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What letting agents need to know about the Fifth Money Laundering Directive

Wednesday 01 August 2018

Letting agents are to be brought under the scope of the EU’s Anti-Money Laundering laws – but only in certain circumstances.

Letting agents that facilitate rent transactions of €10,000 plus per month will be subject the Fifth Anti-Money Laundering Directive, meaning London operating agents will be particularly susceptible to the new laws on or before 10 January 2020.

The Fifth AML Directive introduces four significant changes to the regime which operates in all EU Member States:

  • Registers of ultimate beneficial owners of companies and other legal entities must be made available to the public (this does not include the register of ultimate beneficial owners of trusts, this requires demonstration of legitimate interest);
  • The regime is being extended to include electronic wallet providers, virtual currency exchange service providers, and art dealers. The scope of application is also being furthered with respect to tax advisors and estate agents (where they are letting property which yields over €10,000 in monthly rent – effectively this means letting agents);
  • Threshold for identifying holders of prepaid cards is lowered to €150;
  • Enhanced due diligence measures will have to be implemented by Member States more strictly to monitor suspicious transactions involving high-risk countries.

Until the Directive is transposed into UK law, it is unknown as to whether letting agents who deal with high-rental transactions will have to register with HMRC, as estate agents already have to.

What can be presumed however, is that letting agents (facilitating rents of €10,000 p/m upwards per property) will likely have to operate with the same diligence as estate agents currently have to. Under AML guidance, estate agents have to be able to show that how they will:

  1. Do Customer Due Diligence checks on sellers and buyers and carry out ongoing monitoring;
  2. Screen staff and prospective staff to ensure effectiveness in carrying out relevant functions with good conduct and integrity;
  3. Identify when a seller, buyer or beneficial owner is a politically exposed person (or a family member or close associate of one) and undertake Enhanced Due Diligence;
  4. Appoint a Money Laundering Officer (MRLO) to receive reports of suspicious activity from staff and make Suspicious Activity Reports to the National Crime Agency and make clear how reports are to be made in their absence;
  5. Ensure staff are trained regularly to recognise money laundering and terrorist financing risks and understand whey they should do to manage these, including the importance of reporting suspicious activity to their nominated officer;
  6. And maintain accurate, up-to-date record keeping and retention of records for five years from the end of a business relationship.

Enhanced Due Diligence

Enhanced Due Diligence applies in situations where there is a higher risk of money laundering or terrorist finance.

Customer Due Diligence

Customer Due Diligence means taking steps to identify your customers and checking they are who they say they are.

Politically exposed persons

Agents must also apply Enhanced Due Diligence on Politically Exposed Persons. These are individuals that are entrusted with prominent public functions (senior political figures or their immediate family and close associates), held in the UK or abroad. Their position may make them vulnerable to corruption.

The Directive dictates that enhanced due diligence will be required when dealing with transactions from high risk third countries. The European Commission has provided a list of these countries which present an increased risk of money-laundering, this is regularly updated and includes: Afghanistan, Iran, Iraq, Syria and the Democratic People’s Republic of Korea amongst others.

The Directive entered into force on 9 July 2018, however Member States have 18 months to implement the Directive into national law. The UK Government have said that they will adopt the Directive in UK law, but as of yet it is unsure how this will pan out in the event of a no-deal Brexit. The UK is set to formally leave the European Union 29 March 2019, however a transitional period will operate until 31 December 2020.