How does the fifth money laundering directive affect landlords? 22 Dec 2021
When it comes to lettings, it can feel like new legislation comes out just as you’ve got your head around the last bit. We aim to help you fight the jargon and make sure you’re in the know. Have you heard of the Fifth Money Laundering Directive? Here we’ll look at what it is, and how it affects landlords.
What is the Fifth Money Laundering Directive?
An amendment to the 4th money laundering directive, the changes see a new, firmer approach to tackling money laundering in the UK.
Coming into force from January 2020, any letting agent who manages one or more properties earning 10,000+ euros of rent in a minimum of 1 month has to perform customer due diligence checks to ensure funds aren’t being ‘washed’ under the pretense of legal business.
But what does all that mean?
This is a crime where money gained through crime is held or moved in a way that disguises its origins.
This could be a landlord and tenant coming to an agreement to ‘wash’ the cash through monthly payments of rent.
It could be that a landlord creates a fake tenant, paying monthly instalments of money as rent.
It could be a tenant putting down a deposit of money using laundered money, knowing they will get it back ‘clean’.
In the UK there are very few properties that are over the 10,000 euro (£8,500 approx) threshold. Due to the large sums of money that change hands when purchasing and letting property, it’s a reasonably common way for criminals to change their illegally gathered money, for clean cash.
Customer due diligence
This is the process of confirming the customer is who they say they are. This is done by collecting evidence of their identity such as:
- Photo ID (an official passport, driving licence etc)
- A Proof of address (a Utility bill, or official documentation showing the address)
- Date of Birth
If a letting agent has any doubts on the identity of the client, the transaction will cease until the identity has been confirmed.
Along with identity, the directive also means that:
“Where the customer is a legal person, trust, company, foundation or similar legal arrangement estate and letting agents must take reasonable measures to understand the ownership and control structure of that legal person, trust, company, foundation or similar legal arrangement.”
How does this affect landlords?
On the whole, it’s a few checks that will be carried out to show you and your tenants are who you both say you are.
It actually benefits you, as if you have a property you are letting out for the equivalent of 10,000 euros or more, you will know your tenants are legitimate, and you are unlikely to get tangled up in anything, without being aware.
With all checks like this, the easiest way to deal with them is to be completely compliant in order to avoid fines, or even prosecution.