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AML Clarification from HMRC

16th March 2017

HMRC have moved to provide clarification on the implementation of the 4th Money Laundering Directive ahead of the 26th June 2017 deadline.

In an open consultation launched yesterday (15th March) HMRC have announced that estate agents will be required to undertake Customer Due Diligence (CDD) on purchasers.

The expected addition of checks on landlords and tenants for lettings has not materialised. In its consultation HMRC have said:

“In line with the directive, lettings agents will continue to be within the scope of the regulations where they carry out estate agency work in accordance with section one of the Estate Agents Act 1979 (as amended). However, the application of the Money Laundering Regulations will not be extended to include lettings activity.”

While the exclusion of Lettings comes as a shock the inclusion of purchasers was expected. In the Autumn, the NAEA suggested that “in all likelihood it (the 4th Money Laundering Directive) will include vendors and buyers.”

The consultation also moves to clarify the level of enhanced due diligence (EDD) required for Politically Exposed Persons (PEPs) and their immediate family. There is an acknowledgment from HMRC of the need for a proportionate approach to high risk foreign PEPs and low risk domestic PEPs, and close family and associates of PEPs.

The government acknowledges that guidance to date has focused on high risk foreign PEPs and has identified that the inclusion of domestic PEPs in 4MLD requires further guidance be published. It has announced that The Financial Conduct Authority will publish specific guidance on the treatment of domestic and foreign PEPs after a short consultation.

EDD must continue to be carried out on PEPs for 12 months after they cease to be entrusted with a prominent public function, however 4MLD no longer requires EDD to be undertaken on family or associates of former PEPs;

“… firms should take a risk-based approach to the family members and known close associates of former PEPs. In low-risk cases, they should apply ordinary customer due diligence measures to these persons immediately after the PEP ceases to be entrusted with their prominent public function. In cases where the individual continues to present an elevated ML/TF risk, the firm should apply enhanced measures in proportion to the ongoing risk.”

As with all anti-money laundering activity, the critical undertaking is to document and evidence your risk-based approach to compliance. No illegal funds need to have passed through your business for you to be culpable.

You can review and respond to the consultation here: https://www.gov.uk/government/consultations/money-laundering-regulations-2017/money-laundering-regulations-2017 

In response, Compliance in a Box from Landmark has launched an enhanced AML pack to help agents carry out and document customer due diligence and enhanced due diligence on vendors and purchasers. No contracts, tie ins or ongoing fees, simple pay as you go compliance. Contact Samantha Peacock (sam.peacock@landmark.co.uk) today on 01524 220013 or sign up below to find out more.

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