A recent Times article highlighted the National Crime Agency’s concern about crypto assets being used to fund property purchases in the UK.
The article quoted Nigel Leary, a director at the National Crime Agency: “Anything purchased with crypto assets I’d be slightly sceptical about. I’d like to see why they’re being done in that way and what the requirement is for that anonymity, and why it needed to be done in a crypto transaction.” The concern identified by Leary is the well-established association between crypto assets and organised crime. As Leary went on to acknowledge however, it is a nuanced issue: it is not that crypto assets are inherently suspicious, but given the currently limited regulation in this area, care is needed. An Express article published on the same day as the Times article describes how Kingsley Napley was able to navigate this difficult area and enable a client to purchase a property with the proceeds of his investment in crypto currencies.
This blog explores the inherent risk associated with crypto assets and how these can be addressed in the context of property transactions.
The framework through which transactions of this kind need to be viewed is the UK’s anti-money laundering legislation, and specifically the Proceeds of Crime Act 2002 (POCA). This makes it a criminal offence to deal in any way with assets that a person knows or suspects are the proceeds of crime. The law applies not only to those whose property it is, but also the professional advisers who are involved in the transactions relating to such property. Lawyers specialising in the buying and selling of property know that they are in the front line and are cautious and risk averse – quite rightly given that a number of conveyancing solicitors have been prosecuted for money laundering offences in recent years.
At the heart of the matter lies the question of suspicion. It is fair to say that the law is woolly on this critical issue. Cases talk in abstract terms of suspicion being “a lesser factual basis than the creation of a belief” and, “a degree of satisfaction … at least extending beyond speculation” – advice that is of limited help to a person whose criminal liability turns on their judgement of the circumstances that confront them. The very deregulation that is the appeal of crypto assets is also a reason why they can be very hard to assess from a money laundering perspective. By contrast with traditional finance, which aims through the application of rigorous due diligence to create a hermetically sealed system that excludes criminal proceeds, crypto assets flow where they will - and are undoubtedly used by criminals as a means of storing and laundering their ill-gotten gains.
This attribute of crypto assets does not mean, as the NCA concedes, that they cannot be applied to legitimate transactions; but it means that great care is needed. Where it is possible - which it is more often than is generally understood - the provenance of the crypto assets must be understood as well as the way in which (and with whom) they have been traded. This is where a company like Alaco Analytics – referred to in the Express article – is invaluable. They provide an informed basis upon which a judgement can be made.
Crypto assets are here to stay, and many people have legitimately profited by smart speculation, calculated risk, and good fortune. Such people should be able to enjoy the benefit of that success - and that means that lawyers have to find a way to deal appropriately with those who approach them wishing to turn their crypto assets into bricks and mortar.
A version of this blog was first published by PrimeResi on 24 June 2021 which you can also read by clicking here (subscription required).