The property and housing sectors have traditionally been viewed as particularly vulnerable to money laundering. This has continued in 2019, with Countrywide Estate Agents recently being fined £215,000 by HMRC for money laundering breaches.
This is of particular importance to housing associations for two reasons. Firstly, most housing associations are subject to regulation by HMRC for anti-money laundering (AML) purposes under the Money Laundering Regulations 2017 because they carry out estate agency business. That is because when a housing association re-sells a shared ownership property, it usually acts as the estate agent on behalf of the co-owner.
The fine imposed on Countrywide was part of a week-long crack down on money laundering in the property industry. Whilst housing associations may have lower money laundering risks than commercial estate agents, it is important for housing associations to have identified which of their active fees are regulated under the Money Laundering Regulations 2017. Estate agency work is one type of regulated business. Another is lending, which can include associations giving equity loans or extended payment terms for service charges. Having identified their regulated activities, associations then need to ensure that they have implemented the new AML structures and processes imposed by the Money Laundering Regulations 2017. Those regulations made significant changes to their predecessor legislation, the Money Laundering Regulations 2007, and so a thorough review will be necessary if this has not already been carried out.
Secondly, housing associations are likely to carry out activities which, although not regulated under the Money Laundering Regulations 2017, nevertheless give rise to heightened money laundering risks. Higher risk activities include tenants exercising right to buy and right to acquire, in particular where purchases are funded by large deposits, staircasing, especially where a tenant acquires a small initial interest but rapidly staircases to own a more significant proportion, overpayments to sinking funds which are then requested to be refunded, lump sum payment of rental arrears, and receiving cash.
While these activities are not regulated under the Money Laundering Regulations 2017, they nevertheless give rise to money laundering risks, in many cases can be more serious than the regulated activities. Those risks can include members of staff committing the substantive money laundering offences under the Proceeds of Crime Act 2002. Criminal investigations tend to be expensive, time consuming and damaging to an organisation's reputation with regulators and the public alike.
For these reasons, best practice in the housing sector is moving towards the voluntary extension of AML processes to non-regulated higher risk activities such as those mentioned above. This usually involves updating policies, putting in place procedures which are effective and streamlined and training relevant staff to identify the risks and react accordingly. The typical involves working with associations' sales, finance and governance teams to ensure that processes are agreed and there is an appreciation of the indicators that should be reviewed as red flags.
The author has recently updated the National Housing Federation's sector guidance on AML.