Letting agents who process rental payments of €10,000 or more a month need to start preparing for the European Union’s Fifth Money Laundering Directive, which the United Kingdom is expected to comply with from 10 January 2020 (Brexit pending).
Estate agents are already subject to the anti-money laundering legislation, which in the property sector can include:
- Buying a property asset using the proceeds of crime, letting it or selling it on, giving the criminal an apparently legitimate source of funds.
- Criminals hiding behind complex company structures involving multiple countries and multiple bank accounts to disguise the real purpose of a transaction and hide its beneficial ownership.
- A more direct method of paying an estate agency business or lettings agent a large amount and reclaiming it later.
The Association of Residential Estate Agents (ARLA) notes that, until the directive is transposed into UK law, it's unknown how letting agents will have to operate, but it’s likely they'll be expected to behave with the same diligence as estate agents.
Letting agents dealing with high-value transactions should prepare to incorporate the following into their processes, if they’re not doing so already:
- Complete due diligence on all customers before entering into a business relationship or rental transaction.
- Complete due diligence on the counterparty and any other beneficiaries of the rental transaction.
- Have procedures in place to identify those who cannot produce standard documents.
- Identify and verify people acting on behalf of customers, and verify that they have authority to act.
- Apply enhanced due diligence to take into account the greater potential for money laundering in higher risk cases, such as politically exposed persons.
- Identify politically exposed persons, which the EU defines as “those entrusted with prominent public functions, their immediate family members or persons known to be their close associates. You will need to be able to verify their identity, source of wealth and/or funds, and have a procedure in place to consider whether to do business with that person.
- Not deal with persons or entities if you cannot carry out customer due diligence, and consider making a suspicious activity report.
- Have a system for keeping copies of customer due diligence and supporting records and keep the information up to date.
You can read more about the Fifth Anti-Money Laundering Directive in the consultation document on gov.uk.
This is an extract from Goodlord's free e-book, Your guide to lettings and the law.
