Only 1 in 300 property purchases by overseas cash buyers are triggering red flags with the National Crime Agency (NCA) in a wakeup call for the UK property market, anti-money laundering (AML) specialists Fortytwo Data have warned.
In the US, a similar jurisdiction to the UK, 5% of home sales are to overseas buyers and 44% of them pay cash according to latest figures1.
Transposing this trend data onto the UK property market means 26,400 homes are sold each year to overseas cash buyers in Britain, where 1.2m property transactions were the subject of only 355 Suspicious Activity Reports (SARs) in the year to March 20162.
SARs are red flags sent by financial institutions, law firms and estate agents to the National Crime Agency (NCA) when they detect suspicious activity. It comes against a backdrop of widespread fears that foreign criminals have been using the UK property market to store their ill-gotten gains.
Fortytwo Data’s knowledge of the anti-money laundering sector suggests direct overseas transactions are responsible for around a quarter of SARs raised in the UK. This means only 0.33% of cash purchases by overseas buyers are triggering alerts – 1 in every 300 sales.
Estate agents’ reporting responsibilities have been strengthened by the latest EU money laundering directive (4AMLD).
The NCA’s director of the economic crime command, Donald Toon, has offered insights in the past on the scale of the problem, revealing how he believes “the London property market has been skewed by laundered money”3.
The number of SARs submitted by estate agents to the NCA climbed dramatically in 2015/16, rising 98.3% in only a year albeit from a very low base. It was the highest rise of any sector, which suggests lack of awareness and training in the past has been a problem.
The second highest rise came in the gaming industry which saw the number of SARs submitted climb 52.4% to account for 0.37% (1,431) of the 381,882 SARs received by the NCA that year.
Julian Dixon, CEO of Fortytwo Data, said: “There is no doubt that 355 SARs generated by all estate agents is a tiny number. That figure seems to be on the right trajectory but the industry still has a long way to go.
“The residential property market is a golden opportunity for criminals, who are able to take advantage of a sector that, in the past, has not been subject to such stringent money laundering requirements as financial institutions.
“Bricks and mortar is as attractive as ever to organised crime. It’s an ideal way to deposit large sums of cash in a single transaction, allowing them to blend in with the thousands of legitimate cash buyers who purchase property each year.”
The US is a comparable jurisdiction to the UK. The US property market, like Britain’s, is a safe haven for illicit funds because of the rule of law, relatively stable markets and high prices which make money laundering more efficient. Their regulatory regimes are based on identical enforcement frameworks.
(Source: Fortytwo Data)