Anti-Money Laundering Checks When Buying a House

What are AML Checks?

AML checks are an essential part of the job search and customer due diligence process to ensure that your customers are not attempting to launder money from your business/company, which is critical for banks and financial institutions. AML checks, which can range from basic Know Your Customer (KYC) verification to real-time screening, are designed to identify and assess customers’ risks. An AML check is a safeguard to help prevent businesses from being caught up in crime, directly or indirectly. Organizations that fail to comply with these checks may face hefty fines and other serious consequences. As,

• Crown Resorts has been allegedly fined $450 million by the Australian Transaction Reports and Analysis Centre (AUSTRAC) for violating anti-money laundering (AML) laws at its Melbourne and Perth casinos.
• The UK’s largest Islamic bank was allegedly fined £4 million by FCA for failing to conduct adequate checks on high-risk customers’ wealth because it failed to keep due diligence records up to date.

Importance of AML Checks in the Real Estate Sector:

In the United Kingdom, buying property has become a popular way for serious organized criminals to launder money. The vast size and high value of the property market make it an appealing avenue for legitimizing large sums of money obtained through illegal activities. Also, According to a Global Financial Integrity (GFI) report, more than $2.3 billion was laundered through US real estate between 2015 and 2021. To combat this problem, strict measures have been implemented to ensure compliance with Money Laundering Regulations. Since their implementation in 2017, the original Money Laundering Regulations have been revised several times to address the constantly changing risks associated with money laundering in the property sector.

AML checks for estate agents are significant as they can ensure the integrity of the real estate market and protect it from corrupt practices. They help to maintain transparency, protect buyers and sellers, and prevent criminals from using real estate to finance their crimes.

What AML Checks are Required?

Money laundering checks are performed on a residential property purchase by the seller’s estate agent, mortgage lender, anti-money laundering attorney, and conveyancing solicitor. Even though they are all involved in the same transaction, they must each comply with the MLR independently. The common AML checks when buying a house include

• Customer Due Diligence (CDD)
• Enhanced Due Diligence (EDD)
• Transaction Monitoring

Documents required to comply with aAML checks for estate agents fall into three categories:

1. Identity proof:

To prevent fraudulent activity, you must establish your true identity. Fortunately, proving one’s identity is a simple process because most of the necessary documents are readily available. Here are some examples of acceptable documents (Note: not all of them are required, but a combination to prove your name and address):

• A current passport
• A valid driver’s license with a photograph
• Recently received utility bill (excluding cell phone bills)
• Most recent bank statements
• The most recent mortgage statement
• Recent tax bill
• The most recent tax notification
• Your pension book
• Your benefits book
• Your biometric residence permit
• Recent lease agreement with local authority

2. Proof of Funds:

If you have a question about how to show proof of funds for real estate? It can be requested for a variety of reasons, more than once. AML checks estate agents, for example, may request proof of funds before making an offer to ensure the legitimacy of their offer and their commitment. The real anti-money laundering check begins after the offer is made. At this point, the agent is legally required to confirm that he has the necessary funds for the purchase and that the funds were obtained legally. If requested, you must provide proof of funds as a buyer. Acceptable methods of proving funds include:

• Your lender is primarily responsible for the mortgage contract.
• If buying in mortgage: Bank statement displaying the required deposit
• If buying in cash: A bank statement with the total asking price
• Gifted deposit letter of proof
• Proof of property sale (if using the proceeds to finance the purchase)

3. Income source:

Although they may sound similar, sources of funds and proof of funds are not the same thing. Verification of the source of funds is required to demonstrate how you obtained the funds to deposit the property, not simply to demonstrate that you have the necessary funds to purchase the property. The most common sources of funding are:

• Property sale for savings
• Financial assistance
• Investment sales
• Retirement lump sum
• Inheritance

Benefits of AML Checks:

With the assistance of an anti-money laundering attorney, AML checks provide expertise and legal advice to ensure compliance, reduce risk exposure, and protect against money laundering, which benefits both buyers and sellers.

• Buyers can rest easy knowing that the property they are purchasing is not associated with illegal activities, ensuring the integrity of funds.
• Sellers benefit from a stable and popular property market by attracting qualified buyers and maintaining the value of their property.

Bottom Line:

Home buying involves more than merely discovering the perfect place to live; it also includes carrying out financial research on money laundering. These financial assessments are critical for safeguarding real estate against illegal activity, ensuring transparency, and safeguarding the interests of buyers and sellers. The real estate buying process becomes safer, and more reliable, and supports a successful real estate industry by adhering to AML checks when buying a house and cooperating with stakeholders.

Also Read: Machine Learning and Effective AML Ongoing Monitoring