, and recovered more than £31m of illicit funds under the Proceeds of Crime Act 2002. And this looks set to continue, with the largest fine to date being issued this year.
This is only part of the UK’s broader response to money laundering; we are also seeing individuals’ assets being frozen under unexplained wealth orders (UWOs) in money laundering investigations. Often, these involve the seizure of property assets and, as a result, questions have been raised about the agents who sold property to these individuals in the first place.
In the announcement regarding HMRC’s crackdown on the property sector, Ben Wallace, minister for national security and economic crime, noted that agents are under a “legal – and moral – obligation to file a report when they spot something amiss”. At present, the best way for an agent to file when they think suspicious activity is taking place is via a suspicious activity report (SAR), which is submitted to the National Crime Agency.
Of the near half a million SARs submitted over the course of 2017/18, only 710 came from estate agents. There are currently 11,000 estate agents regulated by HMRC, and – while we would naturally expect there to be fewer reports from agents than, say, banks – given the amount of illicit funds pouring into the UK property sector, shouldn’t this number be higher?
Compounding this further, there are estate agents who slip through the net as they have failed to register with HMRC, meaning they are out of the regulator’s sight. Other smaller, independent or regional firms also don’t fully understand the money laundering risk facing them, and feel that the problem lies with their London-based or larger counterparts, so don’t necessarily pay as much attention to the regulatory requirements.
Internal issues
Complacency is a big trend that came out of the report. Despite a third of agents believing their own sector to be one of the most at risk of money laundering, and one in six (16%) voting it the highest-risk sector overall, 45.1% think complacency in their own organisation is the biggest barrier to combatting the dirty money problem in the real estate sector.
Equally, the research points to compliance not necessarily being a priority for the sector in terms of funding. It seems that despite the regulator gradually starting to crack the whip, agents haven’t yet increased their budgets for AML compliance. More than half of the estate agents surveyed reported that their organisation’s AML compliance budget had either stayed the same (19.6%) or only increased by up to 10% (39.2%) over the past two years.
How do agents think we can address the problem?
In addition to the need to address internal complacency, a desire to share more information between internal departments, and externally with other regulated industries, also came through in the report. In fact, almost half (47.1%) of agents surveyed think that a lack of information sharing between businesses is the biggest external barrier to effectively combatting the UK’s dirty money problem.
According to the research, just over a third (35.3%) of estate agents want more frequent communications with the regulator, with one in three also wanting more clarity from HMRC around regulatory requirements. In fact, more than 30% of agents surveyed (31.4%) indicated that unclear guidance from the regulator is one of the largest external barriers to tackling money laundering.
HMRC has recently issued updated guidance to help estate agents understand how to comply with AML regulation, which will hopefully make a difference. However, this highlights the need for regulators to make any future guidance as clear as possible from the outset.
There is still a long way to go for the property sector overall to tackle the issue of money laundering. While estate agents do not solely carry the burden, with mortgage brokers, conveyancers and financial institutions also responsible for preventing property being purchased with dirty money, they do still have a big part to play.
Any hint of complacency needs to be nipped in the bud, with money laundering risks being taken altogether more seriously by the industry.
Michael Harris is director, financial crime compliance and reputational risk, at LexisNexis Risk Solutions
