Estate Agents in the Pandora Papers: How Financial Crime Works

Published

In October 2021, the biggest ever leak of offshore data revealed the billions of pounds being channelled through the UK’s property market

Russian oligarchs, heads of corrupt governments, business tycoons, and a Middle East monarch – these are just some of the figures found to have anonymously bought property in some of London’s most exclusive postcodes. The leak of almost 12 million documents, known as the Pandora Papers, in October 2021 revealed the extent to which the UK property market is being abused by powerful figures looking to hide their wealth, launder money and avoid tax. 

Responding to the revelations that property worth £4bn had been bought using offshore accounts, Labour MP Margaret Hodge said there is, “a huge For Sale sign hanging over Britain … it doesn’t care who you are and doesn’t mind where your money comes from. It is outrageous that property in the UK is so liberally used as a vehicle to launder money and to hide personal wealth.” 

As outrageous as the £4bn figure is, experts believe the true sum could be closer to £170bn. 

An easy target?

The UK is often cited as ‘the money laundering capital of the world’ with an estimated £90bn laundered through the City of London each year, according to the National Crime Agency. The property sector has been a key facilitator of that activity, thanks in part to the ability of companies to buy real estate, even if they’re registered offshore. 

This makes the sector an easy target for financial crime. The ultimate beneficial owner (UBO) as they’re known, is able to remain anonymous and their wealth unscrutinised. Money gained by illicit means can be moved into an anonymous shell company in an offshore tax haven, used to buy a UK property, and then sold to a UK citizen who has unwittingly helped launder dirty cash. 

In 2015, the then prime minister David Cameron, promised to tackle the “dirty money” in the UK property market. But despite previous leaks in 2016 (the Panama Papers) and 2017 (the Paradise Papers), little has been done. Cameron pledged to set up a register of overseas entities to bring more transparency to these transactions. But, years later, the proposals still only exist in draft form. 

One lever that authorities do have at their disposal to target illicit funds invested in property is via Unexplained Wealth Orders (UWO). Investigators can freeze assets until the owner explains how they were able to afford them, or face fast-tracked seizure of property. The UK’s first UWO was given to Zamira Hajiyeva, the wife of a former banker jailed in Azerbaijan, who spent £16m in Harrods over the course of a decade. 

What can estate agents do?

Uncovering financial crime is not easy. But estate agents have a crucial role to play in detecting and preventing illicit activity in this sector. 

In December 2020, a Home Office and Treasury report raised the government’s assessment of the money laundering risk in the property market from medium to high. It found criminals were increasingly laundering illicit funds and added: “corrupt foreign elites continue to be attracted to the UK property market, especially in London, to disguise their corruption proceeds”. 

Estate agency risk was also increased from low to medium, with common failings including a “lack of bespoke policies, controls and procedures aligned with an appropriate risk assessment of each firm’s clients”, in addition to a failure to conduct sufficient ID checks. 

“Though much of the focus has been on commercial investments, residential property is a key part of the puzzle when it comes to tackling money laundering,” Olly Thornton-Berry, Co-founder of Thirdfort says. “Estate agents, alongside property lawyers, are the gatekeepers to the property market.” 

Under English law, estate agents have a responsibility to run full anti-money laundering checks on all customers, whether they’re individuals or corporate entities. In the latter instance, this includes verifying the corporate structure and identifying the owners of the business, with individual checks run on those people too. Offshore buyers, high net worth (HNWI) clients, or politically exposed persons (PEPs), likely give rise to enhanced or further due diligence to confirm their identity and to meet CDD obligations. 

It can be difficult to navigate the world of financial crime. But a new generation of tools that harness the power of open banking, facial recognition and artificial intelligence technology, are making it easier for agents to do their due diligence. 

“HMRC is responsible for monitoring agents’ compliance with the UK regulatory regime and there are serious implications for firms that fall foul of their obligations, including reputational damage, fines and even outright bans,” Thornton-Berry adds. “While manual checks leave agents vulnerable to human error, utilising AI-driven tech alongside real-time PEPs and sanctions monitoring, provides a more reliable check in less time.” 

—----

Forward thinking estate agents are embracing change and their businesses are benefiting greatly. 

By bringing in simple, user-friendly solutions like Thirdfort for estate agents, these firms are supercharging their sales teams with the tech they now need to negotiate competitively, and dramatically reducing the time it takes to onboard new customers. 

If you’d like to learn more about how your firm can automate AML and ID checks using Thirdfort, book a demo with one of our team here.

Subscribe to our newsletter

Related Articles

Opinion

Five challenges keeping compliance professionals awake at night

Read Story

Opinion

Why crypto assets are the next frontier in risk for law firms

Read Story

Opinion

Had the call? What to expect from an AML audit by the SRA

Read Story