Vivienne Harris reports on discussions about the Money Laundering Regulations and their impact on estate agencies.

Anti-Money Laundering Legislation.
We have been informed that Regulation 5 of the Money Laundering Regulations (MLR) defines Customer Due Diligence (CDD) as:-
Verifying and identifying the customer on the basis of documents, data or information.
Identifying any beneficial owner and taking adequate measures, on a risk sensitive basis, to verify the identity of any such beneficial owner.
For the purposes of Estate Agency it states that Client Due Diligence (CDD) must be applied when an agent establishes a business relationship with a client, carries out an occasional transaction, suspects money laundering or terrorist financing and/or doubts the validity of any documents or information previously obtained. The identity of all customers must be verified prior to a one off or occasional transaction commencing or, before the formation of a business relationship. However, CDD can be carried out during the establishment of said association, but only if this is necessary in order not disturb the normal course of business and where the assessment is made that there is little risk of money laundering/terrorist financing. The level of CDD to be carried out should be determined by each business, using a risk based approach.
A meeting of The National Association of Estate Agents (NAEA) was held at the Landmark Hotel, London, NW1 on 9th September 2015, to explain the requirements and ensure compliance by estate agents regarding; Anti Money Laundering (AML), (CDD) and Proceeds of Crime (POC).
Vivienne Harris MD of London estate agency Heathgate www.heathgate.com and property expert of 37 years attended the meeting and reported her feedback.
From 2007 until recently the Office of Fair Trading (OFT) were the overseers in relation to AML, CDD and EDD (Extra Due Diligence). This position has now changed with (Her Majesty’s Revenue & Customs) HMRC taking over the role. What became obvious at the meeting is the gravity that the regulators are placing on this issue and, that estate agents may not just gain a criminal record or an unlimited fine for non-compliance, but a jail term of up to 14 years. (Subsequently, Eversheds solicitors have written Anti-Money Laundering FAQS for Estate Agents that indicates a jail term of 2 years may be more applicable). Either way, failure to meet the requisite “risk based” guidelines is extremely onerous. It is clear that HMRC will be visiting offices, without warning, requesting to see the relevant paperwork for each client or specific clients, as well as, requiring the office internal notes to see that procedures for compliance are in place within the company, and that staff are fully trained.
At the meeting Mark Hayward from NAEA, James Munro from National Trading Standards (NTS), Chris Hamer from The Property Ombudsman (TPO) and Nigel Kirby from the National Crime Agency (NCA) all spoke definitively about their specific areas with regard to the obligations, but Sue Edwards, the Deputy Director of Compliance at HMRC, struggled to provide clarity in relation to the requirements as laid down by HMRC. It was not her fault that the recommended procedures were somewhat opaque, but what was apparent is that those making the rules do not understand the nature of our business, the essence of agency or what impact these expectations will have on the industry.
A major concern was half commission deals. If the current rules are applied, this area of business could be wiped out for sales and lettings overnight. Many London agents co-operate with each other regularly, but the new rules require that a sub-agent is required to have the principal agents AML paperwork on file, as well as, the actual vendors or landlords too. The head agent will have to provide identification details of their clients to these parties, breaching the current client anonymity on which the system works. This information is required prior to viewings on all instructions and has to be gained directly by the sub-agent. We were told that documents provided by a main agent or a solicitor, are unacceptable. Additionally there may be further issues, regarding clients privacy which have not been addressed, as AML opens the door to infinite requests from any number of third parties.
Contrary to Ms Edwards, Eversheds solicitors comment in their Anti-Money Laundering FAQS for Estate Agents, that sub-agents may be able to accept the information via the main agent, but they will have to do this on a “risk assessment” basis, meaning they will have to trust that the principal agent has carried out their own sufficient checks.
Other consequences could include loss of vendor or landlord anonymity and the sub-agents, relocation agents and home-finders wasting valuable time, energy and resources by trying to conform, when all they require is a viewing on a property. In particular, relocation agents, home-finders and sub-agents make half commission or retained appointments on properties for both sales and lettings on a daily basis which could amount to a requirement for AML information on 10 – 20 agents and dozens of clients per day. Many of these buyer led agents are not restricted by location so the administration required to comply may prove a logistical nightmare.
From the high level of grievance emanating from the meeting it was clear that the current government guidelines were considered poor, onerous and unworkable for the majority of agents in attendance.
Subsequently, we understand that, Ms Edwards has begun a process of “consulting” again with a view to engaging in and being receptive to ideas during this new “consultation” period. We will have to see what the new round of discussions brings.
The Data Protection Act 1998 (DPA) may prove another hurdle. It is suggested that agents should become data controllers in order to have authority to provide personal client information to third parties. To do so agents will have to notify their clients that their data may be forwarded to other businesses, with fair notice, in a specific format and gain clients freely given consent. We have been told that merely adding a paragraph to the Terms and Conditions of Business will not be adequate. Additionally it must only be used for the legitimate interests of the estate agency and that of the sub-agent, with protection put in place to limit the amount of actual data shared.
Where a property is owned by a company or trust, checks are required on all and any directors who hold 25% or more of the shares or voting rights in the company and any individual who exercises control over management. For trusts, it is any person with a specified interest of 25% or more, who controls the management or in whose main interest the trust is set up.
The EU Fourth Money Laundering Directive (4th MLD) comes into force 26th June 2017 whereby letting agents will also have to obtain AML details but the guidelines for this will not come into effect until the UK Government legislates accordingly. Letting agents tend to share fees with each other more regularly than sales agents, so dependent upon the mechanism for adherence further issues may possibly evolve.
The main question at the meeting was “How do agents ensure compliance?” the answer was, “Make your own risk assessment, but if your assessment is wrong, you will be heavily fined or even jailed”.
Fundamentally it’s about the lack of clarity and insight into the industry. Agents need clear guidelines that are simple, quick and easy to apply.
The NAEA/NFoPP currently provide Industry Guidance on Money Laundering dated July 2011 that delivers information to assist agents in compliance, although with 66 pages of rules and regulations it is a long and dry read.

http://www.nfopp-regulation.co.uk/media/148686/money_laundering_guidance.pdf#search=
Further material is available at:-
www.gov.uk/guidance/registration-guide-for-estate-agency-businesses
www.gov.uk/government/uploads/system/uploads/attachment_data/file/321830/MLR2007.pdf
www.public.online.hmrc.gov.uk/lc/content/xfaforms/profiles/forms.html?contentRoot=repository:///Applications/Business Tax_iForms/1.0/MLR100&template=MLR100v5.xdp
For more information or to connect with Vivienne Harris, Heathgate visit www.heathgate.com or email vivharris@heathgate.co.uk

Published RICS Property Journal Pages 42/43 March 2016