Now more so than ever, it is essential for asset owners and managers across all industries to be compliant with anti-money laundering (AML) regulations. In the UK, AML regulations have been beefed up considerably in response to emerging threats and worrying trends, with wealthy criminals often using conduits in London to launder their ill-gotten gains.
One of the major tools for laundering illegal wealth in the UK and elsewhere is real estate. In fact, in the UK alone, more than £4 billion worth of the real estate is thought to be implicated in money laundering efforts. Despite this, the industry has not done enough to step up.
According to a recent survey from Credas Technologies, one-third of all property professionals admit they are not AML compliant. The actual figure may be much higher, since around half of all UK property managers conduct their AML compliance checks, with no independent oversight whatsoever. Let’s look at why this is a problem, and what needs to change.
The scale of the problem
Because of the covert nature of money laundering, it is difficult to determine the full scale of the problem. However, we know that in the UK especially, money laundering has a significant economic and social impact.
According to some estimates, money laundering costs the UK economy more than £100 billion a year, with HMRC losing out on tax receipts and the government having less money overall to fund social services.
Meanwhile, the vast profits that are available due to a lack of AML compliance incentivize all forms of costly criminal activity, including the drug trade, human trafficking, theft, and white-collar crime. The cost of this to both the economy and to wider society is impossible to fully calculate.
If we look at the UK property sector specifically, the need for property professionals to step up their AML compliance becomes clear. Billions of pounds worth of illegal cash are funnelled through the UK’s property market every year, with London being a particular hotspot for dirty money.
At the elite high-end of the property market, a significant number of multi-million-pound homes have been bought by individuals on corruption watch lists, often from Russia and the former Soviet Union states.
As a result, corrupt businesspeople and dictators have been able to stash their pilfered cash in the UK’s prime property market, which only serves to worsen corruption in the countries that are being systematically robbed by these individuals. Meanwhile, London’s reputation as a haven for dirty money has had a direct and significant impact on pushing up house prices for everyone else.
The capital is filled with multi-million-pound flats that remain empty for most or all of the year, while average property prices continue to rise past affordable levels. For these reasons, property professionals have a particular duty to comply with AML regulations today.
What should property professionals be doing?
So, we know that money laundering is a problem in the property sector, but what can property professionals do to address this? For a start, property managers must be aware of their obligations to combat money laundering not just in the UK, but everywhere.
Anti-money laundering directives apply in the UK, Europe, US, Canada, China, India, and more. Falling afoul of these regulations can have swift and severe legal penalties, and it is not uncommon for property professionals to be banned from working in the industry if they are believed to have been lax in their enforcement.
A good place to start is to consider the myriad ways that you might encounter money laundering in your day-to-day work. As SEON’s guide to AML in banking explains, many of the AML processes that underpin the banking sector also apply to property managers. At a bare minimum, this includes institutions Know Your Customer (KYC) and Customer Due Diligence (CDD) checks on clients, particularly those that arouse suspicion for any reason.
These AML compliance steps are uniform, easy to implement and take a very small amount of time and resources. You can also use instant IT solutions such as real-time ID verification to confirm who is attempting to purchase a property from you and whether they are who they say they are.
Like banks, it is also crucial for property companies to take additional steps if they operate in multiple jurisdictions. Chief among these is cross-referencing clients with international sanctions lists since selling a property to a sanctioned individual can result in jail time for those who facilitated the transaction.
You should also use a solution that offers comprehensive Politically Exposed Person (PEP) checks to determine if a potential buyer is linked to an important public figure that might be susceptible to undue influence. By knowing who is buying your property and where their money comes from, you can stay compliant with the latest AML directives and laws.
What happens if you are non-compliant?
We have already covered how a lax approach to AML regulations in the property market impacts the economy, society, and the world at large. However, it is also important that property managers have no illusions about the risks that they take on when they are non-compliant. As a property manager, these are the typical penalties for AML non-compliance:
Across all jurisdictions with AML regulations, professionals who cannot do their due diligence can be fined. In the UK, the minimum administration fine starts at £1500, before you include any additional financial penalties. In recent years, various asset management companies in the UK have been slapped with fines totalling tens of millions of pounds for non-compliance.
In more extreme cases, professionals can face prison time. In the UK, professionals who have facilitated money laundering can face a maximum sentence of 14 years in prison. Meanwhile, the US imposes a maximum 20-year prison sentence for the crime. It’s also worth mentioning that individuals found to be flouting AML laws in a foreign territory can be extradited to that territory to face charges there.
If you are AML non-compliant and manage to avoid fines and prison time, you could still face professional sanctions. Some individuals in the property sector have been banned from working in the profession again after breaching AML rules. You could lose your real estate license, or be placed on an industry blacklist. There are no situations where these kinds of risks are worth taking.
The property sector has a particular responsibility to enforce existing AML regulations. It might seem like a lot of extra work, but the effort is always worth it.