What Do SARs Submissions Tell Us About the Property Market’s Approach To AML

Suspicious Activity Reports  and the property sector

Each year the UK Financial Intelligence Unit (UKFIU) reports on the number and outcome of Suspicious Activity Reports (SARs) submitted by businesses across the UK. In 2022-23, there were 859,905 reports submitted, down 5% compared to the previous year across all sectors.

SARS within the Property sector

Our analysis of the UKFIU Annual Statistical Report 2022-23 reveals that the number of SARs reported by independent legal and conveyancing professionals has dropped by 13.18% year on year, while those submitted by Estate Agents have increased by 21.7% year on year

In 2022-2023, Legal Firms submitted 2,526 Suspicious Activity Reports compared with 2,859 reported in 2021-2022. While the number of reports submitted by Estate Agents did grow by 21.7% this is only an additional 170 reports compared to 780 submitted in 2021-2022.

If we assume that all of the reports submitted by Legal Firms were associated with the property industry (though unlikely), combined with those submitted by Estate Agents that brings the total for the property to 3,476.

While these SARs figures look high, in comparison to the overall market they account for just 0.28% of the 1,216,910 property transactions that took place in 2023 which seems remarkably low. With real estate regularly cited as the favoured channel for money laundering, including recent research by Europol, of money laundering should this number be higher?

SARs across other sectors

Its not just property professionals who are required to report their suspicions that money laundering is taking place. Banks, wealth managers, accountants, art dealers, casinos and many others fall under AML regulations. So how do these professions compare to the those within the property market?

Profession2022-232021-22% comparison
Asset Management6941,072-35.26%
Building Societies56,26856,931-1.16%
Estate Agents95078021.79%
High-Value Dealers1199327.96%
Money transmission20,69021,220-2.50%

Source: https://www.nationalcrimeagency.gov.uk/who-we-are/publications?limit=100&sort=touched_on&search=SAR&direction=desc

The data shows across the board there has been a general decline in the number of SARs submitted. Banks & Building Societies were the biggest contributors are you would expect, filling a combined total of 617,878 reports which equates to 0.85% of UK current accounts. Looking at professional services, Accountants topped the charts submitting 2.8 times as many reports as solicitors while IFAs have submitted 0 over the last two years.

Looking at this data is the UK property market guilty of submitting to few Suspicious Activity Reports? Yes, Accountants do submit a lot more reports than solicitors but they also have greater access to financial records on a regularly basis so like for like comparison cannot be made. It’s easy to slip into thinking that AML checks are a box-ticking exercise, but money laundering and financial crimes have real victims who are only a few steps removed from the money that is being transacted. 

Red Flags for the Property Market

Whilst most property buyers are above board, common red flags can indicate that funds from illegal activity are being filtered into a property purchase or sale.

Identifying warning signs early allows lawyers and conveyancers to conduct enhanced due diligence, ask more questions, and potentially file a report with the NCA.

  • Third party proxy: Using a third party or proxy to make the purchase on behalf of the real buyer, avoiding the link between the property to the criminal in official records.
  • Irregular sale prices: An irregular sale price with a buyer paying significantly above or below market value can be considered a red flag – a transaction like this can allow larger sums to be laundered through mortgages, while undervaluing lets surplus illicit cash change hands separately.
  • Obfuscated Source of funds: The source of funds used for a deposit or fees may seem suspicious – for example large amounts of physical cash with no paper trail. If funds are coming from an unrelated third party or foreign account, more questions should be asked.
  • Location of the buyer: If the purchaser is located in a high-risk territory with no clear reason for making the purchase this could be a red flag. Cross-border transcations makes it harder for authorities to uncover connections between parties.
  • Inconsistent identification documents: A lack of authoritative identity documents or inconsistency across different forms should raise red flags. Digital ID checks can help by using trusted third party data to confirm your client is who they say they are. Robust identity verification not only helps tackle money laundering by highlighting suspicious behaviour it is helps authorities track down those responsible.
  • Shell companies and trusts: A buyer might be using a shell company or trust to purchase and hold properties on their behalf. These entities can help conceal the true ownership of the properties, making it difficult for authorities to trace the illicit funds back to the perpetrators. It pays to look at beneficiaries and trustees carefully – if it’s a family trust, are they all family, or are there unexplained people in the mix?
  • Cash transactions: Criminals may use large amounts of cash, or direct bank transfers, to purchase properties outright or to make significant down payments, making it harder for authorities to trace the funds’ origin.
  • Related parties: Frequent buying and selling between related parties is a potential sign of cycling funds through property to appear legitimate.