Since January 2020, residential and commercial lettings agents renting out a property in excess of €10,000 (currently around £8,600) per calendar month are subject to money laundering legislation.
And here's what they need to do to ensure compliance.
First things first, businesses must register with HMRC. And the onus is on them to register and not to wait for HMRC to tell them to do so. One of the most common fines issued by HMRC for a breach of anti-money laundering (AML) legislation is failing to register.
And the penalties are onerous. A breach means a business could be fined for every year that they've been non-compliant and trading. It's costly - both financially and reputationally.
While registration is straightforward, HMRC will expect all relevant AML policies and procedures to be in place at the point of registration. These include a comprehensive policy and procedures manual, a firm-wide AML risk assessment and an AML training log. In addition, businesses must have an appointed Money Laundering Reporting Officer (MLRO) who may also seek to conduct an independent audit. In short, HMRC needs proof that a business and its staff fully understand and comply with its AML obligations.
Customer due diligence
Carrying out customer due diligence (CDD) is a crucial component of AML legislation. It must be undertaken on an individual client or customer at the start of a business relationship. This means carrying out CDD on landlords and tenants for a letting agent.
Regarding landlords, agents must prove ownership of the property, the landlord's identity – are they who they say they are - and whether or not they're a politically exposed person (PEP) or subject to financial sanctions.
If a company or trust owns the property, it's up to the lettings agent to determine who the 'settler' (in the case of a trust) or the 'ultimate beneficial owner' (in the case of a company) is, should that property be sold. All this needs to be carried out before marketing the property begins.
It's a similar process for the tenant, occupier or guarantor. You must check their identity and whether they're politically exposed. A tenant must also prove the source of funds used to pay their rent when their offer is accepted before the tenancy agreement is signed. Importantly, companies cannot accept a tenancy or holding deposit from any party until CDD has been carried out.
A sub-agent or relocation/buying agent must carry out Simplified Due Diligence on the main agent they're entering into a business relationship with and ensure they are registered with HMRC. And seek to obtain all CDD undertaken by the sub-agent/relocation agent on the tenant, authorised occupier or guarantor. They'll also need to see the CDD carried out by the main agent on the landlord and the ultimate beneficial owner of the property. This should all be done at the time of agreeing terms.
If your lettings business needs to be AML compliant, make sure that it is. For HMRC it's a non-negotiable commitment.
Important note: If your business carries out any sales in addition to lettings, in the residential or commercial sector, you are subject to the Money Laundering Regulations 2017, and there is no threshold.