A mid-sized regional firm of Chartered Surveyors based in West Sussex recently underwent an unexpected inspection by HMRC, which shed light on the inadequacies of their AML practices. In this interview with the firm’s Money Laundering Reporting Officer (MLRO), we delve into their journey of rectifying shortcomings, exploring their collaboration with First AML and the positive impact it has had on their operations.
This interview has been anonymised for confidentiality and lightly condensed for clarity.
First AML: Can you give us some background on your journey with AML at your firm?
MRLO: In early 2022 we got the dreaded knock on the door from HMRC with a random inspection. Until the inspection our approach to AML had been what I would describe as laissez-faire. We were aware of our obligations – but the understanding of, and interest in, those obligations varied between different staff members, and our implementation was ad-hoc at best. Often our checks were after the event or, in some instances, not at all. There was regular uncertainty as to what we had to do and the extent of the investigations we needed to make.
First AML: And what was your reaction when the HMRC came a-knockin’?
MLRO: As you’d expect, the HMRC inspection focused our minds. We expected that we would fail, and that the inspection would highlight holes in our systems and record keeping. And… our expectations were realised.
We fell short on a number of fronts. Probably our biggest area of failure was in actually undertaking the checks and our record keeping. As I mentioned, we found that, in a number of instances, we had undertaken checks after the conclusion of a transaction – as part of our file closing procedure. That is - after the horse bolted, or sometimes just not at all.
First AML: What weaknesses did the HMRC’s inspection reveal?
MLRO: Our failures were due to a number of reasons. First, our obligations weren’t, collectively, given the level of attention that they deserved. Like I mentioned, we were laissez-faire. AML was just a pain in the neck, and we didn’t treat it in the way we should have done.
Secondly, it was partly educational – despite regular training, some of our staff weren’t sufficiently aware of the obligations or how to satisfy them. It is quite a detailed and involved area if you get into it, and constantly evolving, so you need to stay on top of it.
Thirdly, it was partly record keeping – we had various places where we kept information. Often staff wouldn’t save the info to the appropriate place. So we might have had the information but it could be saved in a local drive, or piece of paper in a file, or an email in someone’s inbox, and so on.
First AML: I appreciate the inspection was not a nice experience and probably caused a lot of nerves. What were some of the consequences or outcomes from that?
MLRO: We worked closely with HMRC during the review. We took the view that we were probably going to fail, and it would be better to be open and co-operative. I would say that we avoided a fine because of the way we dealt with the inspection. It was clear however that we had to make significant improvements in our approach and fulfilment of our AML obligations.
First AML: If a fine was imposed at that time, and it was north of £20,000, what impact would that have had on your business?
MLRO: It would have been very painful. We were coming out of the pandemic which had been a difficult time, financially and emotionally, with a lot of change and uncertainty. We worked hard to get out of the pandemic and had tightened our belts significantly. So to get a fine would have been very damaging. We were fortunate in that respect to not receive one.
First AML: Can you speak to the time and effort you put into the cooperation with HMRC in sorting out the issues that you had?
MLRO: It took days and days of our time, mostly my own. It was our fault because we hadn’t done some of the checks or kept proper records, so we had to do a lot of retrospective checks, as well as answering questions from HMRC. The time we spent on the inspection was time that was taken away from our day to day role as fee-earners and advisors to our clients. It was a very painful process.
First AML: If you could boil down the main issues in your previous process, what would they be?
MLRO: The implementation, the record keeping, and fundamentally doing the checks. We put a lot of time in-house, looking at our policies, controls and procedures to make it simpler to make it easier to understand. There were three main issues that we kept coming back to in doing this.
First, no-one within our firm was an AML expert and we couldn’t therefore be sure that our update policy and procedures would be correct.
Second, getting staff to buy in. Being frank, we have found it difficult to consistently get all of our team to follow the procedures. That’s not because they were unwilling or un-cooperative, it’s just that it was a minefield of an area. We struggled to get staff to understand it. The lack of clarity and ease of implementation was the biggest obstacle on this front.
Thirdly, time. The amount of time we were inputting into dealing with AML was exorbitant. It impacted the role that we’re paid for – that is, to act for clients, and selling and letting their property.
First AML: Obviously, you’re still trading and doing business today. How did you resolve your issues?
MLRO: We did struggle to find a way forward internally - one that we were confident would work. We considered various options in this regard and ended up with having our policy and procedure written by experts in the AML field and our day to day checks being undertaken by First AML who, again, are experts in this area. Our AML policy document went from about 8 pages to 150 pages, so it’s pretty bomb-proof.
We are now about 6 months into our new way of operating so it’s given me the space to reflect on the experience and how it is working for us - I’d say it’s working very well.
First AML: What would you say are the main benefits of your system now?
MLRO: First, that it’s simple – we still have to get involved, and spend time identifying who the buyer is, but once we have that, we provide basic info on the people or entity to be checked via the First AML portal and First AML takes it from there. This helps hugely with staff buy in. It is still something that our team has to deal with, but it is much simpler now to do it, and it’s easy to understand.
The second main benefit is record keeping. All records are retained on the First AML platform. We have this tension between what our GDPR obligations are and what our AML obligations are – by keeping everything on the First AML platform, they do what needs to be done to comply with GDPR. It’s a very simple, user-friendly platform and has negated the need for our own in-house system.
Third is time saving. The time saving involved has been huge. Let’s be frank – AML is a pain in the backside for all of us. We understand why we have to do it. But it’s a huge burden and cost on our industry. We were getting to a point where we were questioning the viability of a regional commercial property agency due to the amount of time and money we were spending on AML – it was becoming prohibitive.
We still spend significant money on AML – more than we were before. But the time saving we have secured in using First AML is significant. It notably reduces the amount of time our staff have to spend on an area that they don’t fully understand, and which is dead time as far as they are concerned, and allows them to spend this time focusing on fee earning work.
First AML: Just interested on the staff buy-in side, what did you do to get them on board?
MLRO: The HMRC inspection rammed the message home to staff who were less willing to fulfil their AML obligations, so that in a way helped. We have a team of twelve commercial agents across three offices. My experiences of getting agents together to focus on any type of policy and procedures are generally painful. It is akin to herding cats. But when the heat is on, they will sit down and listen. And sure, you have to learn a new way of working, but it’s a fairly straightforward platform. My way of learning things is, to just use it, and learn from experience. Once you’ve used it two, three, four times, you understand it, and that’s been the experience of the staff.
We still have to manage the process - to make sure staff are doing it, but it’s far simpler now, as we can see what transactions are doing, and cross-reference it to what we’ve got in the First AML platform and see that they’re being done. It's far simpler now.
First AML: Any final reflections on the HMRC inspection and that whole journey since then?
MLRO: AML is a difficult, painful and burdensome area for all of us in commercial property transactions. But it is here to stay and its policing and enforcement by the authorities is increasing, that’s going to continue, so we have to address it and face it. We had a laissez faire approach before the HMRC inspection and we were lucky not to be fined by HMRC. The inspection forced us to tighten our processes leading to our relationship with First AML. The experience has been very good. Our implementation and fulfilment of our AML obligations is way better than it was, and our record keeping in particular is much better. And in particular it helps me to sleep at night.