Case Studies

Property sector and money laundering risk

by Mark Rowe

The traditional high-risk areas of money laundering remain, including financial services, money service businesses, and cash. However, new methods continue to emerge, according to HM Treasury’s 2020 national risk assessment (NRA), the third assessment of money laundering and terrorist financing risk in the UK.

Professional services remain attractive to criminals as a means to create and operate corporate structures, invest and transfer funds to disguise their origin, and lend layers of legitimacy to their operations. Established money laundering methods, including the use of money mule accounts, have persisted.

The document assesses that the UK property sector is at high risk of money laundering, as UK property purchases remain an attractive method to launder illicit funds
due to the large amounts that can be moved and the low levels of transparency of ownership or source of funds. Since 2017 (the year of the previous risk assessment), law enforcement agencies have observed increased overseas buyers and overseas cash flows into the UK property market.

Corrupt foreign elites continue to be attracted to the UK property market, especially in London, to disguise their corruption proceeds. Property can be bought through complex systems of shell companies registered overseas in secrecy jurisdictions to obscure ownership. Overall, estate agency businesses continue to have a lot of weaknesses in their anti-money laundering and counter-terrorist financing (AML/CTF) controls, limiting the mitigations against the risk of money laundering, the document says. Common failings are the lack of bespoke policies, controls and procedures aligned with an appropriate risk assessment of each firm’s clients. This includes a lack of consideration of property location on the risk (such as failing to recognise that higher priced London property is at higher risk of money laundering).

Likewise the risk of abuse of accountancy services and legal services for money laundering purposes is judged to remain high overall as in 2017. Legal services most at risk of exploitation by criminals and corrupt elites for money laundering purposes continue to be conveyancing, trust and company services and client accounts. The increases when legal professionals fail to carry out their obligations under the money laundering regulations (MLRs) or take a tick box approach to compliance, the document says.

As for covid-19, the lockdown in the UK had a significant impact on the ability of money launderers to move cash across borders and led criminals to use other known methods, such as cash via freight, use of crypto-assets or trade-based money laundering. For the full 152-page document visit the HM Treasury website.

As for where the risks come from, the document points to ‘Politically exposed persons (PEPs)’. It says that the UK continues to see a significant volume of Russian, or Russian-linked illicit finance channelled through the UK economy, through various regulated and unregulated sectors, including company formation and related professional services, as well as UK real estate, private school fees, luxury vehicles, and (as a way for individuals to launder their reputation) as donations to cultural institutions. Other countries named are China and Hong Kong; Pakistan; and the United Arab Emirates; and UK Crown Dependencies and Overseas Territories.

Separately, the National Economic Crime Centre (NECC), part of the National Crime Agency (NCA) with the Independent Schools Council (ISC) and the Independent Schools’ Bursars Association (ISBA), recently published an alert on the money laundering risks faced by independent schools.

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