Money laundering – what every private landlord must know

Landlords in the private rental sector (PRS) are now being harshly judged by the AML rules – the Government has said it is determined to crack down on signs of money laundering. 

In recent years, regulators and enforcement agencies have intensified efforts to combat money laundering, placing increasing responsibilities on professionals and, increasingly, on private landlords.

The UK property sector has long been attractive to investors seeking stable returns, but it has also attracted the attention of a very different type of investor: organised criminals seeking to hide the proceeds of crime. UK landlords also face significant money laundering risks, including from tenants paying rent or large deposits with illicit funds to "clean" this money, or alternative using landlords’ properties for criminal activity. 

Under updated 2025 regulations, self-managing landlords must perform strict Due Diligence (CDD), including identity checks and screening for sanctions, to avoid potential criminal charges. Landlords face fines of up to £1 million, and up to 2 years imprisonment for non-compliance.

In 2025, the UK government implemented significant updates to the Money Laundering Regulations (MLRs), with draft amendments introduced to strengthen customer due diligence (CDD). The objective was to enhance transparency and address new financial crime risks and from 1 December 2025, a new penalty regime for non-compliance

For many landlords, anti-money laundering (AML) compliance may seem remote as it affects them or overly bureaucratic. However, the legal and financial risks are real and increasing – landlords need to take them seriously. 

Understanding how money laundering operates, how the law applies to landlords, and what practical steps they can take to reduce their exposure is now part of responsible private rental property management.

What exactly is Money Laundering?

Money laundering is a process used by criminals to disguise their illegally obtained funds so that they appear to come from legitimate sources. Under the UK’s Proceeds of Crime Act 2002 (POCA), money laundering offences include acquiring, using, possessing, concealing, or transferring criminal property.

To put it bluntly, criminals seek to convert “dirty money” into funds that can be used without attracting any suspicion. This generally happens in three stages:

Placement, where illegal funds are first introduced into the financial system. In the property sector, this might involve using criminal proceeds as deposits, rental payments, or funds to purchase properties.

Layering is where criminals try to obscure the origin of funds by moving them through a complex series of transactions. The more sophisticated methods involve property ownership structures, shell companies, trusts, or offshore investments.

Finally, integration is where the money is reintroduced into the legitimate economy. It might be through rental income streams or the sale of property assets, making the funds appear perfectly lawful.

The National Crime Agency (NCA) has identified property as a particularly attractive area for laundering funds because of the large sums involved and where wealth can be transferred discreetly.

Why are landlords a target?

Real estate offers several advantages for criminals. For a start property transactions involve substantial capital flows that can conceal illicit funds. Transactions expose solicitors and property agents, but private landlords also enter the frame. 

Rental income provides a steady and apparently legitimate revenue stream and historically, compliance requirements within the lettings sector have been inconsistent. As a result, property transactions and tenancy arrangements are becoming increasingly under the spotlight scrutiny from enforcement bodies.

What laws affect AML Compliance

AML compliance in the UK is governed primarily by two key pieces of legislation:

The Proceeds of Crime Act 2002 (POCA) which forms the basis of the UK’s anti-money laundering regime. It criminalises dealing with property known or suspected to represent the proceeds of crime. Offences can include failing to disclose suspicions of money laundering and assisting criminals in retaining criminal property.

Convictions under POCA can result in substantial fines and/or lengthy prison sentences depending on the seriousness of the offence and the level of involvement or negligence.

Secondly, there’s the money laundering regulations embodied in The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which have been extended and strengthened over time, significantly widening their reach.

Expanding AML Responsibilities for Landlords

Historically, AML requirements in the lettings sector mainly applied to high-value rental agreements, typically those more than around £8,000) per month. It meant that most private landlords operating within the UK’s residential market were unaffected.

However, recent regulations have changed things. AML responsibilities have broadened, and the emphasis on due diligence and sanctions screening now applies more widely across the lettings sector to the point where landlords and letting agents must now show far greater awareness and documentary evidence of tenant identity, funding sources, and potential financial crime risks.

These are your core AML compliance duties:

Customer Due Diligence (CDD) requires you as a private landlord to verify the identity of tenants and, where relevant, guarantors or other financially involved parties. This typically involves obtaining photographic identification such as a passport or driving licence, confirming residential addresses using reliable documentation and verifying the authenticity of all these documents.

Fortunately, these requirements exist in parallel with the Right to Rent Regulations which landlords are already required to comply with. They both require similar checks and both can be performed by professional credit checking and referencing agencies when selecting and verifying tenants.

In higher-risk situations where tenants originating from high-risk jurisdictions or complex corporate structures are involved, landlords may need to undertake what are known as Enhanced Due Diligence (EDD) checks.

