The property sector has traditionally been viewed as particularly vulnerable to money laundering. While the number of reports by housing associations of actual or suspected money laundering is low, housing associations should be aware of the risks and their obligations under anti-money laundering (AML) and related terrorism legislation.
What is Money Laundering?
Money laundering is the process that turns the proceeds of criminal activity into funds that appear legitimate and which can therefore be spent as if they were obtained from a legitimate source. These funds often arise from the actions of serious organised crime groups but can equally be related to terrorist funding, or individuals involved in small scale criminal activity.
Why is AML relevant to Housing Associations?
The Money Laundering Regulations 2017 (the Regulations) came into force in June 2017 and detail various business activities, including some types of business often undertaken by housing associations, which makes them ‘relevant persons’ to whom the Regulations apply.
The Regulations appoint AML supervisors for various types of activity and give those supervisors powers in relation to registration requirements and enforcement of the Regulations. AML supervisors include the Financial Conduct Authority (FCA) and His Majesty’s Revenue and Customs (HMRC), amongst others.
Most housing associations are subject to supervision and registration with HMRC for AML purposes because they carry out ‘estate agency business’. This is because when a housing association re-sells a shared ownership property it often acts as the estate agent for the co-owner.
Housing associations may also conduct a number of other activities which fall within the scope of the Regulations. They should ensure that they have identified all such activities and have registrations with the appropriate supervisor(s) in place.
What should Housing Associations be doing to ensure compliance?
The Regulations place a number of wide ranging legal obligations on ‘relevant persons’ including:
- appointing a Money Laundering Reporting Officer;
- establishing and maintaining a money laundering risk assessment, which HMRC guidance suggests should be updated on “at least an annual basis”;
- establishing a number of risk-sensitive policies, controls and procedures, which the Regulations note should be “regularly reviewed and updated”;
- taking appropriate measures to ensure that relevant employees are made aware of the law relating to money laundering and regularly given training in how to recognise and deal with transactions and other activities or situations which may be related to money laundering (and maintaining appropriate records of such training). HMRC guidance suggests training should be “at least every two years”.
There are additional obligations under the Regulations and other AML legislation in relation to customer due diligence, record keeping and internal controls, amongst other requirements.
Housing associations should be ensuring that that are aware of their obligations under AML legislation. A failure to comply, including a failure to establish and maintain the policies, controls and procedures required, can result in serious consequences including civil and criminal penalties.
Furthermore, if an investigation by a supervising body finds areas of non-compliance with AML legislation there could also be potential consequences for a housing association’s reputation, governance rating or even compliance with the general covenants in its loan agreements.
How can Devonshires help?
Our cross departmental team can assist in the following ways:
- drafting, reviewing and updating anti-money laundering policies and risk assessments;
- AML training for staff (including training for board members);
- reviewing your policies, controls and procedures to ensure they are compliant with AML legislation;
- general queries regarding AML registration and AML legislation; and
- if you do receive notification of a visit from HMRC regarding AML compliance, we can assist by providing advice and guidance on preparing for this.
Click here for more information on how our fixed price AML Compliance Health Check can help.
For further information or any queries, please contact Rachel Orgill-Harris or Matthew Garbutt.