‘Don’t take chances on AML checks – the risks are real’

The buyer is polite, impeccably turned out, and ticks all the boxes. A cash buyer, all the documentation in hand, ready to go. He wants to complete rapidly and has a prestigious law firm lined up for the conveyancing. After weeks of waiting, your commission is tantalisingly close…

You photocopy his passport and a couple of other proofs of ID, and you’re ready to go. Or are you?

Appearances can be misleading. It’s all too easy to assume that someone is above board, when in fact that could be far from the case.

And these days, HMRC, which enforces anti-money laundering legislation (AML) is cracking down on agents who don’t carry out thorough AML checks. Under AML rules, agents are required to verify the identity not just of the vendor but also the buyer.

HMRC figures show that from May to October 2022, 68 estate agents were fined a total of £519,000 for not complying with rules designed to stop criminals laundering money from illegal activity. A further 56 fines were levied between 1 January and 31 March 2023.

In most cases the fines are for failing to register with HMRC, or registering late, with fines ranging from anywhere between £2,000 and £15,000.

Complacent about compliance

Martin Cheek, Managing Director of SmartSearch – one of the biggest providers of AML checks and verification, which carries out more than three million checks a year – explains that agents must not only register with HMRC but show they have proper risk-assessment procedures in place.

“They all have a duty to complete due diligence and check they are not dealing with anyone on a sanctions list,” he says.

“The majority of agents really don’t feel they have to comply. I think generally the industry feels it’s a sledgehammer to crack a nut because they don’t handle any cash.

“It is quite a complex area for them. They just want to get on selling properties and I think most of the agents I speak to find it an unwelcome distraction.”

Most of the agents I speak to find it an unwelcome distraction.”

According to Cheek, the biggest issue that agents tend to fall down on is carrying out satisfactory client due diligence – they have to prove to HMRC that they have adequate risk-assessment policies and procedures in place.

Using SmartSearch, agents simply log on to an online platform , enter the name and address of the individual and click what kind of check they want. An app will then allow them to take a photo of the passport or driving licence and compare it instantly with a ‘selfie’ of the person.

“I would hazard a guess that we get a couple of thousand fraud cases a year in some shape or form. Some are really obvious – someone has stuck a photo on a stolen passport – but some of them are quite sophisticated.”

Increasing pressure

Emma Burdis, Head of Compliance at Iamproperty, which offers verification checks via its movebutler platform, says property fraud is increasing.

“Criminals are constantly finding new and sophisticated ways to use property to launder money,” she explains. “This places an increasing amount of pressure on the industry to also be more sophisticated in their efforts in preventing them from doing so.

Whilst some agents still prefer the more traditional verification methods, these methods alone are no longer enough.”

“Whilst some agents still prefer the more traditional verification methods, these methods alone are no longer enough to be fully AML compliant – fraudulent documents are becoming more difficult to spot, and criminals are often those we least expect.”

It’s not just Russian oligarchs that agents need to be wary of – organised crime is also a big player, along with individual fraudsters.

Burdis highlights a case that came to light in 2021 which received a lot of media attention.

“A property was sold whilst the legal owner was away and the owner returned to find someone else living in their home,” she says. “The legal owner’s identity had been stolen and illegal documents created. These crimes highlight the importance of adopting robust processes and the use of AML and ID verification technology.

“Most agents are concerned about money laundering, unfortunately ensuring compliance can be time consuming and with the risks and obligations ever changing, confusing.”

Culture of control

Harriet Holmes, AML Services Manager at compliance platform Thirdfort, emphasises that agents must implement robust policies, controls and procedures to deter fraud and money laundering.

“Agents should foster a culture where staff actively participate in the compliance process, alerting managers to issues and concerns as they arise,” she stresses. “Firms must consider the controls they can deploy to mitigate the risks associated with non-compliance and document the process they are going through, and record their considerations.

Agents should foster a culture where staff actively participate in the compliance process.”

“Making such records helps agents reduce the risk of money laundering and fraud failings. It also provides evidence to the regulator of the steps the firm has taken to be compliant.”

She says it also crucial to have a comprehensive training programme in place for staff, so that they are aware of the risks, and the procedures in place to deal with them.

Holmes warns that agents may leave themselves open to criminal prosecution, regulatory fines, professional negligence claims and reputational damage if they do not conduct client due diligence and AML checks to the required standard.

“It’s a huge amount of work to stay compliant while keeping admin from skyrocketing,” she says. “Some agents are still using traditional or manual approaches to client due diligence where agents manually check the client’s passport, identification, or bank statement. However, such manual processes have significant drawbacks, both in terms of the risks of manually checking documents and the time it takes.”

She adds: “Agents would naturally prefer to spend their time focused on sales, rather than compliance, which is why agents are increasingly adopting digital tools to help stay compliant while reducing the time associated with fraud and AML checks.

“Forward-thinking agents know that relying on human judgement alone for AML is risky and are increasingly turning to technology to help reduce the risks.”

Thirdfort has also recently launched a Secure Share product that allows agents to share verification with conveyancers.

Removing repetition

“During a property transaction, both the estate agent and the conveyancer will ask the buyer and seller to complete the same know your customer, AML and source of funds verification,” says Holmes.

“However, this needless repetition slows down property transactions, delivers a poor experience for home movers and creates unnecessary friction between the agent and lawyer. To overcome these issues, property professionals can now offer simple and secure report sharing for their clients and the other professional advisors involved in the process.”

The message to the industry is clear – don’t take shortcuts when it comes to AML checks, or it may come back to haunt you.