Sanctions Checks

Landlords must ensure they are not entering agreements with individuals or entities subject to financial sanctions. The UK sanctions regime is administered by the Office of Financial Sanctions Implementation (OFSI), and failure to comply can result in serious penalties.

Sanctions checks involve screening tenants’ and guarantors’ names against official sanctions lists. Although in theory these checks can be done by private landlords using specialist software though Government publicly available sanctions lists, most landlords rely on referencing agencies to do this alongside referencing and credit checks. 

Keeping adequate records 

AML regulations, as with the Right to Rent regulations, require landlords to retain due diligence records, including identification documents (photos and photocopies) and risk assessments, for a minimum of five years after the tenancy ends or the business relationship concludes.

Maintaining organised, accessible records is critical for these laws and even more emphasis will be placed on digital record keeping when the Right to Rent Act becomes law, including the Landlord Portal and the requirements of the Decent Homes Standard. Not forgetting the shift to making Tax Digital.

Private landlords are likely to be subjected to investigations and compliance audits and these documents at some point in the future.

Your responsibility to report suspicious activity

If after carrying out these checks you suspect that funds or transactions may be linked to criminal activity, you are required to submit a Suspicious Activity Report (SAR) to the National Crime Agency.

Landlords don’t need definitive proof of any wrongdoing. A reasonable suspicion based on credible indications is sufficient to send off a report, which you are obliged to do. It is also worth remembering that it is a criminal offence to “tip off” a tenant or third party that a report is being made. 

What are the consequences of non-compliance?

Failure to comply with AML regulations is a serious matter. It can lead to serious charges even if you have not deliberately assisted criminal activity.

There are substantial financial penalties imposed by the regulators and a criminal prosecution can result in fines or imprisonment for serious breaches. There can be restrictions on your future property business operations and reputational damage.

There’s a whole range of enforcement bodies in the UK increasingly willing to pursue cases involving negligence or failure to conduct adequate due diligence, particularly where criminal property has passed through legitimate rental arrangements.

Don’t get caught out, make sure the checks are done and you carry your due diligence.

Here’s some practical AML advice

While regulation may appear complex, compliance is relatively straightforward. You need an established tenant verification process which ideally should be documented as a checklist.

Get all your tenant applicants to complete a comprehensive tenancy application form. This, along with the proof documents you inspect and photocopy, should give you all the detailed information you need to complete background checks for AML, Right to Rent and tenant selection and verification purposes including Credit Checks and references. The same is needed for guarantors and whoever pays the rent.

Ideally, all prospective tenants should be checked by an independent professional reference agency with the ability to carry out these checks and provide you with detailed reports as evidence that this has been done.

The discrimination laws

Consistency and a systematic compliance approach is important, if nothing else to also comply with the discrimination laws: The Equality Act 2010

The Equality Act 2010 prohibits landlords and letting agents in the UK from discriminating against tenants or prospective tenants based on protected characteristics (age, disability, gender reassignment, pregnancy/maternity, race, religion, sex, sexual orientation). You must provide equal treatment, make reasonable adjustments for disabled tenants, and cannot lawfully evict based on discriminatory reasons. 

When the Right to Rent Act becomes law you cannot discriminate against people on benefits, or those with children unless the accommodation is unsuitable.

If you don’t use a professional referencing agency, make sure you screen all prospective tenants against the Government’s Sanctions List. You can do it manually using government resources or preferably, always use a referencing agency with the capability to do this on your behalf.

Some warning signs to look out for

There are certain obvious behaviours that may indicate money laundering risk. These include tenants offering to pay large amounts of rent upfront without an obvious reason, large cash payments are also a red flag. Payments coming from third parties with no obvious connection to the tenant are also suspect.

Anyone who demonstrates a reluctance to be transparent or failing to divulge the information you are asking for not only poses a risk as a tenant, but they could also be suspect for AML reasons. For agents, complex company or trust ownership structures, without transparent beneficial ownership, is something to be wary of. 

While these behaviours may not turn out to be indicators of criminal activity, they should prompt additional checks.

Once your due diligence checks are complete it’s important to retail the documentary evidence in case you are inspected at some point. Digital storage systems are convenient and compliant.

Make sure you are fully compliant 

Private sector landlords now come under the requirements for AML compliance – it’s no longer something you can ignore as another piece of worthless bureaucracy. Full compliance protects landlord from legal exposure, financial penalties, and any association with criminal activity.

The property sector is now a key target area for financial criminals, and enforcement agencies are intensifying scrutiny across the industry. By implementing clear due diligence procedures and maintaining proper records you remove risk and protect your investments.

Many landlords use letting agents or referencing services to assist with AML and Right to Rent compliance. However, landlords should remember that outsourcing these tasks does not necessarily remove your own ultimate liability. You have a responsibility to make sure this is done correctly.