Money Laundering and Conveyancing

Money laundering is a term most people will have heard of, but don’t necessarily know what it means or how it could affect them.  In particular, when purchasing or selling a property you need to be aware of it. Money laundering is a growing, worldwide problem.

Money laundering is the process of  using money from illegal activities into the legitimate economy. Doing so makes the true origins of the money murky and therefore making it difficult to trace back. Moving funds between different bank accounts, different people and even from country to country helps criminals to ‘clean’ their funds by making it harder to trace where it came from. Conveyancing firms are a prime target for money launderers. With hundreds of thousands of pounds changing hands in one property transaction, criminals see law companies as an easy way to launder a large amount of cash in one go.

The anti-money laundering rules for law firms are very rigorous and the penalties for not following those rules are very severe. So, money laundering has a real impact on how we handle your conveyancing transaction.  This is why we may ask you a number of questions about where you got the money from for your purchase.

Money laundering can take many forms, but in the property sector it can involve:

• buying a property asset using cash from the proceeds of crime, and then letting it or selling the property on, giving the criminal an apparently legitimate source of funds. If asked where the money came from, they can say it’s from rental income or the sale of the property.
• criminals hiding behind complex company structures involving multiple countries and multiple bank accounts to disguise the real purpose of a transaction and hide its beneficial ownership
• a more direct method of paying an estate agency business or lettings agent a large amount and reclaiming it later
• the money for a purchase resulting from a mortgage fraud operation.

Legislation

The primary UK legislation covering anti money laundering and counter-financing of terrorism are the following:

• Proceeds of Crime Act 2002
• Terrorism Act 2000
• Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (referred to in this guidance as “the Regulations”)
• Criminal Finances Act 2017
• Terrorist Asset-Freezing etc. Act 2010
• Anti-terrorism, Crime and Security Act 2001
• Counter terrorism Act 2008, Schedule 7

ID Checks

One of the most important aspects of the anti-money laundering rules is client identification. It is the first thing Solicitors do when you instruct them to act for you. Without satisfactory ID to be certain of who you are, they will not proceed.

When they ask for your ID at the start of the process, they must check the following:

• That you are who you say you are and where you live
• If you are selling a property, that you are the owner of the property
• If you are buying a property, that the funds you are using are from a legitimate source

What are acceptable identity documents?

Below is a list of acceptable identity documents.  You will be required to provide an identity document and proof of address document. Depending on individual circumstances, such as what country you have a passport from or where the money is coming from, Estate Agents or Solicitors may require further/other documentation.

• Passport
• Driving Licence
• EEA member state identity card
• National photo identity card
• Utility Bill
• Mortgage Statement
• Bank or building society statement

When you are providing a proof of address document it will need to be recent, normally within the last 3 months.

As well as visual checks on photo ID, your solicitor or estate agent is likely to analyse all clients through an electronic ID verification system. This screens personal details against a wide range of databases and is a quick and thorough method of verification. They are also likely to check that the bank account details they have, match your address.

This process is perfectly normal, and you must not be confused or alarmed by the amount of information a Solicitor will want. In fact, you should be worried if your Solicitor is not asking you!

Source of Funds

Solicitors will check where the money has come from. If you turn up with a bag of cash, this will raise the Solicitor’s suspicions and will almost certainly result in them refusing to act for you.  Most law firms will have a policy on the limit to the amount of cash they can accept, such as a maximum of £1,000 per transaction.  As a result, cash for the purchase of a property will never be accepted from a client as the Solicitor cannot trace the source of where the funds came from.

What the Solicitors will do

If you are selling a property, they will check the Land Registry for details of who is registered as the owner. If you are buying, they will ask for 6 months of bank statements and will query if the source of funds for the deposit is not clear.

If someone else has given you your deposit funds (e.g. a parent or other family member gifting the deposit) this does mean asking for more information, such as evidence of the third party’s identity. The process might seem intrusive, but your solicitor will have to track where the money came from originally.

In addition to these initial checks, they also must monitor transactions as they progress and report any suspicious activity.

What happens if Solicitors do not comply?

Solicitors who do not follow the rules are at risk of very heavy penalties and could even end up in prison if it was thought they were involved in money laundering themselves. If you believe your Solicitor is not following the rules, then please seek advice and prevent providing them with any money.

It is a criminal offence for a firm not to have in place, and to follow, satisfactory anti-money laundering protocols even where no actual money laundering happens as a result.

Any party to a transaction from which money laundering results may also be guilty of an offence.

What does this mean if I am a landlord, a seller or a buyer?

In some ways it means nothing. They must all provide proof of identity and proof of your address to the Solicitors or estate agents.

Estate agents will also require sight of all original documents or alternatively, certified copies. Where providing original identity documents they will need to be seen in the presence of the document holder. For the avoidance of doubt, a certified copy should be certified by an individual from a recognisable profession (i.e. doctor, teacher, solicitor, bank manager, accountant or public notary), with the copy containing the details of the individual certifying it and their contact details.

What does this mean if I am a tenant?

Tenants must also provide the same proof of identity and proof of address, which is a standard part of the referencing process. Where the tenant is a group of individuals, each individual adult occupant will be required to provide identity documents. Where applicable, a tenant will also have to prove their source of funds, especially any cash payments or funds transfers from overseas.

So long as any money you are using for the transaction has been obtained from legitimate sources, you will not have nay difficulties and all you need to do is cooperate with your solicitors so that they can record the information and get on with the transaction.  If you have any questions about money laundering and how it might affect you, please do not hesitate to contact us.

Disclaimer – our articles are designed to give you guidance and information.  There is no substitute for proper direct advice, particularly as everyone’s circumstances are different.  If anything in this article may affect you, please contact us for advice that is specific to your circumstances.