AML compliance in estate agency businesses is essentially to prevent criminals laundering money through the ownership of Real Estate. Understanding how a client is funding a transaction and how they acquired their overall wealth is a key component of AML compliance. Despite this, source of funds is little understood and there are many misconceptions heard throughout the industry.
Two of the more common misconceptions are:
- I only have to check the clients identity.
- If the money comes from a bank then I don’t need to worry as the bank has already completed AML.
Your obligations under The Money Laundering Regulations 2017 are covered in two places:
“Scrutinise transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, the customer’s business and risk profile.”
The Money Laundering Regulations 2017 – Regulation 28
Take adequate measures to establish the source of wealth and source of funds which are involved in the proposed business relationship or transactions with that person”.
The Money Laundering Regulations 2017 – Regulation 35
If you are concerned, ask yourself what it is that concerns you. If you are concerned that the funds involved are potentially illegal then extra identification will not change this. Remove anonymity perhaps, but not give confidence that the funds are legally obtained. In this instance you must scrutinise the clients source of wealth and funds and measure this against what you know about the client, to decide what scrutiny you apply.
When dealing with a PEP you must also consider evidence of corruption. Are they from a high risk jurisdiction? Is there the potential for government funds to be used illegally.
You are not required to question a known, wealthy client about their entire financial history. You are required to assess whether the source of funds is consistent with their risk profile and what you know about them.
If a client provides an explanation with which you are satisfied, is consistent with what you know about the client and there are no other high risk factors simply note the explanation on your risk assessment. Monitor the transaction to ensure that the funding is as explained and clarify anything that changes, at any stage.
The Regulations put no obligation on you to collect evidence of a clients source of funds. However, if you have cause to be suspicious it will be prudent to do so. You should then check the client’s explanation against the evidence provided and question if it is consistent.
Possible documents you can collect are:
- bank statements
- recently filed business accounts
- documents confirming the source, such as a sale of a house, sale of shares, a bequest under an estate or a win from gambling activities
A word of caution. A bank statement showing a large sum of money, is not an explanation as to the source of the money in the account. Also, a client not able to provide paperwork quickly is not necessarily a money launderer. It may simply be that they have to wait for other professionals (accountant, lawyer etc) to provide the requested documents. They may have lost documents and have to ask for replacements.
The key is to constantly ask:
- Is what I am being told consistent with what I know about the client?
- Are there any factors that lead me to suspect money laundering?
Always document the questions you have asked the client, and the answers. Do not be afraid to ask questions.
If after scrutinising the explanation provided by a client and reviewing any documents provided you are still suspicious you must follow your firm’s procedures. Usually this will involve seeking approval from a senior manager, MLRO or nominated officer and filing a Suspicious Activity Report to the National Crime Agency.
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.
