On 26 February 2021 HMRC warned Estate Agents to be vigilant of increased money laundering risks as property purchases rise due to the State Duty holiday extension.
In particular HMRC refer to:
- a temporary increase in the Stamp Duty Land Tax (SDLT) threshold to £500,000 until 31 March 2021 (since increased by a further 3 months at the Budget).
- the 2% surcharge in SDLT starting from 1 April 2021 2021 for overseas buyers buying property in the UK.
Whilst these extensions provide some welcome relief for legitimate buyers and are widely welcomed by estate agency businesses they, create conditions that criminals in the UK and abroad may try to exploit.
- An increase in buyers entering the market to take advantage of the lower SDLT and overseas buyers wishing to purchase before the 2% surcharge will put pressure on estate agency businesses with the volume of transactions that need to complete.
- The deadlines will create a time pressure to complete transactions ahead of the 2% surcharge being introduced and the SDLT threshold reducing to £250,000.
Money launderers will use both of these conditions to pressure estate agents into short cuts in their procedures. Money launderers hope that a busy agency will miss or even ignore money laundering red flags. They certainly hope that the team will be so busy that AML becomes less of a consideration.
Similarly the Money launder uses time constraints like the SDLT holiday to create a pressure to complete a transaction in the guise of saving money. After all, an overseas buyer does bot want to pay a surcharge and a UK buyer does not want to pay extra stamp duty. In reality the pressure is being applied to get the agent to take short cuts in the due diligence process, ignore red flags, or take a view that they will deal with them after the transaction completes. EAB’s acting in good faith, hoping to provide good service and savings to a client can inadvertently aide the money launderers.
HMRC has already signalled that they are aware of these issues and are alert to them. The fact that they have warned EABs of the increased risks shows it high on HMRC’s radar as are EAB’s in general. The key to not falling prey to a money launderer is to pay careful attention to conducting due diligence on each transaction no matter how busy you are or how close the deadlines are for the SDLT extensions to end. Complex transactions involving overseas, corporate or trust buyers are particularly at risk. It may take time for the buyer to collect and provide documents, which only intensifies the time pressures.
To make sure you do not fall prey to money launderers exploiting these pressures you should:
- Follow your policy, control and procedures
- Complete a full risk assessment and mitigate any risks identified
- Start your risk assessment as early as possible in the transaction. This will help you identify red flags early and give you more time to request documents from the client.
- Ask the client for any documentation as soon as possible. Be clear about what is needed to give them time to collate information and get it to you.
- Collect evidence to support source of wealth and funds where necessary
- Take care with complex transactions, make sure all documentation is present and properly certified or validated before proceeding
- Be clear about the client’s source of wealth and funds. Do not be afraid to ask questions.
- Raise any red flags with senior management and seek advice before proceeding and do so as early as soon as possible.
- Seek advice from AML specialists if required.
With next few months expected to see an increase in transactions and associated AML risks you should consider outsourcing your complex work to LondonCDD who are specialists in complex due diligence cases.
LondonCDD can help you:
1. Revise your Risk Assessment and upgrade your Policy, Controls and Procedures;
3. Advise on broadening the ekyc/digital solution you use;
4. Provide you with a complete solution for your AML concerns.
