The UK’s estate agents are accustomed to dealing with nervous homebuyers, over-optimistic sellers and fluctuating house prices.
But now they are being forced to take on a far tougher challenge: money launderers.
This week HMRC launched its most high-profile crackdown yet on the sector, raiding 50 estate agencies suspected of failing to register under anti-money laundering rules and revealing fines to others.
The moves prompted panic among those agents who have been lax in carrying out due diligence on home buyers and sellers, according to industry players.
Agents are under pressure to demand more information from clients and spot corrupt money, even as they vie for scarce deals in a slow housing market.
“The first person on the scene is usually the estate agent,” said Michael Day, who runs a consultancy training agents in compliance procedures. “They’re the front line in the war on money laundering.”
A tougher stance on money laundering from regulators more broadly has already started to reverberate around the top of the UK market, worrying potential buyers of luxury London properties whose funds may have questionable origins.
At least one potential London home purchase worth above £100m collapsed last year because a lender involved was not satisfied about the source of the buyer’s funds, according to a person briefed on the transaction.
“One of the reasons for the weakness of the top-end London market is the crackdown on money laundering,” said Ray Boulger, senior technical manager at the mortgage broker John Charcol. “As a result the demand for higher-priced property in London will be permanently reduced.”
The UK issued its first batch of unexplained wealth orders last year on £22m of properties owned by a former state banker’s wife from Azerbaijan; if she cannot explain how she acquired them legitimately, they may be seized.
But anti-money laundering campaigners have said that far more stringent monitoring is needed, with estate agents considered key to HMRC’s efforts.
Mr Day said agents had an important role in flagging up deals where lawyers might be in league with the criminals, and providing early warnings of suspicious activity.
Since 2017, UK estate agents have been required to carry out so-called “know your customer” checks on buyers and sellers of homes. These include collecting identity and address documents and carrying out risk assessments.
Agents should normally meet a client face to face and assess whether their explanation for their wealth stacks up, said Mr Day.
If an assessment raises signs of potentially corrupt money, the agent must file a suspicious activity report (SAR) with the National Crime Agency.
Agents filed 710 of these in the 2017-18 financial year — up 32 per cent from a year earlier, but still only 0.15 per cent of the reports filed by all groups including banks and lawyers.
Ben Wallace, minister of state for security at the Home Office, last October told a parliamentary inquiry that estate agents had been “one of the weak links” in reporting suspicious activity.
Meanwhile Henry Pryor, a buying agent, said he knew of cases where less scrupulous agents poached customers from rivals who insisted on full anti-money laundering checks before arranging home viewings.
Transparency International, a campaign group, last year pinpointed £4.4bn of UK properties bought by individuals with questionable wealth — a sum it said was likely to be “the tip of the iceberg”.
London property has been linked with several money laundering scandals. For example, the former Pakistani prime minister Nawaz Sharif was jailed last year on corruption charges related to his family’s ownership of apartments on London’s Park Lane. He and his family denied any wrongdoing, while the jail sentence was later suspended.
Separately, US investigators have claimed that funds from Malaysia’s 1MDB scandal were used to buy high-end London homes.
Mr Day said that since this week’s announcements — which included details of a £215,000 fine issued last year to listed estate agency group Countrywide over inadequate procedures to spot corrupt cash and a £68,595 penalty for digital estate agency Tepilo — his phone had “rung hot” with agents seeking anti-money-laundering training.
Countrywide said this week that its failings resulted from the time required to set up technology enabling it to check buyers.
“If you are a one or two branch business you can handle it in a manual way, but we said to HMRC: ‘It’s difficult for us. We have the best part of 1,000 branches. You need an IT solution to handle that correctly’,” said Paul Creffield, group managing director.
“Since 2018 we’ve got the technical solution in place to make sure all bidders and buyers are adequately checked.” The company said it had “taken thorough measures to strengthen the processes that support and monitor compliance” including making new hires and carrying out training.
Mr Day warned that some agents could be reluctant to ask personal and financial questions of potential customers. “Agents don’t like asking the questions. They find it awkward. At a time of lower transactional levels, agents are desperate to do any deal,” he said.
UK agents are suffering from low numbers of people moving home and faltering house prices. Countrywide carried out an emergency rights issue last year to ensure its survival as it buckled under £200m of debt. Tepilo, which merged with rival Emoov, entered administration in December; the Tepilo brand is now run by another firm.
Some estate agents have questioned whether they are the right target for the crackdown, given that they do not handle client money, unlike lawyers and banks.
But agents are set to face even more demands: by 2020, they will be asked to carry out anti-money laundering checks on lettings deals as well.
One high-end agent complained of being an “unpaid servant of the Revenue” — while adding that his clients know how to pass anti-money laundering checks. “They know the game and they play the game,” he said.