OPINION ON OBTAINING ID FROM BUYERS

AGENTS BEING REQUIRED TO ID BUYERS IS A VERY BAD IDEA

It is proposed in the draft Money Laundering Regulations that agents will be required to conduct customer due diligence (CDD) on buyers. This comes about because Regulation 4 (3) states that for the purposes of these Regulations an estate agent is to be treated as entering into a business relationship with a purchaser as well with as a seller. As agents must conduct CDD on anyone they enter into a business relationship with, it becomes a statutory duty to verify a purchasers ID.

The Use of the Word ‘Seller’ in Regulation 4 is Incorrect
Selling agents do not enter into business relationships with ‘sellers’ they take instructions from individuals who wish to dispose of an interest in land. In most cases the agent wants that person to become a seller in order to get paid, but they do not enter into business relationships with sellers. Agents must conduct CDD on their client before marketing a property regardless of whether it sells or not.

Acquisition agents do not enter into business relationships with buyers they enter into business relationships with individuals who wish to acquire an interest in land. This requires an acquisition agent to conduct CDD before seeking a property for a client, regardless of whether they buy a property.

What is the Definition of a Purchaser?
As Regulation 4 states that an estate agent is to be treated as entering into a business relationship with a ‘purchaser’ and there is no definition of ‘purchaser’ within the Regulations, it must be assumed that the natural definition of the word applies. A purchaser is the person whose name/s appear on the contracts that are exchanged with the seller.

This leads to the conclusion that agents need only conduct CDD at a point just prior to any exchange of contracts. This would be at the very point any ‘business relationship’ between an agent and buyer was concluded.

There appears to be no scope for HMRC to impose any different definition on to the word purchaser within any guidance they produce. Should this happen there appears to be a good case for a legal challenge. The only scope for HMRC appears to be by using Regulation 30 which specifies the timing of the CDD. They could potentially require CDD to be carried out at particular point prior to contracts exchanging.

PROBLEM 1
This means that agents will be conducting CDD on parties that do not become ‘buyers’ given the percentage transactions that fall through.

Agents advising those potential buyers that they have an obligation to provide ID would potentially be misleading the individual and breaching the Data Protection Act by taking and holding personal data with no justification.

An agent has no control over who ultimately buys a property

PROBLEM 2
An interested party may put themselves forward as the ‘buyer’ when viewing and offering, but ultimately when the lawyers are involved the property may end up being sold to more than one person. It may end up being sold to a completely different person or even a company.

PROBLEM 3
Properties can have up to 4 legal owners and there are times when an agent may only be dealing with one of those buyers.

PROBLEM 4
Situations can arise when people view and offer on properties on behalf of others. For example, acquisition agents acting for a buyer or, a parent viewing and offering on a property for one of their children, etc., as such, there can be times when the buyers identity may not be disclosed to the selling agent.

PROBLEM 5
Once an offer is accepted and the property has been removed from the market the agent will never know the identity of the final buyer, which means that selling agents who obtain ID from viewers and/or individuals making offers cannot be certain that they are meeting their statutory obligation to verify the identity of the actual buyer or any other potential beneficial owner.

HMRC auditors will ask to see your ID records and they will see the land Registry record showing the new owner/s. If these don’t match the agent is in breach of their duty!

Acquisition Agents
These agents will obtain ID from their clients who instruct them to find properties, but they will under the proposed regime have to obtain ID from Sellers who they invariably do not meet at all.

PROBLEM 6
Acquisition agents often deal directly with selling agents and never meet the seller. If a seller refuses to provide ID the acquisition agent is in breach of their duty.

Given the changes to the ‘Reliance on third parties’ Regulation (Regulation 38) which allows agents to rely on other third party agents this may mean little work for acquisition agents, if they can obtain the correct assurances and documentation from the seller’s agent. However, where no agent for the seller is appointed it will mean the acquisition agent conducting CDD on the seller.

Alternative Interpretation of Seller and Buyer
It could be argued that the word seller and buyer should are interpreted as meaning an individual who was looking to acquire or dispose of an interest in land. This would then drag in any viewer of a property and as such selling agents would need to conduct CDD on every viewer of a property.

PROBLEM 7
This would increase the burden on agents significantly and mean many more breaches of the statutory obligation to conduct CDD would occur, given that viewers could easily refuse to provide it, but the agent would still need to conduct the viewing to act in the best interest of the client.

PROBLEM 8
It would also mean the obligation was open to abuse, because a slightly dishonest agent would simply remove all records of viewings other than the ones by the final purchaser, thus meaning they would not need records of ID. HMRC enforcement would not be able to identify the unsuccessful viewers and so it would make a mockery of the obligation.

How do Agents Deal with an Individual Refusing to Provide ID?
Where a seller refuses to provide ID, the agent refuses to market their property. The obligation is clear and the agent’s action an agent should take in those situations to ensure compliance is clear.

PROBLEM 9
Where agents have a statutory obligation to conduct CDD on an individual who actually has no ‘business relationship’ with the agent, then the agent clearly has no control of the situation. A refusal by an individual to co-operate with an agent’s statutory duty to conduct CDD immediately creates a breach of a statutory duty.

The concept of agents having this statutory duty to apply CDD to buyers is therefore flawed and should not be introduced.

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My clients take compliance matters very seriously and I have spend many years working proactively and reactively to provide them with cost effective solutions. My success is based, not only on the unique expertise I hold, but also around my ability to balance the need for compliance with commercial reality. Whatever your needs, I am happy to discuss them and the services we can offer to meet them on a no obligation basis. Email me at david@compliance-matters.co.uk or ring my office on 0161 727 0798

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