Criminals targeting property in university towns to launder dirty cash

Criminals are targeting property in university towns across the UK to launder dirty money, an industry expert has warned.

The government’s efforts to crack down on illicit funds through the UK’s £7tn-worth of housing stock are “woefully underfunded” and present an open door for money launderers, says Mark Hayward, chief executive of NAEA Propertymark, the professional body for estate agents.

The rebuke of financial crime controls comes as the government seeks to show that it is cracking down on dodgy money flowing into the UK economy in the wake of the Salisbury chemical attack thought to be by Russia.

Hayward says the problem is not limited to a handful of oligarchs stashing their billions by buying up Kensington townhouses.

University towns are now being targeted for a number of reasons, he says. “First, agents there are used to dealing with non-face-to-face customers, investors and companies from overseas because people buy accommodation for relatives or investment, so they may or may not be so alert to AML (anti-money laundering).

“Secondly, those that wish to launder money want to see their investment is secure and university towns have a very good track record for bucking any downwards trend in property prices.

“They normally see good house price inflation and any property in those towns is eminently lettable, so it ticks all those boxes”, says Hayward.

With high-value transactions and comparatively light regulation, property presents an obvious attraction for those looking to process questionable funds, but the government’s own assessment in October found that estate agents pose a low money laundering risk.

It also displays a complacency around the problem, stating that “recent awareness-raising activity by HMRC among the estate agency sector should help to mitigate the risks”.

Despite these efforts, estate agents flagged just 500 sales as potentially dodgy last year out of a total 1.3 million property transactions.

A key part of the problem is that anyone can set themselves up as an estate agent because there are almost no barriers to entry, Hayward says.

While most financial services businesses have to go through a lengthy vetting process by the City watchdog, all that is required to become an estate agent is to register with HMRC and join a redress scheme, which means customers get their money back if things go wrong.

Worryingly, even these requirements appear to not be followed by some operators.

According to an analysis of Companies’ House records by accountancy firm Moore Stephens, there were 25,560 estate agent businesses in July last year, yet only 11,318 are registered with HMRC for anti-money laundering purposes.

Of those, somewhere over half are overseen by the NAEA, which implements minimum standards, meaning thousands are operating “under the radar”, says Hayward.

New regulations require applicants to pass a “fit and proper” test which means they cannot become an estate agent if they have any unspent criminal convictions among other requirements. But any that registered before last year, did not even have to fulfil this requirement.

Enforcement is also hampered by big cuts to staff numbers. In 2005, HMRC had around 104,000 staff but by 2017, headcount had been slashed to around 58,000, with thousands more jobs set to go over the next three years.

Around 200 HMRC staff are dedicated to anti-money laundering across all of the different types of business the organisation has responsibility for, including estate agents. (Some sectors such as banks and solicitors are overseen by other bodies)

This has resulted in a woefully small number of fines and criminal prosecutions, meaning that there is little deterrent for agents who may be tempted to turn a blind eye to suspicious property deals.

A spokesperson for HMRC said it takes failure to comply with money laundering regulations “extremely seriously”, and carries out regular checks to ensure businesses are playing by the rules.

But in the last three years, HMRC has issued total penalties of £3,999,268 – across all sectors – for failing to comply with AML and proceeds of crime laws.

It wouldn’t say how many, if any, related to estate agents. The figure equates to just over £1.3m per year, compared to several billion pounds of illicit funds thought to be used to buy UK property each year.

Last year HMRC secured 42 convictions for offences relating to the proceeds of crime across all sectors resulting in sentences totalling 93 years.

In the rare cases when fines are handed out for breaking money laundering rules, the decisions aren’t published.

Doing so would provide a deterrent effect Hayward says, but HMRC doesn’t reveal the details because “this could aid criminals by highlighting how we deploy our resources and may be used to identify businesses”.

In other words, it doesn’t have enough staff to do the job and doesn’t want money launderers to know where its weak points are.

Hayward says would-be money launderers are likely already doing this. “They will probably target an agent that appears to be ill-informed, and unprepared.

“They are not going to the flashiest office in the high street, they will probably go to the one that looks the most old fashioned or out of touch.”

Some advances have been made such as the introduction of unexplained wealth orders which allow authorities to seize assets of those who cannot demonstrate the source of their funds, and the government has said it will introduce a qualification for estate agents, but Hayward says more action must be taken.

The government should require all estate agents to be licensed, with minimum educational standards, a professional qualification and proper vetting. Agents would then publicly display their licence in the same way that taxi drivers do.

“People assume that estate agents are licensed and regulated.

“You wouldn’t go to a doctor or a dentist that wasn’t regulated, you certainly wouldn’t fly on a plane with a pilot that’s not qualified.

“And yet, when you’re dealing with a transaction that’s worth hundreds of thousands of pounds to you, you may well go to the agent that’s quoting the lowest fee and the highest value.”