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Money Laundering Regulations 2017

On 26th June 2017, the Fourth Anti-Money Laundering Directive (4MLD) will come into effect. The Directive replaces the Third Anti-Money Laundering Directive, which was implemented in the UK by way of the Money Laundering Regulations 2007. The Directive aims to prevent Europe’s financial system from being used for tax evasion, terrorist financing and money laundering.

When in effect the 4MLD will see an increase in the level of sanctions for repeated and systematic breaches and harsher requirements on businesses when carrying out customer/client due diligence procedures. Senior managers will also need to have “sufficient knowledge of the institution’s money laundering and terrorist financing risk exposure and sufficient seniority to take decisions affecting its risk exposure”, or they will be subject to sanctions too.

At present estate agents are subject to the Money Laundering Regulations of 2007 and lettings agents come within their scope only if they carry out estate agency activity, that is the transfer of a longer lease which has a capital value. Following the government’s consultation on the implementation of 4MLD it appears that “intelligence and evidence” does not “justify the inclusion of lettings activity” within 4MLD. In fact, the government’s consultation paper is very clear when it states, “the application of the Money Laundering Regulations will not be extended to include lettings activity”.

The reasons why the government is not proposing to extend the 4MLD to lettings activities appears to be two-fold. First, that the lettings market does not see the use of large sums of criminal money that could be laundered quickly or effectively. Letting agents see a large sum of money but it is provided incrementally over many months, and so does not fit the normal profile of money laundering which seeks to move larger sums relatively quickly. Secondly, many landlords do not use lettings agents so any proposals to include lettings agents would still see a significant gap in coverage.

Possible overlaps
Above we have mentioned that lettings agents come within the scope of 4MLD only if they carry out estate agency activity, that is the transfer of a longer lease which has a capital value. However, there are other transactions which may come within the scope of 4MLD such as:

  • Where lettings agents charge a % fee for tenants that purchase their rental property; and
  • Where lettings agents accept large sums of money up front.

We understand that if HMRC believe that you are part of an Estate Agency then they would expect you to carry out the checks described in 4MLD. Of course, checks are already made on tenants under the right to rent provisions but with property fraud on the rise we recommend that proof of identity and residence is sought for landlords and where large amounts of money is handled that lettings agents request confirmation of the source of the funds from the paying party.

Comment
So, for now a sigh of relief for many lettings agents. However, the government also appears to be considering a review on lettings activities and whether they pose a money laundering risk later on this year. This may be delayed as a result of the election but it means that lettings agents are not immune yet.

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