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Policy & News Updates in Wales

Understanding New Anti- Money Laundering Regulations 2017- Part 1

15 May 2017 - Dorine Pannarale
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New Anti-Money Laundering Regulations are set to come into force in the UK at the end of June.

Why should I care?

Private landlords should be peripherally aware of this legislation because the property market can be, unfortunately, an ideal breeding ground for insidious, criminal behaviour.

Money-laundering is a predominant feature of organised crime worldwide.  It a serious problem, with estimated social and economic costs estimated at £24 billion per year in the UK.

In our March/April 2017 Residential Property Investor magazine, the RLA did a brief case study involving a fraudulent application for a bridging loan on a property in London.  The case involved international entities operating both within an outside of the UK and the funds- £1.2 million- of this fraud have never been recovered.  The operators managed to bypass current regulatory measures directed at preventing this sort of thing from happening.

As landlords, you can help by being ever vigilant about who you are renting to through thorough referencing.  As an investor of property, it is worthwhile having a general understanding of the measures in place to protect you from fraudulent activity.  This includes understanding the requirements placed on estate and letting agents to work to protect you when you are selling and buying property.

In an upcoming series of blog posts, we will break down the history of money laundering and counter financing of terrorism regulations and explain what the changes mean for the private rented sector and those operating within it.


History of Anti Money-laundering legislation in the UK

There are three primary sources of UK legislation covering anti- money-laundering (AML) and counter financing of terrorism (CFT) (all featured in orange in the graphic):

  1. Proceeds of Crime Act 2002,
  2. Terrorism Act 2000, and
  3. Other sundry money-laundering regulation.

As with many other policy objectives, EU directives can and do impact UK law.

What is an EU Directive?

Before we get into EU directions, it would be helpful to first understand a bit of basic information about EU treaties.

Firstly, there are a number of legal mechanisms available for the EU to use.  These can come in the form of regulations, directives, decisions, recommendations, and opinions.  Some of these are binding on all member states, some are not.  Similarly, some apply in their entirety across the EU, and others do not.

A regulation, for example, is an EU legislative act that applies in its entirety across the EU.

A directive establishes some sort of goal that EU countries must achieve, but how to do so is up to them.

When it comes to money-laundering prevention measures that the EU wanted to facilitate, the two primary sources have been:

  1. The 3rd Money Laundering Directive (3MLD), and
  2. the 2006 iteration of Funds Transfer Regulation.

AML Flowchart

The EU sets out the general goals in the 3MLD and 2006 Funds Transfer Regulation, and the UK, to comply, has modified the Proceeds of Crime Act 2002, the Terrorism Act 2000, and other money-laundering regulations in the UK to comply with the 3MLD.

The Home Office and Treasury share responsibility for implementing these laws, and thus, the EU anti money-laundering directives.

So what’s the change?

On June 5, 2015, the 4th Money Laundering Directive was written into the EU official journal.  All member states have 2 years to transpose (i.e., use their own legal systems to make up laws to comply) the requirements into national law.  As we are nearing that two year cut-off, the UK has used its own legal system to devise a new regulation: The Money Laundering Transfer of Funds (Information on the Payer) Regulations 2017, will come into force on June 26th, 2017.

We will get into the nitty gritties of the changes of the 4th Money Laundering Directive in our next article.  In general landlords are not directly affected, however, the regulations will now encompass lettings agents that deal in leases of capital value.

 

We will cover this more next week, so please watch this space.

We have covered how EU laws impact on EU member states.  Until Brexit terms have been finalised, adopted, and implemented, the UK is subject to all EU treaties and the terms and conditions established therein.

 

 

 

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