Real Estate Agents Fined for Failure to Prevent Money Laundering

Due to stricter anti-money laundering (AML) regulations, a handful of real estate agents in London are now facing hefty fines. The fines range from six to seven figures, but the exact amounts are not currently being made known to the public.  According to the National Association of Estate Agents (NAEA), the fines are being handed out for agents failing to comply with AML and anti-tax-evasion regulations.

With the introduction of the Money Laundering Regulations in 2017, tougher AML regulations were introduced to the real estate market requiring that AML checks be performed on all sellers and potential buyers of properties, and that reports be filed whenever money laundering is suspected.  The Criminal Finances Act makes failing to prevent tax evasion a criminal offence and provides further resources such as the Unexplained Wealth Orders to investigate suspected cases of money laundering and terrorist financing.  The Unexplained Wealth Orders give real estate agents the ability to alert the authorities when a property is purchased by an individual who normally shouldn’t have the funds to do so.

Her Majesty’s Revenue and Customs (HMRC) are in charge of enforcing fines for non-compliance in all areas.  An HMRC spokesperson stated that “HMRC takes failure to comply with the Money Laundering Regulations extremely seriously, and carry out regular checks to ensure customers correctly following the rules.”  A total of 880 fines were given by HMRC alone in 2017 to all areas where non-compliance was practiced, including real estate.

The rise of AML regulations in real estate worldwide is critical because there is little to no supervision which results in easy money laundering.  Criminals often target properties in high demand due to the fact that they are easier to get rid of with short notice to avoid detection from the authorities.  Another popular tactic used by criminals in the real estate market is the use of shell companies which allows the owner to disguise their true identity.  An investigation by The New York Times in 2016 found that half of residential homes worth $5 million were being purchased in cash by shell companies.  Transactions which take place in full cash are not subject to regulations which is another popular maneuver criminals take advantage of.  If a real estate agent suspects illicit funds being used in a purchase, due to the commission they make off the purchase and the lack of AML and Bank Secrecy Act (BSA) regulations, the agent has the free will to ignore it.

In order to prevent money laundering within real estate, stricter AML and BSA laws must be put into place.  For example, tracking transactions which take place in areas known for money laundering activities can help.  An example would be the U.S Treasury Department’s Financial Crimes Enforcement Network (FinCEN) requiring that all cash purchases of real estate in Miami, Florida, and Manhattan, New York be reported.  Another option is requiring companies to file a Suspicious Activity Report (SARS) whenever a suspicious transaction takes place.  Creating stricter rules and regulations in real estate along with educating agents can not only help prevent illicit funds from trickling into the market but is also critical to preventing money laundering worldwide.


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