Money laundering is an act of showing criminal assets as income from a legitimate source. Money laundering can happen in many sectors and in many ways. Estate agents are an industry where there is a high risk of money laundering. Because of this risk, estate agents should prevent money from financing terrorist activities by doing Money Laundering Controls. Generally, estate agents are regulated by HMRC, but they should also follow their country's regulations or affiliates. Estate agents may face fines or criminal prosecution if they do not comply with regulations. This can result in unlimited fines with imprisonment of up to 2 years.
Why There Is a Risk of Money Laundering in Estate Agents?
Estate agents are one of the sectors that financial criminals primarily target for money laundering. This is because buying and selling property is a common method of money laundering. There is a risk of millions of dollars of money laundering by buying and selling a property. It is the money laundering method used in estate agencies to provide criminals with a fairly legitimate source of funding and to use complex corporate structures with multiple countries and bank accounts to hide the true purpose of the transaction. Moreover, criminals pay a large amount to an estate agent's business and then take it back. Tax evasion by estate agents is another crime that can lead to money laundering.
Besides money laundering, terrorism financing in estate agents can also pose a risk. Terrorist financing aims to commit crimes on money or goods because funds and goods can be obtained from legal or criminal sources. There is also a risk of terrorist financing in this sector, as money and goods exchange is at the core of the estate agents. Because of these crimes, the risk of money laundering in estate agents is high, and if estate agents do nothing to mitigate these risks, they will not only be subject to regular fines but also cause a loss of reputation in their businesses.
HMRC Regulations and Penalties for Estate Agents
The HM Revenue and Customs (HMRC) is a UK government agency responsible for the administration of taxes. Estate agents are required to comply with the HMRC Regulation on Money Laundering. Reminders are sent by HMRC when estate agents do not comply with regulations. Estate agents will not receive any punishment if they comply with these regulations while submitting this letter, but if they still fail to comply with these letters, criminal prosecution will be initiated against them. HMRC pays attention to the following when determining the amount of the penalty; the reason for the non-compliance, the business's compliance history, the severity of the crime, the benefits received, the relative size of the business, and the amount exposed to money laundering activities. As of July 25, 2018, HMRC brought a criminal administration charge for all fines of anti-money laundering controls. The main purpose of this law is for the costs of fining businesses that do not comply with Money Laundering Regulations.
Detecting Suspicious Transactions And Reducing Risks in Estate Agents
It isn't easy to detect the money laundering behind the estate transaction. It helps risk-based assessment of possible real estate money laundering red flags. Guidance of FATF and EU Regulations is a useful tool for the industry at both the global and national levels. When managing the process to prevent money laundering, it is necessary to be able to identify unusual or suspicious patterns related to customer risk, transaction risk, or geographic risk. As a result of these definitions, necessary action should be taken when the transaction is suspicious and reporting obligations are triggered.
Customer Risk
Customer risk concerns the buyer, but sometimes these risks can affect the seller. Identifying the real buyer to determine customer risk is of great importance. Customer risk also includes people who are politically exposed (PEP) or high-ranking foreign officials who require special attention due to certain international provisions such as sanctions.
Geographical Risk
Geographic risk is important for both the property and the buyer. The first thing that matters is that the property's location matches the buyer's and seller's location. It is then important that the anti-money laundering regimes are weak or in a highly corrupt jurisdiction. Finally, there is an inexplicably wide geographical distance between the property and the location of the buyer. All these problems need to be identified and discussed.
Transaction Risk
Transaction risk is related to various factors such as property type, incompatibility between buyer and property, sequential transactions, and cash usage. If the transactions do not seem professional or commercially meaningful, they are heard with concern, and necessary measures are taken.
