Anti Money Laundering when buying a property

Buying and selling property in the UK is a common method used by organised crime groups to hide money generated by criminal activities (know as laundering).

To help combat this, Estate Agents are required by law to confirm Proof of ID and Proof of Funds with all buyers and sellers. This helps identify any suspicious transactions.

What is money laundering?

Money laundering is the concealment of illegally obtained money, typically through legitimate transactions, and one of the most common ways of doing this is via, what can appear to be, legitimate property transactions.

Property purchases can be an attractive and effective way for criminals to clean dirty money as it allows its source to be disguised and prevents detection by the authorities.

Propertymark say - "Purchasing property in the UK is a common method used by organised criminals to launder the proceeds of their criminal activity. The size of the property market in the UK and the high value of property assets means that extremely large amounts of criminal funds can be ‘cleaned’ in a single transaction, giving it the appearance that it has been acquired legitimately"

What is AML?

Anti Money Laundering

This includes policies, laws, and regulations to prevent criminals' financial crimes and illegal activity. Global and National regulators are established worldwide to prevent financial crimes and criminal activities, and these regulators build policies.

In the UK, the enforcement of AML regulations is primarily overseen by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), both operating under the umbrella of the Bank of England.

What are Estate Agent's responsibilities?

In April 2018, the European Parliament passed the Fifth Money Laundering Directive on the prevention of money laundering and terrorist financing.

Estate Agents must do these checks on sellers and buyers of property to make sure money is coming from a legitimate source, they can be fined or imprisoned if they do not demonstrate due diligence.

They are required to confirm ID/identification and Proof of Funds.

What are property purchaser's responsibilities?

Your estate agent will likely ask for proof of funds on two different occasions for different reasons.

The first will be when you make an offer on a property for sale. It will be to make sure you have a genuine interest in the property and can afford to complete the purchase, they will want to prevent any disappointment for their client - the seller.

You are not legally obliged to provide proof of funds at this time, but it will likely help your chances of getting your offer accepted. Especially if competing with other interested buyers.

The second occasion the estate agent asks for proof of funds is when you're offer is accepted and the transaction commences. The estate agent is not only double-checking you have the money to purchase the property but also that you haven’t acquired it through criminal means.

It is at this stage that you must provide proof of ID and funds.

What is proof of funds?

Proof of funds can be provided via a combination of -

An agreement in principle/mortgage in principle
Bank statements of your deposit amount (for mortgage buyers)
Bank statements of your cash amount (for cash buyers)
Additional bank statements from past months/years to show how your money has built up over time
Evidence of you selling a property (if using the funds to buy the new property)
If you've been gifted the money, a letter from whoever gifted the money
Inheritance, evidence of money being left to you in a will
Receipts of shares being sold

In more unique circumstances such as the use of gambling winnings, you could be asked for receipts/evidence of winnings.

What is source of funds?

“Source of funds” is the origin of the funds used for the transaction.

Proof demonstrates the availability of funds, source must demonstrate “where the money for the transaction comes from” and “how and from where did the client get the money for this transaction.”

It is not enough to know the money came from a UK bank account.

To complete due diligence requirements, you will be asked to provide evidence of your source of funds and/or source of wealth.

Documentary evidence is required, delay in providing such documentation may result in your conveyancer being unable to complete the required transaction or the withdrawal of all legal services.

For further details - Click here for our Source & Proof of funds checklist

What is proof of ID?

It is an estate agent's legal duty (due diligence) to make sure that you are who you say you are when selling and purchasing a property. You will be asked for some of the following forms of proof of identification -

Proof of name:

Current passport
Residence permit
Current UK photo driving license
HMRC (Inland Revenue) Tax Notification
State pension or benefits book/notification letter

Proof of address:

A current council tax bill from your local authority
Tenancy agreement from your local authority
Recent mortgage statement
Bank statement
Utility bill (not mobile phone)

Who else requires proof of funds and ID?

Your mortgage lender and solicitor/conveyancer are also required to ask for evidence of funds and Proof and Source of funds. Like estate agents, lenders and solicitors can be fined or imprisoned if they don’t undertake these checks.

Your estate agent, mortgage lender and solicitor will liaise to progress the sale and purchase of the property, but they are all separate and are required to independently demonstrate due diligence when confirming proof of ID and funds.

Your conveyancer/solicitor will not begin the legal process without proof of funds and source of funds.