Anti Money Laundering (AML) checks refer to the due diligence procedures required by law. The Fourth EU Money Laundering Directive, incorporated into UK law in June 2017 through the Money Laundering, Terrorist Financing and Transfer of Funds Regulations, mandates conveyancers to perform 'Client Due Diligence' (CDD) on every client. This process includes verifying clients' identities, assessing the transaction's circumstances, the client’s financial standing, and the origin of the funds for property purchases.
Additionally, conveyancers are legally obligated to report any suspicious activities to the National Crime Agency confidentially, without the client's consent or awareness. Disclosing such a report to a client, known as 'Tipping Off,' is also a criminal offense.
Failure to comply with these comprehensive regulations can lead to severe criminal charges, and conveyancers have faced imprisonment for overlooking suspicious activities. Consequently, conveyancers are extremely diligent in their compliance. The regulations also require banks, estate agents, and mortgage advisers to conduct similar checks, meaning clients may need to verify their identity with multiple parties during a transaction.
The Anti Money Laundering legislation encompasses a wide range of activities, some of which may not be immediately apparent, in addition to the more evident ones like purchasing property with funds from robbery, fraud, drug trafficking, or other clearly illegal activities.
The legislation also covers the following scenarios, which may involve the generation of criminal property:
• Any type of tax evasion, including avoidance of VAT or Stamp Duty Land Tax.
• Failing to pay the full amount of SDLT due on a transaction by transferring part of the price directly to the seller.
• Utilizing a property contrary to a planning enforcement notice. For instance, there have been instances where landlords with illegal HMOs have had their properties confiscated and sold by the planning authority, with all rental income seized from the sale proceeds under the Proceeds of Crime Act 2002.
• Purchasing property at an excessively high price to secure a larger mortgage.
The magnitude of money laundering is immense; it ranks as the third largest industry globally, potentially amounting to several trillion dollars annually. In the UK, the Treasury estimates that over £10 billion is laundered each year through the regulated sectors, including conveyancers, accountants, banks, and estate agents. Property transactions are commonly exploited by money launderers to conceal their funds, as the resale of property can seemingly legitimize the origin of the money. Consequently, property professionals must conduct identity checks at the beginning of a transaction and remain vigilant for signs of fraudulent activity. They are obligated to report to the police if they suspect criminal activities or if the property purchase may involve the proceeds of crime.
Money laundering involves three stages: placement, layering, and integration.
Placement typically involves depositing criminally derived money into the financial system. This stage is where detection of money laundering is most feasible. Due to stringent controls on banks, conveyancers often become targets for money launderers, as funds received by them can be utilized in subsequent stages.
Layering occurs once the money is within the financial system, and involves concealing the funds' origins through a complex series of transactions, often involving multiple entities like companies and trusts, making detection challenging.
Integration is the final stage, where the laundered money is reintroduced as seemingly legitimate business assets. At this point, money launderers might engage conveyancers to purchase properties or establish trusts, rendering this stage the hardest to detect.
Conveyancers play a crucial role in detecting potential money laundering activities. Consequently, they are legally obligated to maintain high levels of vigilance in all transactions they partake in. Various measures are implemented in client dealings to safeguard both the conveyancers and their clients.
No Cash
We cannot accept cash as part of the purchase price, nor can you deposit cash into our bank account. Funds must be transferred to our account from a regular bank account. Additionally, all purchase funds for a property must be processed through us; direct payment to the seller is not permitted.
What Documents Do I Need to Produce?
Typically, we require at least two forms of verification from each client to confirm their name, date of birth, and current address. For instance:
• A government-issued document confirming your full name and date of birth.
• Another supporting document, which may also be government-issued, verifying your full name and current address.
We must ensure that you are the individual named in the documents, so we prefer documents with a photo, such as passports or photocard driving licenses. Normally, a passport/photocard driving license, along with a utility bill or mortgage statement for your current residence, would suffice to confirm your identity when meeting in person.
Other Identity Information
A person's identity includes various details such as their name, current and past addresses, date of birth, place of birth, physical appearance, employment, financial history, and family circumstances. Be prepared to discuss these topics with us.
Electronic Verification and Privacy
Conveyancers are obligated to verify the true identity of all clients, without exception, even if they have been clients for many years. For instance, we will need to see a driving license or passport, along with another form of verification like utility bills, to associate you with the property you are selling. We may also perform electronic verification through external companies and agencies to confirm your identity. We are mandated to retain this information for five years.
We need to ascertain the origin of the funds for your purchase. It's essential to ensure there's nothing unusual about the transaction. Understanding your overall financial situation is part of 'Source of Wealth' enquiries. Identifying the origin of the funds for the property purchase falls under 'Source of Funds' enquiries. We also seek to comprehend the purpose of your transaction, such as whether it's for investment or residential use. These inquiries are standard procedure and mandated by law, so please don't take offense or feel they are intrusive.
For instance, an individual of modest means making a cash purchase of a million-pound property could indicate an inheritance or lottery win. However, it's also possible that the funds originated from criminal activities. We must also confirm the identity of anyone involved in the purchase indirectly, like a relative or associate who has requested you to buy the property in your name, or if you're holding the property 'in trust' for someone else. In cases where you're selling a deceased relative's property, we will need to verify the identities of the executors or administrators of the estate.
Enhanced Client Due Diligence
In certain cases, conveyancers are required to implement 'Enhanced Client Due Diligence'. When this is applicable, additional steps will be taken to verify your identity through various methods, which may include electronic searches and inquiries. This is particularly important when an in-person meeting to confirm your identity is not possible. It is also mandatory if you, or your relatives or associates, hold high-level positions in national politics, the military, judiciary, national government (excluding local government), or international business. If you believe this situation pertains to you, please inform us.
For Entities such as Companies, Charities, Estates, and Trusts
Special regulations must be adhered to when representing companies, partnerships, clubs, associations, trusts, and the estates of deceased individuals, among others. This involves verifying the identities of the organization's directors, representatives, or trustees, and determining who has control over the organization, as well as the ownership of its shares. Regarding estates, trusts, and charities, it is necessary to authenticate not only the trustees but also to assess the identities of the beneficiaries of a trust or will.
Continuous Vigilance
Our Anti-Money Laundering responsibilities persist throughout the entire transaction, not solely at the onset. We must perpetually assess whether any aspect appears suspicious or becomes questionable. This encompasses, for instance, shifts in our clients' overall disposition towards the transaction, unexpected and inexplicable haste, or alterations in the transaction's parties or the agreed price. It also includes any variations in the source of the mortgage or the funds for purchasing the property, as well as any changes in the destination of the proceeds from the sale.
Should you have any questions regarding this matter, please do not hesitate to contact us.
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