Dealing with the money laundering nightmare

Sam Ruback, Head of Legal at risk management platform for professional services, Thirdfort, looks at the issue of ‘dirty money’.

 

The UK is awash with Russian money, often hidden in vast amounts of property from country houses to expensive flats in prime central London locations.

With the new Economic Crime Act and ongoing sanctions, estate agents are feeling the heat as HMRC clamps down on dirty money.

New technology can automate anti-money laundering (AML), know your client (KYC), politically exposed persons (PEPs), and sanctions checks to reduce the risk for agents.

But current guidance from HMRC on how estate agents should use such technology is holding back greater adoption in the sector, exposing agents to greater risk.

So, when the government is ratcheting up its focus on money laundering, its regulators such as HMRC should also help encourage agents to adopt the tools that can help tackle these issues.

What’s the issue?

New research from Transparency International shows that £6.7bn of questionable money from around the world has been invested in UK property since 2016. Of this, £1.5bn worth of property was bought by Russians accused of corruption or who have links to the Kremlin.

Nearly 55% (by value) of these properties are held by companies in offshore jurisdictions, enabling individuals to hide their ownership of these assets.

The new Economic Crime Act, which received Royal Assent on 14 March having been expedited through Parliament following Russia’s invasion of Ukraine, is designed to tackle these issues.

The Act does four things. First, it creates a register of overseas ownership of UK land and property. Second, it overhauls Unexplained Wealth Orders.

Third, it makes it easier to prosecute anyone involved in sanctions-busting. Last, the Act has amended AML regulations to help the government to impose sanctions.

Crucially for agents, authorities are now able to impose fines on those who flout sanctions, even if they didn’t know, or have reasonable cause to suspect, that they were doing so.

What’s the solution?

When the risks of fines are so great, manually tackling the ever-increasing compliance burden not only exposes agents to greater risk but cost as well.

Instead, new technology can help estate agents with best-in-class AML, KYC, PEPs, and sanctions checks to reduce the risk of fraud and fines.

However, many agents face two key barriers to adopting the technology that can help them reduce these risks.

First, the government and its regulators are not consistent in how they suggest firms use technology to tackle money laundering.

For instance, while legal regulators provide extensive guidance to lawyers on how to use technology to lower risks, HMRC does not provide the same level of detail for estate agents.

Second, HMRC has not made it attractive for agents to adopt AML technology, so many continue with manual methods which are not robust enough. As an example, HM Land Registry offers firms protection from prosecution if they adopt best practice for digital ID, yet HMRC does not take the same approach for agents and AML.

So, the failure to remove these barriers reduces the likelihood of agents conducting enhanced AML checks, which increases the risk of money laundering in the property UK market.

Encouraging greater adoption

To tackle this issue, we’d like to see HMRC to better explain to agents how they can enhance AML and PEP checks by adopting the right tools to reduce the risks they face.

We’d also like to see the HMRC actively encourage agents to adopt technology by, for instance, lowering the potential penalties for those that use these tools compared to those that don’t.

These steps would go a long way towards tackling Britain’s role as a laundromat for suspicious wealth from Russia, while also protecting honest and hard-working agents.

 

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