Money laundering checks when selling a house

Real estate professionals, such as solicitors and estate agents, follow anti-money laundering regulations in their business practices. In other words, they take steps to prevent and detect money laundering during property transactions.

If you're selling your house, you won't go through the same checks as your buyers. But it's important to know how these checks relate to your transaction!

What is money laundering?

Money laundering is the process of disguising the proceeds of illegal activity as legitimate funds. It’s a serious crime, and one that can have far-reaching consequences.

Various laws and regulations have been put in place throughout the UK to ensure that financial institutions and regulated entities take steps to identify and mitigate the risks of money laundering.

What does money laundering involve in the property market?

A great deal of money changes hands in property transactions - which makes the property market ripe for money laundering activities.

There are many ways in which laundering can occur. Some examples include:

• Buying a house using money that was sourced from criminal activities, and then letting or selling the property on. The proceeds from rent or a sale can then be perceived as ‘clean’, as it was collected from a legitimate source.
• Buying a house with money sourced from mortgage fraud.
• Paying an estate agency or letting agents with illegal money, and reclaiming the funds later.

What anti-money laundering rules are there?

One of the key pieces of anti-money laundering legislation in the UK is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations of 2017. Under the Regulations, solicitors and agents must implement systems to identify and assess the risks of money laundering, and report any suspicious activity to the National Crime Agency (NCA).

Solicitors and agents are also required to carry out customer due diligence on clients. This involves verifying the identity of a potential buyer and assessing their potential for laundering money.

In addition to the Regulations, real estate professionals are also subject to the Proceeds of Crime Act 2002 and the Terrorism Act 2000. These laws set out the legal framework for the detection and prosecution of money laundering, describing the powers and duties law enforcement agencies have, and must perform.

What are the responsibilities of homesellers with regards to money laundering?

Homesellers receive much less scrutiny than homebuyers with regards to money laundering. Afterall, the purchase money is from the buyer’s pockets. There is always more speculation about the immediate origin of the cash - especially if the buyer is a cash buyer (someone who has the complete funds without need of a mortgage).

In most transactions however, homeowners buy and sell property at the same time. As a result, most homeowners face similar scrutiny when buying and selling.

At the very least, all parties (homesellers and buyers) must provide proof of their identity and address, with cross-examination by an electronic ID verification system.

What are the responsibilities of agents and solicitors with regards to money laundering?

Solicitors and agents are expected to be vigilant and report any suspicious activity that they come across in the property sector. This might include transactions that involve large amounts of cash, or appear unnecessarily complex.

As legal representatives within property transactions, solicitors tend to have vigorous money laundering detection systems in place. As such, checks among solicitors tend to be thorough, whereas checks among agents can vary from agency to agency.

Estate agents and anti-money laundering checks

An estate agent uses the following anti-money laundering (AML) checks to prevent their agency from being used to facilitate money laundering activities.

Check 1: Proof of funds

An agent can ask potential buyers to provide proof of funds at two different stages:

1. Before an offer is submitted - At this stage, the agent isn't trying to detect money laundering. They're ensuring the buyer is serious about their offer. As a result, evidence of funds is optional, and it's up to the buyer on whether to proceed.
2. After an offer is submitted - The agent needs the buyer to confirm that they’re in possession of the purchase money, and that they’ve not acquired it via illegal means. At this stage, it's essential for the buyer to provide proof of funds.

Buyers can provide proof of funds by handing over one of several documents, including:

• Mortgage Agreement in Principle or AIP (a preliminary agreement from the buyer's mortgage lender)
• Bank statements of deposit amount
• Bank statements of cash amount
• Bank statements or certificates indicating sale of property and release of funds

Check 2: Customer due diligence (CDD)

Once the buyer's offer has been accepted, the seller's agent may ask for proof of their current address and identity. This is all part of the Customer Due Diligence process, or CDD.

Acceptable identity documents include:

• Current passport
• Driving licence
• HMRC tax bill

Proof of address can be provided through:

• Current tax bill
• Bank statement
• Tenancy agreement or utility bill

By implementing these AML checks, estate agents help to protect their business and contribute to the fight against money laundering.

Solicitors and anti-money laundering checks

When you instruct a solicitor to act on your behalf during a property transaction, they'll immediately begin their AML checks. One of the most important is client identification.

Check 1: Customer Due Diligence (CCD)

This is the first action a solicitor will take when you instruct them to act for you. Without satisfactory documents, they won't proceed with your instruction.

If you're a homeseller, you need to confirm that you're the owner of the property, and that you are who you say you are.

Proof of address can be provided through:

• Utility bills
• Mortgage statements
• HMRC tax bill

Your solicitor will check your address against the Land Registry's registered ownership..

Acceptable identity documents include:

• Current passport
• Driving licence

Documents providing proof of address need to be recent (from the last three months).

Most solicitors use an electronic ID verification system. This system screens all of your details against a range of online databases - for example, checking that the bank details received match your current address.

Check 2: Source of funds

If you're a buyer, solicitors will want evidence that your funds have come from a legitimate source. They'll ask for six months of bank statements, and may require further evidence if the source of the funds is still unclear.

Cash buyers run a greater risk of scrutiny from solicitors. Huge sums of cash, without any help from a mortgage, can seem a little dubious. Buyers should provide as much evidence as possible to demonstrate that the cash was from legitimate origins.

If a solicitor or agent has concerns about a transaction - and these concerns haven't been alleviated - they'll report these concerns to the National Crime Agency (NCA) through the Suspicious Activity Report (SAR) system.

Summary: Robust for a reason

Overall, the property industry has a robust system in place to prevent and detect money laundering, and solicitors and agents play a key role in this.

Through their AML systems, and by reporting suspicious activity to the authorities, solicitors and agents help prevent the proceeds of illegal activity from making its way into the UK's financial system.