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How To Guide: Money Laundering Checks When Buying A House

Property Saviour » Buying » How To Guide: Money Laundering Checks When Buying A House

When buying a house, the estate agent will carry out anti-money laundering checks.  They will also ask you to confirm your ID and provide proof of funds.

So what are these anti-money laundering (AML) checks, and why do you need to pass them?

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What is money laundering in simple terms?

Money laundering is the process that transforms illicit funds into money that appears legitimate, allowing it to be spent as if it came from legal sources. This practice legitimises the profits of criminal activities, enabling drug cartels, human traffickers, and other criminals to grow and profit from their illicit operations.

Money laundering offences can include tax evasion, theft, fraud, bribery, corruption, smuggling, modern slavery, human trafficking, drug trafficking, and illegal arms sales.

The definition of money laundering is quite extensive. Criminals engage in money laundering by retaining, disguising, and concealing the proceeds of their crimes, as well as by raising, consolidating, or retaining funds to finance terrorism.

What does a money laundering check involve?

An AML Check, or Anti-Money Laundering Check, is an identity verification process to establish whether an individual is involved in money laundering activities. It is a legal requirement for estate agents to undertake these checks on customers as part of their anti-money laundering compliance efforts.

The purpose of the check is to ensure that buyers or sellers are not engaging in illicit financial activities such as terrorist financing and other criminal activities.

The checks involve examining personal data such as name, address, bank account details, and employment information against relevant databases and other sources.

Estate agents must maintain records of all AML checks conducted on customers to demonstrate their compliance with applicable regulations to the AML officer if necessary. This information may need to be shared with government or regulatory authorities should it be requested, in the UK or abroad.

Estate agents must keep records of all this information for some time – typically five years – to demonstrate their compliance with relevant AML laws and regulations to their designated AML officer.

Money Laundering Checks When Buying A House
If you are buying a house in the UK, you must be able to prove that the funds are legal and legitimate.

What is considered money laundering in UK?

The concept of money laundering is quite broad. Money laundering is how criminals retain, disguise, and conceal the proceeds of their criminal activities. It also involves the raising, consolidating, or retaining of funds to be used in financing terrorism.

According to UK law, money laundering is defined in the Proceeds of Crime Act 2002 (POCA). It encompasses all forms of handling or possessing criminal property, which includes possessing the proceeds of one’s criminal activity and facilitating any handling or possession of criminal property.

Under the definition provided by POCA, criminal property constitutes or represents a person’s benefit from criminal conduct. The accused must know or suspect that the property in question represents such a benefit. Criminal property can take various forms, such as money or money’s worth, securities, tangible and intangible property.

Money laundering can occur anywhere in the world and can vary from a single act involving one person to complex setups involving multiple individuals. There are no exceptions based on materiality or de minimis when it comes to money laundering.

Why are money laundering checks necessary?

Although money laundering may bring to mind images of drug cartels and arms traffickers from distant shores, the UK property market is extremely vulnerable.

A recent report by Transparency International UK revealed that since 2016, £6.7 billion of questionable funds have flowed through our property market.

The UK property market is especially attractive to money launderers due to its sheer size. In 2021 alone, there were an astonishing 1,480,720 residential property transactions completed. Considering that each of these transactions involves hundreds of thousands of pounds, it becomes clear why the UK property market is a magnet for those seeking to legitimise their money.

Considering all this, compliance with The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 is a legal necessity.

What is considered proof of funds?

Proof of funds (POF) requires you to produce a document or documents showing that you have funds available for a property transaction. It can be a bank statement and a completion statement following the sale of a property.

How do I show proof of funds UK?

You can provide of funds by providing following documents:

  1. Mortgage offer in principle.
  2. Bank statements of your deposit amount (for mortgage buyers).
  3. Bank statements of your cash amount (for cash buyers).
  4. Further bank statements from past months/years showing how your money has built up over time.
  5. Evidence of you selling a property (if using the funds to buy the new property).
  6. If you’ve been gifted the money, a letter from whoever gifted the money.
  7. Evidence of money being left to you in a Will.
  8. Receipts of shares being sold.

In some unique circumstances, if you have been fortunate enough to win the lottery, you may be required to provide proof. The same goes for gambling winnings, where you might be requested to show receipts or evidence of your winnings.

It is good practice to keep evidence of the sources of all funds used for your purchase. You can be prepared if your estate agent asks for it.

Cash Buyers Only Meaning
Cash buyers can see properties in disrepair as a great investment, as they won't be put off by major issues such as subsidence, dampness, electrical problems, or roof damage.

What is evidence of source of funds?

Evidence for source of funds includes:

  • Inheritance
  • Savings
  • A financial gift (often from the Bank of Mum and Dad)
  • Sale of investments
  • Pension lump sum
  • Property sale
  • Winnings (lottery, gambling, premium bonds, poker tournaments, etc.)

While it may seem similar, the source of funds differs from proof of funds. Source of funds proof is required to demonstrate how you obtained the money for your property deposit, not just to show that you have the money to purchase the home or apartment.

For many of us, our property deposit will come from one of three sources (or a combination of them): savings, a gift, or the sale of another property. There are other sources, of course, but you will still need to prove the source of your funds in any case.

How long do money laundering checks take?

It can take up to 24 hours to complete a money laundering check. Or in more complex cases, up to one week.

Who asks for proof of funds?

The sellers, estate agent, your solicitor, the seller’s solicitor, and your mortgage lender (if you need a mortgage) all have a legal requirement to confirm that you have the funds to purchase the property. You are not required to provide proof of funds until you make an offer on a property.

who asks for proof of funds
If you are expecting funds from abroad, the AML checks are even more stringent and there's a high risk of funds being seized if you are unable to prove source.

Gifted Deposit Receiving Money from Abroad?

If you are planning to use funds from abroad to finance your property purchase, you might find yourself in violation of the current money laundering regulations.

This situation applies to deposits, funds, and gifts entering the United Kingdom from outside the European Union (EU) or European Free Trade Association (EFTA). While countries like Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, and the US typically pass anti-money laundering (AML) checks, it’s advisable to consult your conveyancer before finalising any transactions. Receiving money from high-risk nations or individuals linked to such countries could lead to your funds being rejected.

Remember the age-old advice: it’s better to be safe than sorry. Make sure to verify that you won’t waste your time or money.

What can be used as proof of ID?

As part of their legal obligations, to verify your identity, estate agents will request proof of your current address and identity. This verification process known as ‘Due ‘Diligence” is a standard part of their checks. You may be required to provide some of the following forms of identification. 

Proof of Name

Proof of Address

Current Passport

A current tax bill from your local authority

Resident permit

Rent card or tenancy agreement from your local authority

Current UK/EU photo driving license

Recent mortgage statement

HMRC (Inland Revenue) Tax Notification

Bank statement

State pension or benefits book/notification letter

Utility bill (not mobile)

Can Bank of Mum & Dad Help?

If your parents are considering selling, they can release equity or downsize into a smaller home that’s perhaps easier to manage.

By doing so, they will enable you to get on the housing ladder.  It is worth having this conversation.

Are your parents looking to sell their house? We buy houses in any condition. Get in touch today.

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