If you want to see what reputational damage looks like, study the recent headlines about prime central London’s residential property industry.
“London property boom built on dirty money” said the Independent back in March. “Agents warned by National Crime Agency” revealed Estate Agent Today in July, while in the same week the Wall Street Journal shouted: “Money laundering drives up London house prices”. Last month The Economist had the sharpest of them all with a clever “Dirty Dens”.
Yet money laundering and London property have been long-term bed-fellows, as the makers of The Long Good Friday showed back in 1980.
The difference now is that ultra-high prices and record foreign investment in prime central London property are set against public policy concerns ranging from housing shortages to funds for potential terrorist activity, all allegedly connected with money laundering.
So what should the residential industry – especially estate agency, the weaknesses of which were exposed in a recent Channel 4 documentary (see box below) – do to restore confidence?
EG posed key questions to five leading organisations – the Royal Institution of Chartered Surveyors (RICS), the National Association of Estate Agents (NAEA), the Property Redress Scheme (PRS), the Independent Network of Estate Agents (INEA) and anti-corruption campaign body Global Witness – to find out.
Why is this a UK, and specifically London, problem? Is the country’s residential sector less stringent than those of other countries?
Global Witness: “London’s high-end market is a go-to destination to give questionable funds a veneer of respectability. It offers lawyers who sell secrecy, banks who ask few questions and a glamorous lifestyle. Estate agents and weak laws around money laundering appear to be part of the problem, too.”
NAEA: “Anti-money laundering procedures in the UK have centred on the seller rather than the buyer, with agents failing to appreciate the implications of the Proceeds of Crime Act and their duty to report suspicious activity.”
Should anti-money laundering legislation be increased in scope, better policed, or both?
INEA: “Only just over 8,000 agents are registered for anti-money laundering (AML) purposes, but it is estimated there are 20,000 agents’ offices. HMRC could do more to track which agents are not registered. Letting agents do not come under AML at all, other than being obliged to report suspicious activity. So unrecorded lettings may officially appear as not receiving rent, when in fact they’re generating revenue.”
RICS: “The biggest issues are perhaps ignorance and complacency. The law is very clear that agents have a responsibility to check the identity of customers. But it is important to recognise the limits of what agents can reasonably establish without spending prohibitive amounts of time and money in checking matters such as beneficial ownership.”
Global Witness: “Legislation needs to be strengthened, especially in relation to the use of offshore companies to buy UK property. Legislation currently in force is not applied properly – police do not have the resources to conduct what are always extremely complex and lengthy investigations. It’s a Herculean task for police to enforce the law.”
Can other laws or industry regulations be used more effectively to reduce or eliminate money laundering in residential transactions?
RICS: “The onus does not lie solely with property professionals, but requires collaboration with lawyers, financial institutions, government departments and the Land Registry. But there’s a lot that professional bodies can do to ensure compliance by members. RICS will be applying to become a Treasury-designated supervisory body for AML in the UK [under an EU directive to be enshrined in UK law by mid-2017, allowing industry self-regulation of compliance].”
PRS: “If redress schemes were expanded to include companies that purchased properties, then a central register would be held. Other than that, the police could be given more power to investigate and prosecute.”
Is there a ‘killer’ single new regulation or law that could do much to clean up the corrupt image of high-end property?
INEA: “Legislation should insist properties for sale would first be identified and registered. Geo-location, property type, usage, ownership and secondary titles could be established. Using data analysis, there could be ‘investigation triggers’ to HMRC, the Treasury, Serious Fraud Squad, and so on. The INEA also advocates that other property service providers, like portals, letting agents and solicitors, be included in AML legislation that currently applies chiefly to estate agents.”
RICS: “We would call for the introduction of minimum competency requirements for estate agency and lettings, and be subject to self-regulation.”
NAEA: “A focus on purchasers, their real identity, companies and the source of funding could be strengthened with further enforcement.”
PRS: “A central register is a sensible idea and allow local authorities to apply for compulsory purchase orders on properties that are clearly not being used for residential or commercial purposes.”
Global Witness: “The UK government needs to convince the British Overseas Territories and Crown Dependencies
to create their own register of beneficial ownership.”
The Participants
Luay Al-Khatib, director of regulation for the UK & Ireland at RICS, which offers qualifications and standards in property, land and construction issues
Mark Hayward, managing director of the NAEA, which is the largest body representing and training estate agents in the UK
Sean Hooker, head of redress at the PRS, one of three approved redress organisations for the estate and letting agency sectors
Trevor Mealham, founder of INEA and an official reviewer of new industry guidelines being framed by the National Trading Standards Estate Agency Team
Chido Dunn, senior campaigner on governments and corruption at Global Witness, an organisation that investigates conflict, corruption and environmental destruction
From Russia with Cash
The estate agency industry is awaiting the results of two separate investigations by RICS and NAEA into allegations made in Channel 4’s From Russia with Cash (aired 8 July 2015).
The programme, in which a journalist posed as a corrupt Russian official looking to launder money, featured agents from the prime central London offices of five firms – Winkworth, Marsh & Parsons, Domus Nova, Chard and Bective Leslie Marsh.
All the agents that have commented ahead of the investigations have stated that their agents did nothing wrong.
The scale of the problem
Keith Bristow, head of the National Crime Agency, said earlier this year that £24bn of global organised crime proceeds may be funnelled annually through the British financial system and hoarded via UK investments – chiefly property.
“The high transaction volume, language, developed financial services industry and political stability of the UK makes our financial system particularly attractive to money laundering, despite the measures to identify and stop it,” says Bristow.
More recently, the National Crime Agency’s economic crime command director, Donald Toon, told The Times: “If [estate agents] have a suspicion that there may be money laundering involved, then they absolutely should be submitting a suspicious activity report. You are at risk of committing a criminal offence if you do not do that.”
Toon claims London house prices are being skewed as a result of purchases by criminals “who want to sequester their assets here in the UK” and admits to being alarmed at the number of homes that are registered to complex offshore corporations.
