RiskTech Forum

Accuity: The UK Cracks Down on Money Laundering

Posted: 1 May 2018  |  Author: Nick Wilson  |  Source: Accuity


The UK government has announced new plans to crack down on money laundering as part of its response to a consultation on the billions of pounds of high-end UK property owned by overseas shell companies.[1] This is the latest in a series of measures designed to prevent criminals from exploiting the property market and, according to business minister Andrew Griffiths, demonstrates that “the UK is taking a leading role in the global fight against corruption.”[2]

Money laundering through real estate is a growing, worldwide problem, estimated to have reached $1.6 trillion a year. The UK has seen more than its share, although the exact scale of illegal activity in the sector is difficult to estimate. Individuals or companies with a high money laundering risk are thought to own more than £4.2 billion of property in London alone.[3]

Concern about money launderers’ growing interest in real estate, and in particular the number of properties in major cities in the UK that are owned through offshore shell companies, has prompted the government to take action.

In last week’s announcement, the Department for Business, Energy & Industrial Strategy said that over £180m worth of property in the UK has been brought under criminal investigation as the suspected proceeds of corruption since 2004, and that more than 75% of properties currently under investigation use off-shore corporate secrecy.[2] The new UK government legislation will propose a ‘UK Public Register of Overseas Entity Beneficial Ownerships’[4], which will force foreign property owners to declare who ultimately owns their properties. Non-compliance could result in two years in jail and unlimited fines.[1]

This is not the first move by the government to try to tackle this issue. In June 2017, regulations came into effect that bound real estate agents to anti-money laundering (AML) due diligence requirements that are broadly equivalent to those followed by banks and casinos.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 require estate agents to carry out due diligence on their customers (and the beneficial owners of their customers if the client is a company) before entering into ‘a business relationship’ with them. The regulations say that a ‘customer’ means both the buyer and seller of a property – ‘entering into a business relationship’ is taken to mean the point at which the purchaser’s offer is accepted by the seller. Agents are required to monitor the ongoing business relationship between parties to the transaction, and make sure that the transactions that take place are consistent with what they know about the buyer and seller. Records of the checks made must be maintained and updated, and all employees should be made aware of the requirement to report any suspicious activity.

This regulation was driven through parliament so quickly that the sector had little time to prepare. HMRC published interim guidance on its implementation but is consulting with the sector and other interested parties to develop this further.[5] In the meantime, real estate professionals are left with a lack of clarity about exactly what the requirements mean. As Estates Gazette reported in July last year, the regulations are already being interpreted in a number of different ways in practice.[6] Some property auction houses are asking all bidders to register and verify their identity before an auction, while others continue with the previous practice of asking for proof of ID only once a bid has been accepted.

Despite the confusion, the fact remains that real estate professionals in the UK – and across the world – must learn to live with, and adapt to, AML regulations. A recent Accuity report, Money Laundering and Real Estate, explains how AML requirements are seeping into the real estate sector in every major region across the globe. And the UK is ahead of the curve; if the latest government plans are realised, it will be the first in the world to introduce a public register of beneficial owners of companies buying domestic property by 2021.[7]

UK estate agents have been some of the first in the world to feel the full impact of AML requirements on the real estate sector, but they certainly won’t be the last. Meeting these more stringent regulations will take better organisation, systems and training than ever before, and the penalties for failing to meet compliance requirements are likely to become even harsher as time goes on (HMRC has already put in place a programme of announced and unannounced inspections to make sure that real estate businesses are complying with AML rules). This isn’t something that can be avoided or circumvented – AML is here to stay.

Download the full report.

[1] Shell company frontmen face prison sentences in crackdown on dirty money in UK property market
[2] Frontmen for shell companies could face jail in UK property crackdown
[3] Faulty towers: Understanding the impact of overseas corruption on the London property market,  Transparency International UK, March 2017
[4] UK Public Register of Overseas Entity Beneficial Ownership statement – HCWS425
[5] Money Laundering Regulations 2017: supervision of estate agency businesses
[6] Money laundering: A question of interpretation Estates Gazette, 30 September 2017
[7] World-first register to crack down on criminals laundering dirty money through UK property market to go live by early 2021