Estate Agents and the new Money Laundering Regulations
On 26 June 2017 the government brought into force the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. That’s quite a mouth full but for ease they are more commonly referred to as the Money Laundering Regulations 2017 (MLR 2017). This replaces the Money Laundering Regulations 2007 and The Transfer of Funds (Information on the Payer) Regulations 2007.
The MLR 2017 builds upon the current statutory framework and there are some important changes that estate agents must be aware of. There are specific obligations set out for estate agents and many may think they are being unfairly singled out. To help estate agents to comply, HMRC has published the "Money laundering supervision: estate agency businesses" which will no doubt be a useful guide for many.
This article takes a brief look at some of the main obligations placed upon estate agents under the MLR 2017. Failure to adhere to the regulations could result in an agent committing a criminal offence.
Registration with HMRC
Under the MLR 2017, estate agents must register with their supervisory authority, which is currently HMRC. If they don’t, they risk being hit with a financial penalty as well as suffering the consequences of any subsequent negative publicity. Registration can be done through the government website.
Business Relationships (Regulation 4)
Under MLR 2017 estate agents are 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. This is a significant change which places an obligation on estate agents to conduct due diligence on both the buyer and the seller. This will likely have an impact on the level of work undertaken by an estate agent during the course of each transaction. There is the possibility of third party reliance but some agents may refuse to enter into such agreements (see below). A common sense approach should be adopted by estate agents and solicitors involved in a transaction to help ease the burden. This could involve, for example, sharing customer due diligence information.
Risk Assessments (Regulation 18)
The identification and assessment of risk was an important factor running throughout the Money Laundering Regulations 2007. The MLR 2017 looks to create an increased emphasis on a risk based approach, effectively replacing the checklist mentality with a more robust assessment process. There is now a requirement for risk assessments to be undertaken by both the estate agents and their supervisory authority, HMRC. Regulation 18 gives a list of factors which estate agents must take into consideration when performing a risk assessment including factors relating to its customers, the countries and geographic areas in which it operates, its products or services, its transactions and its delivery channels.
Extra Territorial Reach (Regulation 20)
The MLR 2017 applies to estate agents and its subsidiaries including subsidiaries located outside of the United Kingdom. Subsidiaries and branches in the European Union must comply with the national law implementing the fourth money laundering directive. Where subsidiaries and branches are in countries with anti-money laundering regimes which are not as strict as the United Kingdom's, the estate agent must ensure those subsidiaries and branches apply measures equivalent to those required by the MLR 2017.
Internal Controls (Regulation 21)
Estate agents must appoint one individual who is responsible for compliance with the MLR 2017. Where appropriate this individual must be on the board of directors, or a member of senior management. Sole practitioners without employees are exempt from this requirement. Estate agents who currently have in place a Money Laundering Reporting Officer (MLRO) under the Money Laundering Regulations 2007, where this person is sufficiently senior, will be able to undertake this role.
There is also an obligation under regulation 21b, where appropriate to the size and nature of the business, for estate agents to assess the skills, confidence and conduct of employees who are involved in the identifying, preventing or detecting of money laundering and terrorist financing. This will include any members of staff who work within the departments which have a focus on compliance with the MLR 2017.
Training (Regulation 24)
Estate agents are required to provide regular training to relevant employees to ensure that they are made aware of the law relating to money laundering and terrorist financing, and to the requirements of data protection. The training must be provided on a regular basis. It must also address how to recognise and deal with transactions and other activities and situations which may be related to money laundering or terrorist financing.
Customer Due Diligence (CDD) (Regulations 27 and 28)
This is a key provision of the MLR 2017 and highlights the risk based approach taken in the fight against money laundering and terrorist financing. Several changes have been made in relation to CDD to ensure the highest risk situations receive enhanced customer due diligence. The MLR 2017 provides a list of situations where CDD must be applied and it sets out a list of factors which need to be taken into account. They also set out a list of information/documents that need to be obtained when undertaking CDD on a body corporate. Estate agents are required to identify and verify the identity of a person purporting to act on behalf of the customer, and confirm that they have the authorisation to act, for example, someone acting as a bidder on behalf of the buyer.
Enhanced Due Diligence (EDD) (Regulation 33)
The MLR 2017 list the circumstances where EDD needs to be applied, namely in any case identified as high risk. Again, there is a list of factors that must be taken into account when assessing whether a high risk of money laundering exists and it provides information about the extent to which EDD measures should be applied.
Enhanced Customer Due Diligence for Politically Exposed Persons (PEP) (Regulation 35)
As with the Money Laundering Regulations 2007, the MLR 2017 requires estate agents to have in place a public risk management system to identify if the beneficial owner is a PEP, or a family member of a PEP or a known close associate of a PEP. The MLR 2017 has expanded its definition to include domestic PEPs. The MLR 2017 also states that EDD measures must be applied to a person for at least twelve months after they cease to be involved with a public function.
Reliance on Third Parties (Regulation 39)
Under the MLR 2017 any estate agent who relies on the third party to conduct CDD must enter into a written arrangement with that third party. The third party will be obliged to provide copies of CDD documents upon request.
Criminal Offence (Chapter 3)
The MLR 2017 creates an offence of prejudicing investigations. Any individual who recklessly makes a statement which is false or misleading in the context of a money laundering investigation commits an offence which is punishable by up to two years' imprisonment.
Estate agents must comply with the requirements set out under the MLR 2017. Failure to do so could result in the estate agent being prosecuted for a criminal offence. The government proposes to introduce the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) in 2018. This is a body which will be created to co-ordinate the implementation of the MLR 2017. Whilst over the years there have been only a handful of prosecutions against individuals for breaching the Money Laundering Regulations, the creation of OPBAS and the extra burden the MLR 2017 places upon the supervisory authorities (e.g. see Regulation 17) gives a clear indication that the authorities will be looking to prosecute those who breach the MLR 2017.
We advise estate agents to ensure that they are compliant with the MLR 2017. Our team at Howard Kennedy are experts in the field of anti-money laundering and if we can be of any assistance, please contact a member of the Business Crime and Regulatory team.