What You Can Learn from the UK’s Money Laundering Fight

Such criminal activity is rampant in the United Kingdom’s real estate market, but industry leaders are working toward change.

November 8, 2019

The United Kingdom currently has no real estate licensing requirements. Anyone can open up shop without knowledge or formal training in the field, and that’s made it easier for bad players to use real estate transactions for money laundering purposes. But the National Association of Estate Agents Propertymark, the U.K.’s equivalent to the National Association of REALTORS®, is working to change that.

Money laundering conceals funds that are obtained illegally by putting them through a financial system where they’re difficult to trace and can be withdrawn in a legal way. According to the United Nations Office on Drugs and Crime, the estimated amount of money laundered globally has reached $2 trillion, or about 2% to 5% of the global annual GDP.

Real estate is a popular system for money laundering in the U.K. because it’s a stable market, there are few restrictions, and there’s a low turnover in housing—about 18 to 23 years for a residential property, according to NAEA CEO Mark Hayward.

Hayward presented anti-money laundering information Thursday during a meeting of the Business Issues Policy Committee at the REALTORS® Conference & Expo in San Francisco. NAEA has been advocating for more industry regulations and licensing in the U.K., which Hayward is confident will soon be adopted by the Housing Ministry. “With regulations, we hope there will be greater adherence to the law and clean up what has been described as a ‘dirty industry,’” he says.

But money laundering will continue unless agents—who are often the first point of contact for criminals—take an active role, even in the United States. “Laundering is not a cottage industry, it’s not a teenager in a hoodie—it’s organized crime,” Hayward said. “They know who to target and where to go, and they look for weak spots.”

Money launderers don’t operate only in big cities; university towns, which often draw international investors, are also ripe for scammers because real estate agents in such areas are used to working with people they’ve never met.

In the U.K., financial institutions and professionals such as solicitors, accountants, and real estate agents are required to fill out a Suspicious Act Report if they suspect money laundering. The number of SARs submitted in the last year totaled about 700,000, but only about 845 came from real estate agents, even though agents are involved in 80% of real estate transactions in the U.K., Hayward said. “They are enablers, but we can stop it from happening,” he added.

Two years ago, money laundering regulations were put in place in the U.K., including a “Know Your Customer and Anti-Money Laundering” requirement for agents.  Agents can’t put a property on the market until they’ve done a series of checks to ensure their seller is the actual owner of the property. And U.K. agents can file an “unexplained wealth order” if there’s suspicion that a buyer’s income is insufficient to cover the costs of purchasing a property.

The U.S. is also a target for money launderers, Hayward said. American real estate professionals can report suspicious cash transactions to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The organization has had an on-again, off-again anti-money laundering program periodically requiring title companies to report transactions made by shell companies. The policy specifically targets cash purchases of residential properties. FinCEN has found that 30% of the buyers behind these transactions had previous reports of suspicious activity filed against them for issues such as unusual cash withdrawals and suspected corruptive ties in foreign countries.

The U.S. Bank Secrecy Act also requires financial institutions to file reports of cash transactions exceeding $10,000 and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.