Just before the end of 2020, the government published its updated money laundering risk assessment. This was the first time a risk assessment had include high value lettings agency, which was brought within the scope of AML regulation by 5MLD. It also updates the estate agency risk assessment.
The estate agency assessment states that risk in estate agency continues to rise, especially in property in the top 5% of value in an area, known as super-prime. However, the risk assessment also states that the “full scale of laundering … is unknown”. So it’s open to question how accurate the assertion that risk is increasing actually is. The level of compliance is also low with the assessment stating that in 2019 only half of estate agents were registered. Anecdotally, we suspect that the level of compliance in the letting sector is even lower.
The guidance on the application of 5MLD remains outstanding, nearly a year after implementation. This is hugely unsatisfactory given that the regulations apply to a whole new area. It is of particular concern to lettings agents as the regulations are very unclear as to when the obligations to do checks apply in relation to prospective tenants. The regulations suggest that there is no requirement to do a check until just before the tenancy starts, that is after all referencing has been done. However, HMRC staff have been telling agents that their view is that the requirement is to do checks before any money is taken, that is before a holding deposit is taken.
It is inevitable that prosecutions will be taken against estate and letting agents. However, given the lack of full guidance, the unclear approach in the regulations and the uncertain level of risk in the risk assessment, such prosecutions are not the easy case that the government might think.
When prosecutions happen, they will likely be brought under regulation 86 of the Money Laundering Regulations 2017. Regulation 86 sets out a serious criminal offence, in relation to which a conviction may result in a term of imprisonment of up to two years, a fine, or both. In deciding whether someone has committed an offence, the court must decide whether relevant guidance has been followed. This is not a very clear statement as relevant guidance includes any guidance issued by the Financial Conduct Authority or any other relevant supervisory authority or appropriate body approved by the Treasury.
A defence may be established if the accused person took all reasonable steps and exercised all due diligence to avoid committing the offence. This seems sufficiently wide to be helpful to defendants but there exists the problem of what magistrates and jurors will consider to be ‘all reasonable steps’ and ‘all due diligence’ in the absence of cases to draw on.
Agents should be looking to revise their own risk assessments based on the new national risk assessment. Letting agents will need to consider the best procedure to follow to ensure that they are complying with the 5MLD requirements. The guidance, when it finally appears (probably in Q1 2021) will be of particular importance.