COMMENT 21 LAUNDERING JUST GOT RISKIER


Alex Ktorides of legal firm Gordon Dadds explains the impact that new money laundering laws will have on housebuilders


Developers should be aware that new laws relating to money laundering that come into force in June are likely to impact the property market. The far-reaching effects of money


laundering in the UK are well known. Last year the House of Commons published a report stating that: “at least a hundred billion pounds is being laundered through the UK every year.” Furthermore, “it is astonishing that just 335 out of around 1.2 million property transactions last year were deemed to be suspicious. This suggests to us that supervision of the property market is totally inadequate, and that poor enforce- ment has laid out a welcome mat for money launderers.” The Fourth Anti-Money Laundering


Directive (4AMLD), a piece of EU law that comes into force on 26 June, directly addresses this. Processes undertaken by regulated firms including estate agents are to be tightened in order to prevent terrorist financing and money laundering.


Interestingly, despite being an increas-


ingly attractive target for money launderers, letting agents are not to be included in the regulated sector. However the 4AMLD will implement substantial changes to agents’ checks and procedures. Customer due diligence on both the buyer and seller will need to be carried out, rather than just the buyer, which in turn will double both the work and the cost of the process. It will also slow down the conveyancing chain massively, which will be bad for business. There will be a requirement to complete


due diligence on not only ‘Politically Exposed Persons’ (PEPs) – people with prominent public functions – but all close ties and family members. Domestic PEPs will also be included for these purposes. Further procedures will require estate


agents to sign up to an online verification system, seek evidence of source of funds, test riskier transactions and targets far more deeply, train staff to see the warning signs, appoint a money laundering officer to document decisions and reflect on how many suspicions they have officially reported in the last six months, regularly monitor riskier clients and seek advice


when their instincts are warning them. How will housebuilders and developers


be affected by the new rules? Developers themselves will only have obligations under the new rules if they offer estate agency services beyond the scale of their own constructed or bought units. However the changes to estate agents’ procedures are still likely to have a knock-on effect. Estate agents’ fees may rise as a result of


the increased procedures required of them. Agents are also likely to become more cautious in dealing with clients. One area to watch is reservation fees taken prior to completion of new-build projects; estate agents may become less willing to take reservation fees where there is any risk of money laundering being involved. The message from the Government is


loud and clear. Criminals will always try and launder money and the regulated sector and property professionals alike are the first line of defence to prevent the financing of crime. Developers – particu- larly those targeting the luxury market – take heed!


Alex Ktorides is a partner at Gordon Dadds


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