One Sourcing Agent Fined £23,000 – Could You Be Next?
As a sourcing agent or deal packager, have you ever heard anyone declare, “You’re fine, supervisory bodies aren’t interested in sourcing agents and deal packagers, you’re ‘small fry’”?
You can see this claim almost daily in comments on social media platforms and stated by some trainers from stages or via video training courses. Sadly, this couldn’t be further from the truth!
The fact is, all supervisory bodies are interested in anyone breaking the law or failing to meet current standards. Some are just more active than others, and one, in particular, is very active right now, catching out sourcing agents and deal packagers alike with fines that could bankrupt the average person and make the fees charged for some courses look like ‘small fry’ in comparison.
So, which body is active right now? It’s HMRC and their Anti-Money Laundering (AML) Team!
If, at this point, you’re thinking, “…well, we’re only small fry, and they won’t find us or care about us,” because that’s what social media or your training taught you, then you really need to read on. Believe me when I say, HMRC is learning very quickly…
What do sourcing agents need to be aware of?
There are a couple of ways that HMRC could catch you out:
Background research using data from Companies House and the internet – Failing to register at the required timeYou wouldn’t know anything until you receive a letter telling you how much your fine is.
Company business compliance inspection and reviewYou’ll be informed that you have 10 days to send all requested information, then given a date for a virtual meeting (e.g. via Zoom) for them to ask questions. After an average wait of 4-5 weeks, you’ll receive a copy of their report and notification of any fine.
The types of companies covered by HMRC for AML supervision are varied:
Estate Agency Business (EAB) – Includes sourcing agents and deal packagers.
Lettings Agency Business (LAB) – Only if they meet the criteria.
Accountancy Service Provider (ASP) – Accountants.
Art Market Participant (AMP) – Trades in fine art.
Trust or Company Service Provider (TCSP) – Companies that form other companies or legal entities.
High-Value Dealer (HVD) – Businesses that handle cash payments of €10,000 or more (or equivalent in any currency) for goods.
The latest fine report, released by HMRC’s AML Team in March 2024, highlights companies fined for breaches of AML Regulations covering the 6-month period from 1st April 2023 to 30th September 2023. The report is 42 pages long and details 404 individual companies that were fined, explaining what each fine was for.
Of the 404 fines issued, 251 were to Estate Agency Businesses (EABs), totalling over £1.6 million. Of these, 35 were sourcing agents and deal packagers, with fines exceeding £150,000, averaging over £4,200 per fine. The highest fine for a single agent was £23,400.
Now, you may be wondering how you could possibly know which of those estate agency businesses were actually sourcing agents or deal packagers. Great question! The answer is this: for the first time ever, I researched every single company listed as an EAB that received a fine, and from that, you can identify the sourcing agents or deal packagers.
Key findings from the research
Not all fined businesses were limited companies registered on Companies House.
Many of the sourcing agents fined were registered under a different SIC code (the code used when registering with Companies House for business services) rather than the one identifying them as an Estate Agency Business (EAB) with HMRC.
The fines ranged from £1,450 to £23,400, with lower fines likely reflecting a shorter time between the business being set up and HMRC finding them, while higher fines suggest a longer gap.
The locations of sourcing agents ranged from London to Wakefield, Lincolnshire to Cornwall, Sheffield to Glasgow, and every corner of the UK in between. It goes to show that location has no bearing on whether you can be caught.
Why are these points significant?
The significance is this: some trainers and so-called ‘experts’ on social media suggest that if you don’t set up a limited company and register with Companies House, or if you register under a vague SIC code, HMRC won’t find you. The details from this latest report thoroughly dispel that myth!
What is the relevance to property investors?
As an investor, you may not feel that breaches of money laundering compliance are particularly important to you. But consider this: if a sourcing agent or deal packager is unaware of their responsibilities, you might not be concerned if they fail to carry out checks on you as the buyer. However, what if they neglect to check the seller, as does your solicitor, and the seller is laundering money through the sale? Would you really want an HMRC investigation heading your way?
Also, think about this: do you really want to work with or be associated with a person or company that is, at best, ignorant of their legal obligations, or worse, actively seeking to deceive those they work with? That is certainly no way to set up and start your business.
Final Thoughts
HMRC has expanded its ability to search for and find companies that, either deliberately or inadvertently (due to poor training or lack of knowledge), are trying to hide their activities—whether operating as sole traders or registering with Companies House under a different SIC code.
It’s possible that HMRC is even using AI as a tool to search the internet and social media platforms for certain terminology. If that’s the case, the only safety net for sourcing agents and deal packagers is to ensure they fully understand their legal obligations and ensure their business is fully compliant with regulations.
If you’re a sourcing agent or deal packager and think you’re ‘small fry’—operating as a sole trader or a limited company under a SIC code other than the legitimate one for a sourcing agent (68310: Real Estate Agency)—and believe you’re safe from detection, think again. Could you really afford one of these fines landing on your doorstep?
If you have any concerns, please don’t hesitate to contact the team at NAPSA, who are happy to advise and support you.
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