Money laundering: a question of interpretation

Property auction houses have interpreted new money laundering regulations in different ways, leading to a variety of requirements for bidders. Some auction firms now require all bidders to register and verify their identity before the auction, whereas others are continuing to ask for proof of ID only once a bid has been accepted. There is also a divergence in views on when checks on the source of funds should be done, with some auctioneers saying it is necessary to do this before giving someone a paddle to bid, and others equally insistent that it only has to be done once the hammer comes down. The Money Laundering Regulations 2017 were implemented at the end of June, just four days after passing through Parliament. Auction houses had little time to prepare for the new Customer Due Diligence requirements, with guidance from HMRC published after the new rules came into force and before a consultation period had ended. Richard Auterac, chairman of the Royal Institution of Chartered Surveyors’ Real Estate Auction Group, said: “The regulations have been published, and they are highly complex and to ensure we comply fully it’s prudent for us to get guidance from our professional body who I know are actively engaged with government in this matter.” He said RICS was trying to get clarification from the Treasury and HMRC, which is overseeing introduction of the regulations, on how they should be implemented. “Until we get clarification it is very hard to know if we are doing all the correct things,” Auterac said. The HMRC guidance “didn’t reflect property auction practice in its initial draft form, and it was doubtful whether it would have achieved its purpose”, he added. Auterac said his firm, Acuitus, would be fully complying, but as the HMRC consultation document was still in draft form Acuitus was awaiting clarification from RICS on what constituted CDD and on whom it should be carried out. At present, Acuitus carries this out on the seller and the buyer, but doesn’t require bidders to pre-register unless they wish to make absentee bids by telephone, internet or proxy. “Our view is that a requirement to pre-register may deal with the identification of the person who is bidding but not necessarily the actual buyer, if the bidder is bidding for someone else or for his/her company, trust or SIPP. Also CDD may well require checks on the bank account from which the deposit comes, which would require a whole new level of obligation for those who wish to be pre-registered,” he said. A spokesman for RICS repeated a warning that auction houses were at risk of breaching the new requirements, and added: “The guidance continues to be developed on an ad hoc basis, and without clarification of its legal status.” She said RICS had written to the Treasury several times asking for clarification of what the regulations mean in practice. Phillip Arnold has received advice from HMRC, which said it does not have to carry out CDD on clients until a bid is accepted, because it does not charge a paddle fee. It has until the end of the day of the auction to complete these checks, the advice said. Savills has decided to pre-register clients. Head of auctions Chris Coleman Smith said the company would ensure it complied with the regulations, but called for a reconsideration and some “clarity and common sense” from the Treasury and HMRC. “The prudent way and sensible way is to get your systems right and meet the requirements,” Coleman Smith said. Andrews & Robertson has also introduced a registration system. Chairman and senior auctioneer, Robin Cripp, said: “The main change that our clients will notice is that a number of the checks will now need to be carried out as part of a pre-registration process i.e. before bidding takes place.” “We do not anticipate that it will put investors off,” he added. Philip Waterfield, Strettons’ auction director, said: “We are taking this very seriously, and asking people to register, so that we can comply in the best way we can.” Essential Information Group director David Sandeman said the new regulations were “a minefield”, and there was a lot of ambiguity. EIG is working with a number of auction firms on developing IT systems to help them comply. Sandeman said it may be necessary to carry out checks on a bidder, a person providing the deposit and a buyer if they are all different people. A Treasury spokesman said: “When the regulations came into effect, HMRC published draft guidance to help businesses comply with the requirements. This guidance is not final, and HMRC is continuing to engage with a range of stakeholders to develop it further.” Background The Money Laundering Regulations state that: “For the purposes of these regulations, an estate agent is to be treated as entering into a business relationship with a purchaser (as well as with a seller), at the point when the purchaser’s offer is accepted by the seller.” Customer due diligence means: identifying all sellers and all buyers and verifying their identity; identifying all beneficial owners, where applicable, and verifying their identity; obtaining information on the purpose and intended nature of the business relationship; and conducting ongoing monitoring of the business relationship, to ensure transactions are consistent with what the business knows about the seller and buyer. The type of information needed may include: details of customer’s business or employment; the source and origin of funds that your customer will be using in the relationship; and copies of recent and current financial statements. Records of these checks must be retained and updated. Businesses should appoint a “nominated officer” and make sure that employees know to report any suspicious activity to them, or a compliance officer in larger businesses. Pic credit: TaxRebate.org.uk