The bank of Mum and Dad is a significant source of funds for home buyers. But how risky is it, and do estate agents and property lawyers need to apply more thorough anti-money laundering (AML) verification and Source of Funds (SoF) checks when a transaction involves such funds?
Each year £17bn is gifted or loaned informally, with almost all of this money going from parents to their adult children, according to the think tank the Institute for Fiscal Studies (IFS).
Around half the value of gifts received is used to help purchase a property or carry out a home improvement. On average, beneficiaries received more than £20,000 each.
Given the sums involved, estate agents and property lawyers must not assume that the bank of Mum and Dad is low risk and that, just because the money is in a UK bank account, it is legitimate.
It is imperative to go beyond mere proof of funds and delve deeper into the source of these funds.
Property professionals should not rely on self-declaration from their clients or the donor. Instead, those gifting the money must be subject to the same checks and verification we would expect of those buying the property.
Understanding where the money comes from is crucial to getting comfortable that the money is legitimate. The first question must be how have the parents accumulated the funds to be able to gift them.
Whether the funds come from savings, an inheritance, an asset sale, gambling winnings, or crypto gains, each requires evidence and verification. If the money is from savings, professionals need to see the savings account statement. This should be accompanied by an understanding of the activity that generated those funds.
If the money is from a lump sum from an asset sale or inheritance, professionals should seek documentary evidence such as a copy of solicitors’ letters.
If the funds come from another jurisdiction, there is more reason for property professionals to conduct a thorough source of funds check. Agents and lawyers need to be sure there is a good reason for the gift to have come from overseas.
If necessary, they should look at the jurisdiction itself and the AML profile risk of that country. Tools such as KnowYourCountry.com and Transparency International Corruption Perceptions Index are useful for gauging the level of risk.
While it is sometimes challenging for property professionals to know whether they have investigated enough, if they are uncertain, the chances are they have not.
Ultimately, despite perceptions that some sources of funds – like a gift from the bank of Mum and Dad are low risk – they are not.
To remain compliant and protect against money laundering, agents and lawyers must carry out due diligence and get comfortable about where a client’s or their donor’s funds have come from.
Property professionals must undertake a comprehensive analysis of the donor’s personal and professional background, financial statements and tax returns, and public records and reputation.
Clients may not like it, but it helps protect people and society against fraud and money laundering. It should not be overlooked.
Harriet Holmes is AML services manager at risk management platform Thirdfort
You somehow get the impression there’s a whole bunch of people wondering how other people have got wads of cash they can simply give away.
For the past 20 years the prudent people have used low interest rates to get rid of their debts and watch their assets being inflated beyond expectation or need. When life has presented opportunity to acquire or keep hold of assets that were providing growth and income yields they took it.
I appreciate all of that damages society and makes things unfair but really, what did they expect sensible, prudent people to do?
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This is so important yet so very annoying and frustrating.
Technically speaking the AML Regulations relate only to a client but it is a criminal office under POCA (Proceeds of Crime Act) to facilitate money laundering.
You will know that the conveys will be running checks but you cannot rely on that either.
Source of funds does not mean looking at a bank statement that shows the funds are available. Source of funds means understanding how the money was accumulated.
You need to ask questions and you need to review documents are provided. You need to know how the money was accumulated.
If you don’t do this properly then you can end up charged with a criminal offence and face trial. Custody is a most likely out if found guilty.
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While some of your comments are correct, trying to delve into the financial history of mum and dad is fraught with considerable backlash and next to impossible get them to show evidence that its proceeds of crime, particularly when it isn’t. Does anyone really believe that they are going to say to you, “yep got the money from drug trafficking, robbed granny last week at the cashpoint …….” So you are left with a paper trail and left with no alternative but accept it for what it says, and most of the time you will still be no wiser!
So when do you decide it is or isn’t money laundering? This is an issue that was never addressed and really is beyond the remit of estate agents staff and most conveyancers. You also need to remember you are not permitted to tip off the criminal. All you can do to cover ‘yourself’ is take the details and forward them to your anti-money laundering nominated officer who will then pass it onto the authorities to research deeper. This will keep you out of jail and penalties. Money on, they will do as you do, look at the paperwork and make a decision, unless that person come up on the radar with history of criminal activity.
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I questioned a load of money being gifted from India the other day..
After my racial discrimination court appearance I can’t wait to get back to work…
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“It is imperative to go beyond mere proof of funds and delve deeper into the source of these funds”.
Best of luck with that one when you ask to see the parents funding/financial history. Maybe they are a drug trafficker and just maybe not and the latter is more likely to be 99% of the time for agents.
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Look if the Government wants to pay us a financial investigators salary to undertake work outside of our remit, then of course I’ll vet Mum & Dad.
The average salary for a Financial Investigator is £37,175 per year in United Kingdom. When should we expect our first paycheck?
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