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AML, Risk Assessments and Property Agency5th January 2021 Business Crime
Just before the end of 2020, the government published its updated money laundering risk assessment. This was the first risk assessment to include high value lettings agency which was brought within the scope of AML regulation by 5MLD. It also comprehensively updates the estate agency risk assessment as well.
The estate agency assessment notes that the risk in estate agency continues to rise, especially in super-prime property, that is property in the top 5% of value in an area. Although given that the risk assessment also states that the “full scale of laundering … is unknown” it is a little unclear how the increased risk has been quantified. The level of compliance is also very low with the assessment stating that in 2019 only half of estate agents were actually registered. Anecdotally, I would suspect that the level of compliance in the letting sector is lower.
At the same time the guidance on the application to the Fifth MLD, particularly relevant to lettings agency remains outstanding, nearly a year after implementation. This is of concern to lettings agency as the regulations are very unclear as to when the obligations to do checks apply in relation to prospective tenants. The HMRC has had officers speaking at events suggesting that the obligation to check is incurred before any money is taken from a tenant, including a holding deposit. This is a stance that is not really supported by the regulations and appears to be a position being taken based on the narrow approach that checks should be done before money changes hands.
It is inevitable that prosecutions will be taken against estate and letting agents. However, given the lack of full guidance, the unclear approach in the regulations, and the uncertain level of risk in the risk assessment, such prosecutions are not the easy case that the government might think.
When prosecutions happen, they will likely be brought under regulation 86 of the Money Laundering Regulations 2017. Regulation 86 sets out a serious criminal offence, in relation to which a conviction may result in a term of imprisonment of up to two years, a fine, or both. In deciding whether someone has committed an offence, the court must decide whether relevant guidance has been followed. This in itself is not a clear picture and relevant guidance includes any guidance issued by the Financial Conduct Authority or any other relevant supervisory authority or appropriate body approved by the Treasury.
A defence may be established if the accused person took all reasonable steps and exercised all due diligence to avoid committing the offence. This seems sufficiently wide to be helpful to defendants but there exists the problem of what magistrates and jurors will consider to be ‘all reasonable steps’ and ‘all due diligence’ in the absence of a body of case law to draw on, as is the case now.