The recent publication by HM Revenue & Customs of a long list of property firms falling foul of anti-money laundering (AML) regulations has highlighted once again the dangers of failing to comply with the rules.
HMRC named more than 30 estate agents, commercial property firms, valuers and auction houses in a list of 79 firms reprimanded for breaches of the regulations between April and December last year. That meant that firms in the property sector accounted for approaching half of all those named by HMRC.
The number and size of property transactions make the sector a clear target for criminals – and even terrorists – who are seeking to launder money. AML checks are therefore an important requirement, including for conveyancing solicitors.
Yet, keeping pace with changing rules has made the requirement more onerous. Those in the sector relying on old-fashioned paper checks are more likely to fall foul of the rules. And even though failure to comply with regulations may be unintentional, there are no excuses – and the outcome can be very expensive.
One firm in the list recently published by HMRC had been fined more than £50,000 for failing to apply for registration at the required time, but sanctions put in place since the Russian invasion of Ukraine have considerably upped the ante.
Breaches can now be punished by fines of up to £1 million under the Economic Crime (Transparency and Enforcement) Act introduced earlier this year. And, on top of any fines, the publication of names of offending firms by HMRC means there is potential reputational damage, which could lead to an expensive loss of business.
The latest figures from Transparency International UK estimate that £6.7 billion of suspicious funds have been invested in the UK since 2016. Meanwhile, the increasing number of fines levied on firms in the sector suggest that the problem is growing.
Property firms are moving to electronic verification because manual checks are becoming increasingly unmanageable and unreliable, particularly in the light of continually evolving regulations. They are operating in an environment in which knowing and understanding their clients has never been more important, and technology can make that requirement easier to fulfil.
Firstly, it makes the checking of clients quicker and more reliable. Manual documentation is more open to forgery and manipulation. Electronic verification may not even require documentation, but enables a robust check on data from sources like Experian, Equifax and Dow Jones using just a name and address.
The wide range of sources of available data can be used to build a composite digital identity that is very difficult to forge, and checks are ongoing, so it is possible to continue to monitor clients and be alerted immediately to any change in their sanction or politically exposed person (PEP) status.
As well as providing more reliable monitoring of clients, this process can deliver wider commercial benefits. There is a clash between the need to fulfil more onerous AML monitoring requirements and the demand from clients for a quicker and simpler journey through the property transaction process. Electronic verification can deliver commercial advantages by speeding the service while still maintaining robust and reliable monitoring.
An increasing number of firms in the property sector are waking up to the benefits of electronic verification – partly because of the growing risk of censure but also because they are finding that their existing manual systems are falling over. But there is still a long way to go. SmartSearch now has more than 1,000 property firms using its electronic verification service – a significant number, but still only a small percentage of the whole market.
And while the property market continues to be targeted by money launderers, it is already in a good position to protect itself more effectively. The electronic tools exist to help make the industry compliant and guard itself from increasingly sophisticated criminals. They can add value, not only by safeguarding firms from financial and reputational damage, but also be streamlining processes and making working life easier.
The property industry is now well placed to deliver the benefits of a digital compliance revolution, enabling firms to stay safe, avoid fines and other sanctions, and deliver a better service to consumers.