Property Case Study – Proliferation Financing SAR

Property Case Study – Proliferation Financing SAR

Written by Jen Siwicki, Senior AML Consultant, FCS Compliance

Last year in July HMRC updated the Estate and Letting Agency Business Guidance to include the issue of ‘proliferation financing’.  It’s an important document, not least because it’s this document written by the regulator and is specific to Estate Agency Businesses (EAB).  The expectation from HMRC is that this is followed to ensure that all property professionals are compliant.

So what is proliferation financing?  Essentially, it is the provision of funds or financial services to support the spread of weapons of mass destruction (WMD) including nuclear, chemical and biological via their development, manufacture or delivery.

When it comes to compliance for EABs the focus is generally on money laundering, and rightly so as this is the biggest risk in real estate.  But it is important to be reminded that the legislation not only applies to money laundering but also to preventing and detecting terrorist financing and proliferation financing.  And as such these issues also need to be covered in company documents and staff training and awareness.

At FCS we recently dealt with a case which resulted in a Suspicious Activity Report (SAR) being submitted to the National Crime Agency (NCA) on this very issue where we assisted the agent in making their submission.

This was an interesting case.  It is one which would have passed the Client Due Diligence (CDD) checks in terms of all the relevant documents being provided and screening searches coming back negative.  However, a number of red flags were identified which led to a suspicion being formed around the transaction.

This is where the human element is so important.  CDD goes beyond a box ticking exercise, it’s not about ‘passing’ or failing it’s about assessing the risk.  Looking at everything you know about the transaction and taking a step back to consider, does this seem right or is there an indication that something else might be going on which would increase the risk.

In this case all the documents were in place, the ID checked and proof of the available funds provided.  But drawing on our experience the transaction itself fell outside of what we would usually see and a number of red flags were being raised.

Firstly the purchaser lived and worked in a high risk country; the funds we now knew also originated from there.  My question to the agent was what is the purpose of this transaction?  Why was the purchaser buying this property.  While many agents often carry out this type of analysis without even thinking about it, it’s all part of the skill of estate agency in terms of understanding what buyers want and need, it’s also an important part of CDD.  It’s also the bit technology can’t do.

On speaking with the agent the answer to this was vague and the value seemed high for the purpose and profile of the applicant.  On examination of the source of the funds this was found to be the family business which was an engineering company based in same high risk jurisdiction.

This matched a typology previously seen, of similar companies being investigated for proliferation financing.  It was a case of building a picture based on the knowledge and experience of the analysts at FCS as well as the agent.

Taking everything into account we considered the purchase could be linked to proliferation financing.  FCS assisted the agent in the drafting of a Suspicious Activity Report (SAR) to request a Defence Against Money Laundering (DAML).  The result being a defence was obtained meaning the agent was able to procced with the knowledge they had fulfilled their obligations to the proceeds of crime act and protected themselves from potential prosecution.

It is important to remember it is still the decision of the agent and their MLRO whether they should proceed based on all the risks, including reputational as well as regulatory.  Having a DAML in place does not mean you should proceed or that law enforcement is endorsing the activity.

The keys points to take away from this case are:

Don’t forget about terrorist and proliferation financing when conducting CDD especially if dealing with a FATF black-listed country.

Compliance is a human skill, often individuals engaged in illicit activity know how to play the system.  They have the correct documents, they know how to pass that KYC check.   Don’t forget to use common sense and experience.  The questions to ask are does this seem unusual, does it make sense, is there a risk that all is not as it seems.  And then take the appropriate action.

Article written: July 2024