We have been looking at the new HMRC money laundering guidelines, and they have raised a few eyebrows, particularly for small property firms such as ours. The potential outcome for non-compliance is a prison term.
As the managing partner of an independent property auction house, I think I run a pretty slick ship. I have a great, well-trained team, we are all proactive and we are all sticklers for accurate administration procedures.
We keep an eye on costs and are focused on following the legal processes of a property transaction.
The most well-known method of buying at auction is in the traditional auction room setting. The rules of the buying process are in the freely available catalogues, and the auctioneer always points out the identification requirements and checks for those whose bid wins the land or property. Investors and buyers bid and the buyer presents their ID and pays their 10% deposit to the administration team.
Now, when does the business relationship start in this process? My view, after more than 30 years in the business, is the bidder becomes a customer when the gavel goes down. That slap of the hammer down initiates a legally binding process, and the money laundering process and relevant checks start to be made at that point. I don’t see how it can be any other way.
We also sell property online. Now here, it is slightly different in that bidders register before they bid. This is because they need to enter into a financial transaction to bid, ie handing over credit card details for an immediate amount to be taken if they are successful. In this case I understand the need to initiate the money laundering process prior to the final bid (although I still feel that they are not a genuine client until the final bid).
So the legislation needs to cover the point at which an observer becomes a customer, during the various routes to purchase.
Clearly we are not going to stop investors and buyers coming in to our auction rooms because they “look” suspicious. The legislation needs to be very clear as to what constitutes “suspicious activity”. Any discrepancies in ID or payment delays will alert us to dig a little deeper and check with the client’s solicitor and electoral roll, etc. We do this now. The difficult area is checking when the purchase is for a company or a partnership. We can only check in a few obvious places to confirm the company exists, is registered and who the directors are.
My point here is if the National Crime Agency and HMRC cannot spot that a company is suspicious, should it fall to a small business to take the rap for one transaction when the checks available at its disposal have been carried out and look genuine? We always process money electronically but in virtually every case we would not know the source of the money, as the account is in the client’s name. That’s one for James Bond, I think. After all, the name’s Phil Arnold – such responsibility would leave me shaken, not stirred.
The HMRC website gives many ways in which property businesses should carry out due diligence.
But it also raises as many questions as it tries to answer when it comes to how long all this will take and what the staff resource cost is to do it.
And I come back to a point I made earlier: how would we know certain things about a client? How would we know their political background or evil intentions if this is not on the information we can search as part of standard practice? I agree with having stringent management controls, but let’s not put all the onus on small businesses to spot international crime.
Having considered the regulations for a good few months now, I think what we need from HMRC is a clear checklist that states what checks are achievable and realistic for independent estate agents and auction houses that satisfy their requirement that all the basics have been covered and provide information about what these are. In my opinion, a lot is open to interpretation at the moment and the imposed consequences of that discrepancy are too high to take lightly.
Remember, we are only talking about a tiny minority of ne’er-do-wells who try to con the system, and we need to ensure that we keep focused on our main occupation of providing a customer-friendly sales platform for the good guys.
Philip Arnold is managing partner of Philip Arnold Auctions
