Property Management Firms Delaying Sanctions Reporting, Misusing Licenses, UK Says
Property management companies, real estate agents and other firms in the property services industry are underreporting suspected sanctions violations to the U.K. government, a U.K. sanctions agency said last week. The country’s Office of Financial Sanctions Implementation said it suspects those firms are illegally helping sanctioned Russians buy or sell property, adding that Russians are likely being aided by small-scale property service firms or “sole practitioners with high-risk appetites” and long-standing relationships with sanctioned people.
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OFSI said property management professionals are a key enabler of Russian sanctions evasion because they help Russians hide their sanctioned assets in homes or other property, which is often owned by family members. It also said just over 1% of all “suspected breach reports” submitted to OFSI since Russia’s invasion of Ukraine in February 2022 were reported by property service firms, even though 7% of all suspected breaches reported by other firms involved a property company.
“This discrepancy indicates a lack of reporting to OFSI by firms operating in the UK property and related services sector,” the agency said in a new “threat assessment” about the property management industry. “It is almost certain" these firms "have acted as professional enablers for [sanctioned parties], thus facilitating sanctions breaches.”
OFSI also said it has noticed “significant delays” in property management firms identifying possible sanctions violations and reporting those violations to the agency. It most often sees those delays if a possible breach involves the U.K.’s Global Anti-Corruption and Libya sanctions regimes.
The agency also said firms have misused OFSI licenses, including using them after they expire or making payments that violate the licenses' conditions, such as payments to bank accounts or suppliers “other than those specified” in the license. Many of those breaches “were discovered via licensing reporting that was not also reported to OFSI on separate suspected breach reports,” the agency said.
“OFSI encourages all UK firms, including property and related services firms, to carefully review permissions when facilitating or partaking in transactions which they believe are permissible under OFSI licences,” it said. “OFSI proactively monitors licence reporting and other information to ensure compliance with OFSI licence permissions.”
It also reminded U.K. commercial and residential leasing agents that they will be subject to sanctions reporting rules beginning May 14, meaning they must all start making “official” reports to OFSI “if they know or have reasonable cause to suspect that a person is a [sanctioned party] or if a person has breached financial sanctions regulations, provided that the information or other matter on which the knowledge or cause for suspicion is based came to it in the course of carrying on its business.”
In those cases, the leasing agent must report the “nature and amount or quantity of any funds or economic resources held for that customer at the time when it first had the knowledge or suspicion.” The reporting rules will apply “irrespective of the value of any rental agreement,” OFSI said, noting that these rules are separate from requirements covered by the U.K.’s Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, which cover only leases with a monthly rent of about $11,000 (10,000 euros) or more.
The threat assessment also lists several property management-related red flags that companies and compliance professionals should look for and that should “trigger increased due diligence,” including:
- property management firms with a small number of “ultra-high-networth” clients mostly catering to people from sanctioned countries, such as Russia or Belarus
- the beneficiary of a property sale or other transaction involving a U.K. property isn’t clear
- the source of wealth or funds in a property transaction isn’t clear
- a property or related firm has low annual turnover or is classed as a “microcompany”
- a property firm isn’t registered for value-added tax in the U.K.
- payments continue after a property is vacant
- rent payments are disproportionate with a subleaser’s or tenant’s income
- records show title ownership is by a family member of a sanctioned person.
The U.K. in September fined property management company Integral Concierge Services Ltd. 15,000 British pounds, or about $20,000, for helping a client designated under the U.K.’s Russia sanctions regime manage a residential property (see 2409270048).