Money laundering checks when buying a house
Buying or Selling a house
Property - Residential
When they have seen their dream home in an estate agent’s
and made an offer, most people will then have to sort out a mortgage and find a
This is where you are going to experience some major contact with the UK anti money laundering regime. We have all become used to having to produce identification to open bank accounts and it won’t be any surprise that obtaining a mortgage will involve those sort of checks as well as inquiry into your sources of income.
But what many people don’t appreciate is that solicitors are subject to the same sort of stringent anti-money laundering regulations as banks and building societies.
The major requirements of those regulations for solicitors are that they know who their clients are and that they do not facilitate money laundering or other illegality. What that means in practice is that the solicitor is under a legal obligation to understand what funds are being used for a transaction, how they are going to be used and where they are coming from. If a solicitor does not make those enquiries they can face some very severe penalties, especially if they become involved in a money laundering activity, even unwittingly.
The sorts of things, in a property transaction, that a solicitor is required to consider is whether the transaction is “normal” for that type of client and property. Also, whether the sources of funds can be explained. In the house buying field, what may get alarm bells ringing, for example, is someone using a large amount of cash, with no sensible explanation of where it has come from, to buy a house at a say an unusually low price. If a solicitor has concerns about a transaction, they are required to report it to law enforcement authorities without telling their client. That is one of those unusual situations where solicitor client confidentially does not prevent a solicitor from discussing their client’s affairs with law enforcement. In this instance the law requires it.
When you instruct a conveyancing solicitor, they should be going through some rigorous identity checks first. One of the purposes of those is to make sure that you are who you say you are and not a criminal masquerading as someone else to carry out a fraud or conceal criminal activities. Some solicitors use online ID checks where the client uses an app to take a picture of themselves and upload passport details etc. Other solicitors may take a more traditional approach of asking you to bring your Id documents and proof of address into the office.
In addition to ID checks the solicitor is likely to ask you questions about where you have secured your funds to buy the house from. In most instances that will be straightforward because it’s likely to be mortgage and a deposit from savings. But you may be asked more questions about the deposit and, for example, for bank statements to show that you have saved up from income. If someone is giving you the deposit, such as parents, the solicitor may ask them for their bank statements to show where the money has come from.
It can feel a little intrusive to have the solicitor asking you or your parents, detailed questions about where you have got money from and to prove it. But you need to bear in mind that the solicitor is under a legal obligation to satisfy themselves about your source of funds and can face heavy penalties themselves if they do not.
Large cash transactions are always going to be problematic so if you are going to be using a lot of cash you should expect to get asked detailed questions about where that has come from. Some solicitors may simply refuse to undertake a transaction which involves a lot of cash because of the risks.
It is also worth being aware that solicitors have a legal obligation not to act as a bank. That means that they can only handle funds as part of the legal transaction with which they are dealing. They cannot receive or send out funds in ways that are not connected with that transaction. So, in practice that means that if, for example, you are selling a house, the solicitor can receive the sale funds and, on your instructions pay off the mortgage and send any remaining sale proceeds to you. What they cannot do is pay off your credit card or send the money to an unconnected third party such as a family member to pay off a debt that you may have with them. Those payments would not relate to legal conveyancing transaction and would put the solicitor at risk of breaching anti money laundering rules by acting as a bank.
All of these requirements may seem irksome or intrusive, but they are designed to prevent criminals using transactions such as buying and selling houses, to launder money.
Obviously, most people are not involved in money laundering and their transactions are perfectly legal. But it is useful to be aware of the rules and why you are being asked questions, even as an innocent buyer or seller. The rules apply to everyone. It may be sensible to discuss at an early stage with your solicitor where you are getting your funds from and any evidence that they may need about the transaction. You can then have that all produced well in advance. Difficulties arise if there is a problem with this sort of thing on or close to completion day as it may hold up completion, even if you are completely innocent and have nothing to hide. You don’t want to be scrambling around trying to find bank statements or payslips the day before completion when you really want to concentrate on the move itself.