Money laundering through property is a major problem, especially in London.
If you’re a solicitor involved in property transactions, you have duties under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 to:
- identify and verify the identity of your client
- identify and take reasonable steps to verify any beneficial owners of your client
- get information on the purpose of the client’s business relationship with you
The last requirement means more than just finding out that a person wants to sell a property. It includes looking at all the information in the retainer and deciding if it’s consistent with a lawful transaction or not. This may include independently establishing whether the client is the owner of the property they want to sell.
Make sure you monitor the retainer to remain alert to suspicious circumstances that may indicate money laundering.
For more information on your obligations under the MLR 2017, read the Legal Sector Affinity Group’s Anti-money laundering guidance for the legal sector and our practice note on mortgage fraud.
Warning signs of money laundering
Warning signs of money laundering through the property market include:
- cash-only buyers
- an unusual sale price
- the buyer attempting to mislead a lender, for example by exaggerating the sale price
- payments from a number of different individuals or sources
- funds provided by one person and registration in another person’s name
- funds provided by unknown third parties
- transactions involving nominee companies or multiple owners
- sudden or unexplained changes in ownership
- direct payments between buyers and sellers
See our practice note on mortgage fraud for more information.
Complying with money laundering regulations
When undertaking property transactions, there are several steps you can take to make sure you comply with the:
Know your clients
Make sure you’re confident that your client is who they say they are. You may want to ask your client further questions if:
- their attitude is unusual – for example they’re disinterested, secretive or vague
- they're eager to undertake a quick transaction
- they request key changes mid-way through a transaction
It's important to know what documents you can accept as evidence of identity. You should also consider using an electronic third-party verification solution.
Make sure your client understands what you'll ask and why you’re asking. Update your client care information so people know what to expect.
Understand the transaction
In property transactions there are often complications, so make sure you identify:
- the type of transaction
- the risk involved
- your firm's policy and guidance
Don’t be afraid to ask your client questions. If you’re still not happy ask your supervisor or someone senior in your firm for advice.
Make sure you continue to assess risk throughout the course of the transaction.
Identify the source of funds
Ask your client to explain the sources of their funds and check their explanation is valid.
Remember that payments made through the mainstream banking system are not necessarily clean. Make sure your information about the source of funds is consistent with your knowledge of the client and their risk profile.
For more information, see section 2.4 of the Anti-money laundering guidance for the legal sector.
Keep a record
Make sure you take notes whenever you talk to a client. This will help you to identify any concerns or inconsistencies which you may need to look into further.
Reporting suspicious activity
If you know or suspect a money laundering offence is taking place, you must make a disclosure to your firm’s Money Laundering Reporting Officer (MLRO).
If you are the MLRO and you know or suspect a money laundering offence, you must submit a suspicious activity report (SAR) to the National Crime Agency.
However, you should not submit a SAR if the information giving rise to your suspicion or knowledge is covered by legal professional privilege (LPP), unless the crime/fraud exception to LPP applies.
For more information on submitting a SAR, see chapters 6 and 9 of our anti-money laundering guidance.
You may also reveal confidential information if reasonably necessary to defend yourself from a criminal charge or civil claim by your client, or to defend yourself if your conduct is under investigation by the Solicitors Regulation Authority (SRA) or the Solicitors Disciplinary Tribunal.
- The Legal Sector Affinity Group’s Anti-money laundering guidance for the legal sector
- Anti-money laundering resources
- SRA guidance on best practice to tackle money laundering