The recently introduced 5th AML Directive establishes new requirements for letting agents under Art 2, “when acting as intermediaries in the letting of immovable property, but only in relation to transactions for which the monthly rent amounts to EUR 10 000 (£8 800) or more”. AMLD 5 came into force on 9 July 2018. Member states are obliged to transpose the modified regulations into national law by latest 20 January 2020.
Regarding the concept of “letting agent”, your business needs to be aware of:
· What role does your business play in these lettings? Do you act as a letting agent? What is your role in terms of “administration”? Are you an “advisor”?
· Do you ever use 3rd party letting agents when finding new tenants?
Also, although 5th Directive does not provide any specifications regarding “landlords”, this has always been a “grey area” in the regulation, and with these new implications for letting agents it seems very clear that, as a landlord, your business would have to start doing AML checks for the following reasons:
1. As a landlord, if you use a letting agent the responsibility for AML checks on your tenants will be transferred to the agent. If you don’t use an agent, you will in all likelihood need to carry out AML checks on all occupants for all your buy-to-let properties, as you have entered into a business relationship with a customer.
2. The person who sets up the business relationship is responsible for conducting AML checks. A DIY landlord will therefore be responsible for carrying out AML checks on their tenants. ‘Business relationship’ means a business, professional or commercial relationship that is connected with the professional activities of an obliged entity and which is expected, at the time the contact is established, to continue over time.
3. Some local regulations have started to include in the scope of activities subject to AML real estate leasing (e.g. Portugal). This is another indicator about the new obligation and the European trend going forwards. Taking Ireland as an example:
https://www.scsi.ie/regulation_psracompliance_draft_money_laundering_guidance
To whom does the Act apply?
12. The Act applies to Property Services Providers (“PSPs”), which may be defined as a person or company providing property services in or outside the State, including:
• The auction of property other than land;
• The purchase or sale, by whatever means, of land;
• The letting of land;
• Dealers in high value goods; and
• Property management services.
Spain is also working on a Draft Bill to incorporate these provisions for luxury rentals (over 10 000 euro).
In the UK, it seems that Brexit will not invalidate this new obligation:
Martin Cheek, Managing Director of AML verification platform SmartSearch, who has examined the proposed 5th Money Laundering Directive on behalf of The Negotiator, says the draft legislation also suggests that electronic verification of tenants, and vendors/buyers in the sales market, may become mandatory once the legislation passes into UK law.
The AML regulations directive requires that the method of carrying out customer due diligence be widened “to include” electronic verification.
“It’s not clear yet whether it will become mandatory, but in the UK we have a habit of ‘copper bottoming’ EU directives and going much further than other countries when turning them into law,” he says.
“For the same reason I don’t think Brexit will put a spanner in the works of this new draft directive, because London will want to harmonise UK law with the EU to protect our massive financial services industry.”
Finally, the Draft Bill published on 23 July 2018 in the UK is another indicator for the obligation to complete tenant verification, in line with European directives. Now that most countries have transposed the 4th ML Directive and included their beneficial owners on the register, the new 5th Directive includes the obligation to verify the identity of beneficial owners through electronic methods (online register):
The Draft Registration of Overseas Entities Bill (“the Bill”), published on 23 July 2018, will require overseas entities that own, buy, or (in some instances) lease UK property (including both residential and commercial), to identify their beneficial owner(s) on the Register, held at Companies House. Consultation on the Draft Bill closed on 17 September 2018, and the new regime will be of particular interest to overseas investors who own, or are proposing to acquire, UK property.
As per the above, our recommendation in Europe is to start, sooner rather than later, to include new lettings over £8 800 in your AML checks. In general, we also advise updating your policies and procedures to include the new provisions of the 5th Directive.
Please contact us for a free initial consultation about these new requirements, and the next steps for compliance with these provisions.
As International Lawyers, Lecomser will help you to review your AML framework and assess compliance with the new obligations set out under AML 5th Directive, and to undertake a full and detailed corporate AML policy.