Property transactions within the UK
7.61 Where criminal funds are to be invested in a property within the UK or applied to mortgage payments, that activity creates an audit trail which leads back to the asset. In our Consultation Paper we questioned whether such transactions required law enforcement to have an opportunity to intervene at an early stage or whether it was sufficient for a required disclosure alone to be made.
7.62 During our examination of authorised disclosures, we found that 34 SARs out of our total sample of 563 (6%) related to UK property transactions or mortgage payments.
7.63 We provisionally proposed that it could amount to a reasonable excuse not to lodge an authorised disclosure where it related to a property transaction within the UK. This proposal originated from discussions with law enforcement agencies. Some observed that while the intelligence that such a report provides was essential, there was not necessarily a reason to pause the transaction as the money was not in flight and was being applied to an identifiable and immovable asset.
7.64 Despite initial support, consultation responses were more mixed. Fifteen consultees agreed that there was no need for an authorised disclosure in these circumstances and 18 disagreed. We proposed that a required disclosure should still be made and 28 consultees agreed with this, only four disagreed.
Consultation response
7.65 Law enforcement agencies were divided on the issue of how to treat these types of SARs. The City of London Police gave detailed consideration to this proposal and concluded that, whereas property purchases could be problematic, regular mortgage payments should require an authorised disclosure:
This question addresses two different types of transaction - property purchases and mortgage payments. Whilst property transactions are traditionally slower than other forms of financial transaction they are still a way of moving a large amount of money and feature regularly in money laundering, confiscation and civil recovery investigations. Concerns in relation to property purchases not only relate to the funds being used to purchase the property but where they are going (is the transaction in itself a way of moving funds away from the subject of interest to another third party / out of the jurisdiction). A purchase may use funds from a single subject but may result in a joint property purchase, for example between a subject and their spouse. This could then cause further complications further down the line.
Regular monthly mortgage payments in themselves are less problematic, however paying off large chunks of the mortgage to increase equity raises questions both about the funds available to make such additional payments and whether or not the increased equity will be used, for example as security for another loan allowing the funds to be used in a form with a more legitimate appearance.
The required disclosure provisions should, therefore, remain in relation to property transactions and mortgage payments, however regular monthly mortgage payments from a known source of legitimate income by way of direct debit may amount to a reasonable excuse to a money laundering offence not to make an authorised disclosure.
7.66 The Metropolitan Police Service («MPS») and the NCA both agreed that property transactions might require an early opportunity to intervene before the proceeds of crime were placed into a fixed asset such as a house. Their responses did not specifically address whether mortgage payments created the same problems. However, the general observation was made that money in a bank account might be subject to an Account Freezing Order. Early warning of an impending transaction could allow law enforcement agencies to intervene and disrupt criminal activity.
7.67 Other consultees, such as the Proceeds of Crime Lawyers Association («POCLA») whilst seeing the pragmatic benefits of such a change were also wary due to the potential for unintended consequences.
Analysis
7.68 Law enforcement agencies broadly agree that there will be some circumstances in which they will want to intervene at an early stage of a transaction in relation to real property in the UK. Given that it is impossible to delineate those transactions which will require early intervention, the risks identified by law enforcement agencies weigh against pursuing this proposal.
Recommendation
7.69 In light of the above, we do not make any recommendation in relation to purchases of real property within the UK and mortgage payments. However, we observe that regular mortgage payments would also fall to be considered within our discussion of multiple transactions below. An alternative approach is addressed in that section.