The Importance of Suspicious Activity Report (SAR) for Estate Agents
In Estate Agents, an internal report should be prepared to prevent money laundering and terrorist financing when there is reasonable suspicion of buyers. These reports should be submitted to the National Crime Agency (NCA), and also the reasons for submitting or not submitting a report should be recorded. The name given to a report sent to the NCA under the Terrorism Act is called the Suspicious Activity Report (SAR). For the suspect to be subject to the transaction, funds or property must be the revenue of any crime or linked to terrorist activity. No matter what kind of crime he committed, SAR should be done for every transaction that is unexplained and laundering money. These reports should be reported to the necessary institutions. Finally, estate agents have to prepare a Suspicious Activity Report (SAR) as soon as possible after they know or suspect that money laundering or terrorist financing has occurred. Otherwise, they will be subject to regulatory penalties.
Risk Assessment Requirement in Estate Agents
A Risk Assessment can determine risks exposed to the estate agents. Through risk assessment, estate agents can deal with money laundering and financing risks of terrorism and solutions to deal with them. Information about risk and emerging trends from sources, including the National Risk Assessment and HMRC risk assessment, should be noted, and procedures should be changed as necessary. Estate Agents should review this in writing and regularly when assessing risk. Risk assessments should be made up to date so that any risk that may arise can be intervened immediately. As a result of the risk assessment carried out, the estate agent should implement internal policies and procedures. It is very important to have a risk-based approach when conducting a risk assessment.
Risk-Based Approach
Estate agents enable them to identify the risks of money laundering and terrorist financing to which they are exposed to. In this way, estate agents can reduce financial crimes on property. With a risk-based approach, estate agents are also managed and reduced after evaluating the risks of money laundering or terrorist financing. In the evaluation, the most important areas can be focused on the risk-based approach, and unnecessary burdens are reduced. A risk-based approach greatly reduces the risk of criminals using the business for money laundering and terrorist financing.
When making a risk-based approach, Customer Due Diligence should perform and determine the customer procedures to determine the customer risk level. Some of the most used methods to determine customer risk levels are a PEP scan and an adverse media scan. After these checks, the risk profile of the customer is determined.
The Requirement of Know Your Customer (KYC) for Estate Agents
Know Your Customer is a control procedure implemented by customers to identify and prevent risks of financial institutions. With Know Your Customers (KYC) procedures, estate agents can assess and identify risks related to illegal financial activities such as money laundering, terrorist financing, corruption, fraud, etc. KYC Procedures generally enable the estate agents to have the necessary information about the customer. Furthermore, The importance of KYC is determined by the European Union Directives (EU) and Financial Action Task Force (FATF) proposals.
There are some controls to be implemented in opening customer accounts according to the procedures determined by the regulators. Firstly, the customer's information should be collected, and the accuracy of this information should be checked. Then, the customer's risk level needs to be determined, and this determination is made by applying the Customer's Due Diligence and, if necessary, Enhanced Due Diligence procedures. Finally, a control program that is suitable for the risk level of the customer should be developed. There are also sanctions, PEP, and Adverse Media controls that determine the customer's risk level. With these controls, potential risks that customers may pose in Real Estate Agencies can be identified.
Customer Due Diligence for Estate Agents
Customer Due Diligence (CDD) is used in ML/TF risk assessment processes at Estate Agents and should be done before buyers take the property. CDD procedures should be applied to beneficial owners involved in the counterparty and property sale and to all customers and stakeholders before proceeding. CDD procedures may not be sufficient for people who are politically exposed, their families, and high-risk cases, so Enhanced Due Diligence (EDD) procedures should be applied to style people and cases. Care must be taken to take into account the greater potential for money laundering. After checking the person you will establish a business relationship with, you should start the business relationship. Also, CDD checks should be carried out in case of suspicious transactions. CDD processes should be designed to meet FATF standards requirements.
How Does the Sanction Scanner Help?
Estate Agents must apply AML requirements while performing a quick customer account opening process to ensure customer satisfaction. With its powerful API support, Sanction Scanner automatically performs all AML control processes of organizations, from customer account opening to customer money transfer transactions, within seconds. The Sanctions Scanner has a global database of sanctions, PEP, blocked persons, and searched lists. The database of the Sanction Scanner is updated instantly. Organizations can check their customers 24/7 in this database. With Sanction Scanner solutions, Estate Agents can comply with the AML compliance program and can be protected from regulatory penalties.
