Recent developments demonstrate that the UK real estate sector continues to be at risk of financial crime be it fraud, bribery or money laundering. Those operating in the sector should continue to take steps to mitigate the risks of becoming involved in, or the victim of, financial crime.
Bribery and corruption
The UK regulatory authorities, including the Serious Fraud Office ("SFO") and specialist police forces, are actively investigating allegations of bribery and corruption in the real estate sector.
For instance, Merseyside Police have recently arrested five individuals in connection with 'Operation Aloft' which focuses on the award of building and development contracts in Liverpool. The year-long investigation led to the recent arrests of five individuals including the Mayor of Liverpool, Joe Anderson, who was arrested on suspicion of conspiracy to commit bribery and witness intimidation. Mr Anderson has been suspended by the Labour Party while the criminal investigation proceeds and has confirmed that he is stepping aside from his position as Mayor of Liverpool. Other individuals arrested include the former deputy leader of Liverpool City Council, a Liverpool property developer and Liverpool City Council's Director of Regeneration. There has been significant media coverage of the arrests and that is set to continue as the authorities consider whether to bring criminal prosecutions.
Fraud / forgery
Earlier this year the conviction of Derek McCafferty demonstrated the risks of forged documents being used in the real estate sector. In February 2020, Mr McCafferty, a construction consultant, pled guilty to fraud in presenting as genuine a building warrant and completion certificate for a building extension, when he knew that they were false. Mr McCafferty received a six month custodial sentence.
Another case of forgery concerned Andrew Whitehead, the sole director of a letting agency in Southampton who defrauded landlords and tenants of rent and deposits respectively. As part of the fraudulent scheme valued at over £230,000, Mr Whitehead relied on a forged bank statement in order to hold out to industry associations and a tenancy deposit scheme that tenants' money was safeguarded. Mr Whitehead received a two year custodial sentence in December 2019.
Estate Agents – Money Laundering Regulations
In October 2020, the UK Government published its latest update to the Estate agency business guidance for money laundering supervision. Estate agents operate in the regulated sector and are subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. Those Regulations apply to all businesses carrying out any property finder or estate agency services, even where this is not their principal business activity.
Key compliance steps for estate agency businesses include:
- Registering with HMRC for money laundering supervision.
- Carrying out an assessment of the risk of the business being used for money laundering and, based on that assessment, identifying appropriate responses for the business to take.
- Applying a money laundering policy detailing how the business, and who within the business, will respond to the risk of it being used for purposes connected with money laundering.
- Carrying out customer due diligence for each transaction.
The 2017 Regulations require estate agents to take steps to verify the identity (and, in certain circumstances, the beneficial owners) of both the buyer and seller in any transaction and assess the risk of money laundering associated with each of them.
The real estate sector continues to face significant risks of financial crime. It is important that organisations in the sector take appropriate steps to mitigate the risk of (1) falling victim to financial crime or (2) failing to comply with their own regulatory obligations. In the current economic climate, the risk of financial crime increases and accordingly now is the time for responsible organisations to protect themselves. The first step in that process is a review of internal compliance systems to stress test them.
If you would like to speak to us about the steps you can take to manage financial crime risks please contact our Corporate Crime & Investigations Team.