Estate Agents Named and Shamed by HMRC
The Inland Revenue recently named and shamed a number of Estate Agents penalised for failure to register their anti-money laundering business practices with HMRC.
Countrywide, a well-established nationwide agent, and Tepilo, the fixed price online agent founded by channel 4 presenter Sarah Beeney, were the highest profile culprits fined £215,000 and £68,595 respectively.
The penalties were actually levied in the third quarter of last year after HMRC spot checked 50 agents across England suspected of operating their business without the mandatory license.
Their recent decision to publish all of the businesses found failing to comply in the most recent tax year is widely seen as good evidence of their impatience with the industry’s general reluctance to embrace their role in identifying money laundering activity in the Property sector.
According to the National Crime Agency, responsible for investigating Suspicious Activity Reports (SAR) lodged with them by property professionals legally obliged to do so, only 0.2% of the Reports over an 18 month period came from Estate Agents.
Recent research carried out by Credas, an ID verification company, claimed that up to one in five Agents have been fined or warned by HMRC for their failure to comply with anti-money laundering legal duties bestowed upon them mainly by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (The Regulations).
Property Lawyers have been wrestling with their duty to submit SARs to the National Crime Agency since 2002. They routinely acquire identity evidence of their clients and must also obtain confirmation as to the source of funds used to purchase property. It has been tempting for Agents to rely on lawyers to assist them in dispensing with their own anti-money laundering duties, particularly with regard to taking responsibility for the authenticity of identity documents. There are a number of problems with this approach:
• It does not really comply with the The Regulations which requires Agents to carry out customer due diligence ‘before entering into a business relationship’ with the Seller and Buyer. Typically this would mean at the point of being instructed by a Seller or upon formalising a Memorandum of Sale with respect to a Buyer. Both of these milestones usually occur before a lawyer has become involved.
• It is not very pro-active and causes delays at the start of the transaction.
• It misses an opportunity to recite the full legal names of the parties to the lawyers involved confidently very early on rather than wait for the initial documentation issued by the Sellers Solicitor to be incomplete and require further amendment later on.
• It sends a consistent message that the information and documentation are important and necessary and not just required by pedantic lawyers without any good reason.
• It misses an opportunity for lawyers to accept copy identity documents certified by Agents so that parties are not asked repeatedly for the same documents by different professionals in the process. This advantage, however, could only really take hold if Agents routinely used the type of ‘certificate’ commonly required by lawyers relying on third parties… that the copy is a true copy of the original, that the photo is a true likeness of the person that they have met in person as well as the name and address of the certifier and the date of the certification.
Complying with anti-money laundering obligations is nearly always going to be more straightforward when the parties involved in a transaction are able to supply original documents and meet the property professionals face to face. With this in mind it is not too difficult to imagine lawyers and agents collaborating with one another to dispense with their legal duties in this regard although more work has to be done to harmonise the standard of evidence obtained as well as affirming common policies on how long records are kept available for further scrutiny if this ever becomes necessary.
In any event HMRC have made it very clear that they will continue to spot check and audit Agents to ensure that they are complying with the obligations set out in the Money Laundering Regulations 2017. Sanctions available to the HMRC include fines, injunctions, suspension of key personnel and circulating negative publicity. This is in addition to the threat of criminal action being taken against individuals who flagrantly ignore their obligations. Property Mark NAEA have indicated that they would welcome HMRC publishing all fines issued but have been critical about the lack of specific guidance to assist Agents on a practical level in making SARs.
Proving compliance should not be too difficult for reputable agents who already encourage ‘know your client’ practice with clear systems and processes in place to record and archive this information.