In the wake of recent high-profile anti-money laundering investigations involving household names such as HSBC and FIFA, the UK media have started to question how the proceeds of crime, particularly from overseas, are introduced into the UK property market.
Prime minister David Cameron picked up on this topic in a recent anti-corruption speech in Singapore in which he highlighted specific concerns about the purchase of UK homes with “plundered or laundered cash”. Cameron said recent trends pointed to properties in London being purchased through non-trading shell companies by people from overseas for the purpose of money laundering. The risk is that, if this is correct, it is likely to result in more active regulators and investigatory bodies.
The UK’s anti-money laundering regime is split into two parts. Firstly, everyone in the UK must avoid committing a set of money laundering offences under sections 327 to 329 of the Proceeds of Crime Act 2002 (POCA). Secondly, there are those who also owe higher duties by virtue of doing business that places them in the money laundering “regulated sector”.
Estate agency and property auction businesses form part of the regulated sector and HM Revenue and Customs (HMRC) is currently their specified supervisor, although it has been reported that the Royal Institute of Chartered Surveyors would like to take up that role.
Offences applying to everyone
Money laundering offences under sections 327-329 of POCA include the movement or possession of criminal property (it may be money but can be other forms of real or other property) or becoming involved in an arrangement relating to the acquisition or use of criminal property. It is also an offence to conspire or attempt to launder the proceeds of crime, or to counsel, aid, abet or procure money laundering.
To avoid committing a money laundering offence, if an individual or business knows, or suspects, that a transaction may involve criminal property, it can make an “authorised disclosure” to the National Crime Agency (NCA) to seek its consent to proceed with a transaction. Disclosure after a transaction may provide a defence where it is made as soon as reasonably practicable and there is good reason for not having done it sooner.
Consent will be given or refused within seven days. If no response is received, then consent can be deemed to be given. Where consent is refused, there is then a moratorium period of 31 days, at the end of which, if no further action is taken by the NCA, then consent may also be deemed to be given.
If an individual or business knows or suspects that the NCA may be investigating and it does something that may prejudice that investigation, then it may also commit the separate criminal offence of prejudicing an investigation. Once a disclosure has been made, it is therefore important to manage the relationship with the suspect client carefully while waiting for consent.
Regulated sector duties
The Money Laundering Regulations 2007 set out the registration, due diligence, systems and controls and training requirements that apply to those in the regulated sector. The regulations and POCA also contain certain regulated sector-only criminal offences, such as “tipping off”.
Any regulated sector business must first register with HMRC (or any other regulatory body that is classed as a supervisory body) and then ensure that it meets its additional systems and controls obligations. This is not always straightforward and carries with it the potential of committing criminal offences and being fined if the duties are not met.
It is not possible to give a run-through of all of the various requirements under POCA and the regulations, but one central aspect is that businesses will have a duty to ensure they carry out appropriate customer due diligence.
This includes, but is not limited to, identifying and verifying the customer’s identity on the basis of documents (for example, a UK passport or UK driving licence and recent suitable proofs of address) or information obtained from a reliable and independent source (for example, confirmation from a reputable third-party identity database verification provider). The duty extends to include beneficial owners (as defined under the regulations) and to obtaining information on the purpose and intended nature of the business relationship.
Certain circumstances may give rise to enhanced due diligence duties, for example where a customer is not physically present (for example, over the telephone or internet, or using a representative) or where they are a politically exposed person.
In addition, case-specific situations may give rise to reasonable grounds for a suspicion of criminal activity and then require a report to be made to the NCA. Failure to do so can be considered a serious criminal offence under POCA.
Warning signs
The cliché is a brown envelope brimming with cash. But while this may arise, suspicions could occur in many ways, including where a third party apparently unconnected with the customer bears the costs or where the customer is trying to use intermediaries to protect their identity or hide their involvement.
As with the principal money laundering offences, there is also a specific tipping-off offence that applies where a report has been made to the NCA and a disclosure is made to a third party which may prejudice any investigation. Managing and understanding confidentiality is crucial.
In the light of recent publicity about anti-money laundering, businesses operating in the property sector must not ignore the significant reputational damage they could suffer by failing to ensure their financial crime compliance systems are robust. A tick-box approach to compliance rarely works. It would be wise for any business to periodically review its anti-money laundering processes to ensure they are robust and fit for purpose.
Andrew Wallis is an associate at Irwin Mitchell
