by Emma Oettinger
Joined-up thinking can help agents and solicitors avoid being branded criminals for failing to spot the manoeuvrings of unscrupulous clients.
Fact: criminals will target anyone they perceive to be a weak link in the property chain to further their ambitions. But it can also take a weak link to end up – in the bliss of ignorance – as a criminal.
Solicitors and agents who fail to protect themselves are likely to face criminal proceedings for becoming involved in money laundering and failing to report suspected money laundering and not having appropriate anti-money laundering systems in place.
There are also the potential fines from regulators, increases in insurance premiums and the loss of reputation in the industry if you are associated even with allegations of money laundering or another criminal activity.
So, focusing on crime prevention, to ensure your services are not used to further criminal activities makes good business sense. Money laundering should be considered as part of a holistic risk-management strategy, along with your other, more common risks, rather than as just another compliance box to be ticked.
There are a number of warning signs that might give rise to a suspicion that a client is attempting to launder money or to engage in another criminal activity. While no single warning sign will determine anything, it is important that you take the time to understand your client and the purpose of their property transaction. When you consider this knowledge of the client in light of all the warning signs, you will be better placed to protect yourself.
Firstly, think of secretive clients. While face-to-face contact with clients is not always necessary, an excessively obstructive or shy client may be a cause for concern. Secondly, beware of unusual transactions. A proposed transaction that is unusual, or at least unusual for your firm or that client, may give rise to a cause for concern.
Transactions that change unexpectedly may raise a suspicion if there seems to be no logical reason for the changes. And are there non-standard methods of payment being considered?
Watch out for settlements that are paid in cash, or directly between the parties.
Accounts staff should monitor whether funds received from clients are from credible sources. Finally, be alert to sudden or unexplained changes in property ownership. One form of laundering, known as ‘flipping’, involves a property purchase, often using someone else’s identity. The property is then quickly sold for a much higher price to the same buyer using another identity. The proceeds of crime become mixed with mortgage funds for the purchase.
This process may be repeated a number of times.
Mortgage fraud, a criminal activity in itself, also poses money laundering issues once the mortgage is released to the client.
Systems used to combat money laundering can be of assistance in identifying possible fraudulent mortgage activity.
Mortgage fraud can be undertaken in many ways, from significantly overstating income, which as witnessed in self certification cases, to multiple sales of a property at inflated prices, to non-existent purchasers.
Key warning signs include clients who seem unusually disinterested in their purchase – this should prompt you to look for other warning signs suggesting they are not the real purchaser.
Agents should also be wary if a seller is a private company or if the seller has recently purchased the property from a private company. It is important to consider whether the officeholders or shareholders of the private company are otherwise connected with the transaction, and whether this is an arm’s length commercial transaction.
Clients who do not usually engage in property investment of the scale being undertaken should ring alarm bells, too. This could be a client who is purchasing a number of flats in a block or a number of houses in a street. It is worth asking why they are undertaking this new venture and how they will fund it. Finally, agents should be mindful of properties with values that have significantly increased in a short period of time, out of line with the market in the surrounding area, and where deposits are paid by someone other than the purchaser.
Both solicitors and agents are required to comply with the Money Laundering Regulations 2007. This means they each have to:
• identify and verify clients;
• where relevant, identify and
depending on the risk, verify any beneficial owners;
• monitor the transaction for signs of money laundering;
• have systems in place, which ensure suspicious transactions are reported to the Serious Organised Crime Agency (SOCA) where appropriate;
• ensure staff are trained so that they understand what their anti-money laundering obligations are.
Both solicitors and agents need to consider themselves as partners in preventing money laundering in the property market. Prevention activities in each sector should complement and reinforce each other, to deter criminals from attempting to exploit your services.
This is why solicitors and agents should resolve to communicate and discuss concerns about transactions, subject to client confidentiality requirements.
Each may have pieces of information which on their own are not suspicious but put together create a far more worrying picture of the client and their intentions.
It is not tipping-off to make enquiries, particularly if a disclosure to SOCA has yet to be made.