Criminality Tests for Estate Agents Start in Less than 3 Months

Thursday, May 30, 2019

David Beaumont, who runs Property Industry Eye’s free compliance helpline is issuing a stark warning to estate agents relating to the new Money Laundering Regulations.  The Regulations come into force in eleven weeks time on 26th June 2017, but we do not know exactly what they will include as the government is still consulting.

However, we do have a draft of the Regulations called The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which include a CRIMINALITY TEST for estate agents.

The EU directive that triggered the introduction of these Regulations required necessary measures to be taken to prevent individuals who had been convicted of relevant offences from holding a management function in an estate agency or being a beneficial owner of an agency.

Relevant offences are outlined in the Schedule to the Regulations and are those that impact on the risk of money laundering or terrorist financing or those that have a bearing on whether a person is suitable to hold a management function in an estate agency. The list includes very serious offences as you would expect, but it includes offences involving deception or dishonesty and offences relating to state benefits. It even lists some offences under the Estate Agents Act.

It means that estate agency businesses will need to take reasonable care to ensure the beneficial owners of the business, such as shareholders or partners, plus directors and managers have passed the criminality test and been approved by HMRC.

David thinks that agents will be shocked to find out about this obligation, if only because it adds yet another layer of red tape on to a profession that seems to continually to be in the spot light. For me the question is not whether this change is appropriate; the question is why, yet again, is it agents that are being targeted?

If this “test” is appropriate for agents why is it not appropriate for businesses in other sectors?

What really surprises me is that none of the trade bodies have made any comment on it, or lobbied about the targeting of agents, objected to it, or even warned agents about its impending introduction.

David also points out that a further shock will be that the obligation to obtain approval rests with the individual not the estate agency business. This means there will not be one application per business there will be numerous.

It is ridiculous to think that HMRC will process applications and issue approvals without charging a fee, but we do not know at this point. The checks are all about criminal convictions and so I suspect Disclosure and Barring Service checks (previously called CRB checks) will be involved, which will have a cost, regardless of any HMRC fees.

HMRC are currently working on guidance, but as the Regulations are in the consultation period until 12th April, they are unable to provide any clarification.

HMRC can even get Court Orders to force individuals to sell their interest in an agency if they are prosecuted for a relevant offence and anyone acting in breach of a prohibition risks a £5,000 fine and 2 years in prison.

The good news is that agency businesses will be able to operate until 26th June 2018, with people in place who do not have approval, providing those people have placed their application for approval to HMRC before 26th June 2018.

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