By Legal Futures’ Associate The Cashroom [1]
Today, protecting against risk has never been more critical for conveyancers. But, as criminals find newer and more effective ways to commit fraud, neither has it been more challenging.
Of course, the conveyancing market is particularly attractive to lawbreakers, with solicitors and law firms regularly holding large sums of money on behalf of clients. And, one significant threat facing the sector is that of money laundering.
The National Crime Agency believes that the extent of money laundering impacting the UK could be in the hundreds of billions of pounds annually. What’s more, while money laundering is a crime, it is also a key enabler of other serious offences. For example, modern slavery, drugs trafficking, fraud, corruption, and terrorism.
Conveyancer obligations
Following the Panama Papers scandal, the UK took steps to crack down on money laundering. Solicitors within scope of the Money Laundering Regulations 2017 (also known as the Fifth Money Laundering Directive/5MLD) must:
- carry out proper due diligence on their clients
- undertake identity and source of funds checks (where appropriate), and
- check the circumstances of the proposed transaction.
Certain businesses and individuals in the UK must also register with a supervisory authority to follow anti-money laundering regulations [2]. This includes independent legal professionals and estate agents. Businesses who do not register with a supervisory authority, where required to do so, are breaking the law.
Conveyancers should also be vigilant to the warning signs for money laundering. In addition, they must be careful to avoid client accounts being exploited, create and follow risk assessment processes, and submit a Suspicious Activity Report (SAR) if there is any doubt about a client or transaction.
SARs are used to alert the authorities when a conveyancer or estate agent believes that a client, or their activity, is in some way suspicious. As well as helping to combat crime, SARs also help to protect property professionals from the risk of laundering the proceeds of crime – and any penalties they might face if found to be negligent in their duties.
Penalties for non-compliance
The SRA believes that two-thirds of its regulated firms need to comply with the latest regulations. As such, earlier this year, it wrote to 400 law firms, reminding them of their obligations.
However, there are concerns that many are failing to live up to their responsibilities. More than 40 solicitors have already been struck off or have voluntarily left the roll amidst suspicions of money laundering. And, be under no illusion that non-compliant firms are set to face significant sanctions for non-compliance in the future.
To help conveyancing firms, the government has provided some ‘red flags’ to help spot signs of money laundering [3]. These include (but are not limited to) clients being evasive about the source of their money, transactions that are unusual because of their size, frequency or the manner of their execution, and where a client has taken steps to hide their identity.
Cracking down on money laundering
The UK government is under increasing pressure to get tough on financial crime. But, as the country looks to increase the trade it has with non-EU countries following Brexit, opportunities for criminals to take advantage of the political and economic situation are going to increase.
To help combat this, foreign companies that own UK properties will have to reveal their ultimate owners on the world’s first public register. This will help law enforcement agencies to tackle money laundering while reducing opportunities for criminals to hide.
Also, in June 2019, the Cyber-Attacks (Asset-Freezing) Regulations 2019 came into force. Designed to combat the financial damage people can face from cybercrime, the regulations allow HM Treasury to freeze the assets of persons and entities suspected of carrying out a cyber-attack. The legislation can also restrict the business interactions of UK nationals or incorporated entities with anyone suspected of cyber-related fraud. The legislation applies even if the attack was completed outside of the UK.
In addition, unexplained wealth orders (UWO) are on the rise. Designed to compel someone to reveal the sources of their unexplained wealth, and permit the seizing of assets for anyone who fails to do so, property can now be commandeered and frozen in a bid to prevent the spread of money-laundering and economic crime.
Furthermore, criminals who illegally profit from owning British property could face up to five years in jail and an unlimited fine.
More still needs to be done to ensure the UK is a hostile environment for economic crime
Despite the current regulations, each stage of the property transaction chain remains at risk. So, banks, estate agents and conveyancers all need to remain vigilant. But there are claims that current anti-money laundering (AML) regulations are confusing. And that confusion is hindering the fight against economic crime.
A recent House of Commons’ Treasury Select Committee report ‘Economic Crime – Anti-Money Laundering Supervision and Sanctions Implementation’ [4] has called on the government to review the UK’s approach to economic crime.
The report addressed particular concerns with regards to the property sector. For example, the authors found that legal service providers were particularly poor at completing SARs. In fact, of all the reports submitted between October 2015 and March 2017, the property sector was responsible for less than 1%.
What’s more, having observed a sample of SARs, the Law Commission has also found evidence of a misunderstanding of legal obligations and cautious SARs applications being made – most likely to avoid accusations of negligence. Such inconsistencies in reporting are said to be seriously affecting the usefulness of the reports.
Is it time for a more standardised approach?
Because property transactions tend to involve several parties, this is adding to the uncertainty. For example, as each party has a different regulator (e.g. banks are regulated by the FCA, solicitors by the SRA, and estate agents by HMRC), there are concerns that the supervision of money laundering regulations is disjointed. There is also unease that some estate agents may be unsupervised, having not registered with HMRC.
In response to such challenges, there are now calls for more straightforward money laundering guidance. The Law Commission has also recommended the creation of an advisory board to ensure the continued effectiveness of the regime. A new online SAR form has also been proposed. It is thought, by moving the reporting process online, making a SAR will become easier and will encourage consistency.
Certainly, with the threat of economic crime not set to disappear anytime soon, something needs to be done to help conveyancers to protect themselves, their firms, and their clients.