This is the second post on money laundering checks but with detail on the practical steps to take when carrying out your responsibility to carry out Customer Due Diligence (CDD). This is a secondary step once a risk assessment on the customer/client has been carried out. The average person should fall within the remit of CDD if the risk assessment shows no special issues but it is very important to remember that money laundering is not just about verifying ID or doing ‘checks’ but about carrying out a risk assessment of the customer/client and the transaction and then carrying out the right level of checking to reduce or eliminate that risk. More on risk assessments will follow in another post.
So for the purposes of CDD, checks must be carried out prior to entering into any business relationship or any transaction. Checks should be carried out on the customer/client that is the party that the agent is entering into a contractual relationship with. Furthermore, under the new Regulations estate agents are also required to carry out checks on the ‘other’ party to the transaction. Therefore, if you act for the seller you are now required to carry out checks on your client the seller and also the buyer.
When carrying out the checks agents should ensure that they obtain the client’s full name, date of birth and address as a minimum. These details should then be verified by checking the for example, the client’s passport or photo driving license. If the client does not have documentation to verify their identity then agents may consider government issued documents or original utility bills.
It is important that when checking and verifying a client’s identity that agents are diligent. This means that the spelling of the name, photo likeness, address and any anomalies should be crossed checked. A guidance note issued by the government on these document checks can be viewed here.
It is also important to ensure that documents are either verified in their original form or copies only accepted if they have been certified by an appropriate person to confirm that the copy is a true copy and the person is who they say they are. The certification must be from a professional reliable source not connected to the client. If certified documents are accepted agents are advised to verify the identity of the certifying party.
Some agents may use a third party to verify a client’s identity. Any third party service provider should be reliable and should be using extensive source data to carry out these checks. Even if third party verification is used the agent remains liable for any failures by that third party so a really strong contract with clear indemnity and protection clauses will be needed.
For corporate entities, partnerships, trusts, charities and sole traders, agents must obtain and verify identity information that is relevant to that entity. This includes:
- the full name of the company
- company or other registration number
- registered address and principal place of business.
For private or unlisted companies agents must take reasonable steps to obtain and verify:
- country of incorporation
- names of the members of management body, or if none, its equivalent and the name of the senior person responsible for the company.
Agents must also establish the names of all directors (or equivalent) the ultimate beneficial owners and the names of individuals who own or control over 25% of its shares or voting rights – or the names of any individuals who otherwise exercise control over the management of the company. It is ultimately the agent’s responsibility to look through any companies or trusts to establish the ultimate beneficial owners, if necessary.
These checks must be verified through reliable sources such as (but not limited to) Companies House and obtaining a copy of the company’s certificate of incorporation. Government guidance on these checks can be seen here. This is a significant burden for agents but as more of this information gets on to Companies House the situation will improve. However, for non-incorporated bodies (eg. simple partnerships) and trusts the agent will need to ask the organisation to provide the data and they are not simply allowed to assume it is accurate without considering it carefully and carrying out further investigation if required.
These checks are now an important function of any transaction that may come across an agent’s desk. It is therefore important to ensure that they are carried out diligently and where there are any anomalies that they are clarified and verified with the client and senior manager and/or the nominated/compliance officer of the agency. Agents need to develop a clear policy on how to do this and make sure their staff are well trained on it in order to comply with their obligations and protect themselves from the risk of prosecution. Some agents may think “it will never happen to me” but this is a dangerous line of thinking. A large amount of money is believed to be laundered through property in the UK and the government is under considerable pressure to deal with this.