Money Laundering Internal Process

1. The Basics

 

All Estate Agents in the UK must be registered with HMRC to comply with regulation relating to Money Laundering. The legislation that covers this is: 

 

• The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. 

• The Financial Services and Markets Act 2000 

• The Proceeds of Crime Act 2002

 

AML regulations promote transparency within the financial transaction process to prevent the concealment of illicit funds.

 

This is achieved by KYC (Know Your Customer) checks and more widely known within the industry as AML (Anti-Money Laundering) checks. Its this KYC check that gives you a clear picture of who you are dealing with.

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2. Know Your Customer (KYC)

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HMRC requires all Estate Agents and with effect from 14th May for lettings Agents to: 

 

• complete customer due diligence on all clients, and all other relevant parties before entering into a business relationship or occasional transaction. 

• take reasonable measures to verify the identity of beneficial owners of clients and, if the beneficial owner is a legal person, trust, company, foundation or similar legal arrangement, take reasonable measures to understand the ownership and control structure of it. 

• have procedures to identify those who cannot produce standard documents, for example, a person not able to manage their own affairs

• identify and verify a person acting on behalf of a customer and verify that they have authority to act, for example someone acting on behalf of a company or trust 

• apply enhanced due diligence to take account of the greater potential for money laundering in higher risk cases, including politically exposed persons 

• for estate agents identify politically exposed persons, their family members and close associates and verify their identity, source of wealth and/or funds. You must also have a procedure in place so that a senior manager can consider whether to do business with that person 

• for letting agents have a system in place to identify landlords and tenants against the UK sanctions list. 

• apply customer due diligence, when you become aware that the circumstances of an existing customer, relevant to their risk assessment, has changed 

• not deal with certain persons or entities if you cannot carry out customer due diligence, and consider making a suspicious activity report 

• have a system for keeping copies of customer due diligence and supporting records and keep the information up to date.

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3. Checks required to comply

 

The process for meeting the KYC requirements is to carry out the following checks. 

 

• Check the physical identity documents, copy them and record in the file either in paper copy or digitally. 

• Carry out a PEP and/or Sanction Check. Save the document in the file or digital record. 

• Continue ongoing monitoring for clients that exceed the review period (usually 1 year) if the transaction takes longer than normal.

 

Once these checks are completed you must follow the risk pathway to determine whether the client is Low, Medium or High risk.

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4. What happens when the Client doesn’t fit the process?

 

There may be clients that do not fit the process set out in checks required (above). This could e due to a number of factors:

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• Acting as a joint agent 

• Acting in the capacity of professional on behalf of a 3rd party 

• The client may not have the relevant identity checks.

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In these instances the client being checked is automatically designated as High Risk. You can still act for these clients if you document the

process with a clear understanding that you have been able to verify partially or relying on another regulated business (solicitor, estate agent) and the checks they have carried out. In all instances the MLRO must review the evidence obtained and approve continuing to act for the client.

 

In situations where the checks require a SAR, or the process brings new evidence to light to require a SAR the business has a policy of withdrawing from the transaction. Only the MLRO can override this decision but it will be unlikely due to the risk to the business of continuing to act.

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5. Suspicious Activity Reporting (SAR), what to do

 

During the process of carrying out checks you may need to file a Suspicious Activity Report. The guidelines relating to this are very strict and must be followed carefully. In the first instance they must be reported to the Money Laundering Reporting Officer (MLRO). They will assess what is required and may ask you to gather further information, make a detailed report and provide statements relating to it.

 

It is your responsibility to report to the MLRO (you may want to evidence this) but it is the MLRO who is responsible for making the SAR report.

 

6. The consequences of failing to comply,

 

Failure to comply with the regulations can have wide ranging and serious consequences, both criminal and civil for both the individual and the company.

 

Penalties range from unlimited fines, reputational damage, sanctions, licence and regulation approval withdrawal and Individually to you, criminal prosecutions with the possibility of incarceration.

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Know Your Customer Process (Risk Pathway)