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New rules for estate agents to help combat money laundering and terror funding

PUBLISHED: 15:51 26 June 2017 | UPDATED: 15:51 26 June 2017

Property in London is an attractive prospect for money laundering, but increased EU compliant regulations should help combat corruption

Property in London is an attractive prospect for money laundering, but increased EU compliant regulations should help combat corruption

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Regulations introduced today clarify that agents must carry out customer due diligence checks on buyers as well as sellers in effort to combat corruption in the London property market

New rules come in to effect today requiring estate agents to carry out more rigorous checks to ensure that payments are coming from a legitimate source.

The changes should make it harder for terrorists and criminals to move money through the UK’s financial system undetected.

Stephen Barcley, economic secretary to the Treasury said:

“We are cracking down on terrorists and criminals funnelling money through our financial system.

“Terrorist financing and money laundering are a significant threat to our national security, and we are determined to make the UK a hostile environment for illicit finance.

“These new rules will tighten our defences, protect the integrity of our financial system and help protect the British public from terror attacks and criminal activities.”

The rules are part of the EU’s Fourth Money Laundering Directive, which requires member states to update and transpose the regulations into local law.

The UK, which is a member state until 2019, has squeaked in under the deadline of June 26 2017.

Estate agents, along with banks, accountants and payment firms are responsible for identifying and reporting any suspicious activity to the police.

Corporations will have to be more transparent with regards to their ultimate beneficial owners, i.e. anyone who controls 25 per cent or more of a company.

Under Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 corporations are required to scrutinise any unusually large or complex transactions, particularly where anonymity is favoured.

In particular the Regulations clarify that estate agents are understood to be entering a business relationship with the buyer as well as the seller of the property.

This means they must undertake customer due diligence (CDD) checks on both parties in a transaction.

A memo on the Regulations explained that the clarifications have been made because some agents had not regarded the purchaser as a client, and as such were not carrying out CDD.

Independent buying agent Henry Pryor told the Ham & High:

“It’s no secret that London has, embarrassingly, been the laundromat of choice for the world’s crooks. Property in particular has been a popular currency for them.

“For too long estate agents have, for some extraordinary reason, never been suspicious of this kind of activity.”

He stated that it would be “incredibly generous” to suggest that all incidences of money laundering via property transactions had gone unreported due to genuine ignorance, but admits there has been confusion in the property industry.

“Rather like fire regulations, lots of people assume somebody else is dealing with it,” he said.

By clarifying where responsibility for detecting untoward transactions lies the market will also benefit.

“When it comes to corruption the impact is not just on those directly touched by those laundering their ill gotten gains, but on everybody,” Mr Pryor explained.

It’s not just first time buyers being priced out of the market due to inflation that suffer. Leaseholders and homeowners alike can be impacted on an individual level when properties are bought with questionable funds.

“If you own a flat in a shared building above Al Capone when the time comes for the roof to be fixed or the porter to paid, Mr Capone is famously shy when it comes to ponying up his share of the bill,” said Mr Pryor.

“Do you want to buy a house with your spouse and kids from some notorious crime baron? No, you don’t. Not just because you don’t want to be caught up in his business dealings, but also because when the time comes to sell your house opposite Roberto Rastapopolous [fictional criminal and villain of the Tintin series] you’ll find that the market for it isn’t as strong as you’d hoped.”

The regulations will increase agents’ administrative load and may slow down the transaction process, but the additional effort will lead to more security for homeowners.

“The staggering valuations of London property, particularly in Hampstead and Highgate, are predicated on the robust property laws that we have here. People can be certain when they’re buying, selling, renting or letting a property of what it is that they’re getting and what their obligations are.”

London property is an attractive prospect for money laundering purposes because it is perceived as a safe investment and large transactions can be made anonymously via companies registered offshore.

Many transactions are made using offshore companies for legitimate privacy reasons, but the lack of transparency means those using them for more nefarious purposes can go undetected.

Last summer a report from the Home Affairs select committee criticised the lack of adequate supervision in the property industry.

Mr Pryor, who was called as a witness by the committee, said that the level of understanding of the scale of money laundering was “lamentably low” but that the government was at last getting a handle on the situation.

Of the 1.2 million property transactions made in 2015, representing 2.4 million buyers and sellers, only 355 suspicious activity reports were flagged according to the National Crime Agency.

As well as funding terror and criminal activity, money laundering distorts the London property market by pushing up house prices and leaving investment properties unoccupied.

In March of this year Transparency International called for the Government to make the property market less opaque by introducing measures such as a public register of the beneficial owners of overseas companies that own property in the UK.

They found that 40,000 properties has been purchased via companies registered in countries that do not make company ownership data public.

£2.4 billion worth of London property was purchased by those representing a high money laundering risk.

Duncan Hames, director of Transparency International UK said:

“Demand for London property is fuelled by the corruption that robs public services of vital funds all around the world.

“London property should be used as homes for those that need them and not left underused simply as a safe way to store wealth. We can only solve this problem if we root out the illicit wealth here and tackle corruption abroad.”

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