Red Alerts for spotting property fraud

18th May 2018

Know Your Customer

The Money Laundering Regulations 2017 require estate agents to risk assess their business relationships and apply an appropriate level of investigation to ensure that they understand who their customer is, and why they are involved in the transaction.

This investigation, known as Know Your Customer (KYC), is made up of several avenues;

• identifying all sellers and all buyers and verifying their identity
• identifying all beneficial owners, where applicable, and taking reasonable measures to verify their identity to satisfy yourself that you know who they are
• obtaining information on the purpose and intended nature of the business relationship although in most cases this will be self-evident for estate agency businesses
• conducting ongoing monitoring of the business relationship, to ensure transactions are consistent with what the business knows about the seller and buyer, and the risk profile
• retaining records of these checks and update them when there are changes. (*4.9)

Customer Due Diligence

Typically a low or normal risk customer is somebody the agent has met and in the course of discussions the reason for the sale or purchase is apparent and presents no obvious risk from a Money Laundering point of view.

Where your policies, procedures and assessments identify such, an electronic check serves to satisfy the requirement to

obtain a private individual’s full name, date of birth and residential address as a minimum (*4.36)

Additionally, when this is combined with meeting the individual the following may apply:

If a member of staff has visited an individual at their home address, a record of the visit may assist in corroborating the individual’s residential address (for the purposes of a second document). This should be covered in the risk assessment. (*4.42)

The critical element is to document and evidence both the process (in your money laundering policies and procedures) and the actual undertakings. All AML checks must be retained for 5 years after the end of the business relationship.

Enhanced Due Diligence

If your policies, procedures and assessments identify a higher risk, then enhanced due diligence is appropriate.

You must do more to verify identity and scrutinise the background and nature of the transactions than for standard customer due diligence. How this goes beyond standard due diligence must be made clear in your risk assessment and procedures. (*4.20)

In conjunction with the Bold Legal Group we have compiled a list of indicative red flags that may alert estate agents to the need to apply Enhanced Due Diligence, and/or consider submitting a Suspicious Activity Report if they suspect fraud. These are not hard and fast rules or indeed evidence of illegal activity, rather a list compiled to help train staff on identifying potential high risk scenarios in order to be able to make a decision on whether to apply enhanced due diligence or not.

Red flags for Property Fraud

Business Source

• Unusual introducer
• Direct approach where reason for contact questionable
• Proximity of the party to estate agent and/or their legal representation – if there is a distance, why?

Seller Characteristics

• Absent owner or landlord
• Owner/seller living abroad
• Recently issued (new) ID documents/driving licence etc
• Seller’s lack of knowledge about the property
• Where the seller lives at a different address from the property and has no documentary evidence such as bills or buildings insurance schedule linking seller to the property
• Proximity of a signatory to the witness – if there is a distance, why? What is the relationship between the signatory and the witness?
• Email contact (remote client)
• Sole proprietor
• Long-time owners (high equity)
• Use of intermediaries to conduct the transaction
• Difficulty in identifying beneficial owners through complicated legal entities

Buyer Characteristics

• Buyers you do not meet or are reluctant to meet
• Difficulty in conducting Customer or Enhanced Due Diligence
• Foreign investors/ buyers living abroad
• Property has not been inspected prior to purchase
• Value of the purchase is apparently beyond their means, with no satisfactory explanation of source of funds
• Proximity from estate agent and/or legal representation – if there is a distance, why?
• Use of intermediaries to conduct the transaction
• Where you have an existing relationship, the transaction is different from the normal business of the customer

Property Characteristics

• Empty
• Tenanted
• Unencumbered (no mortgage)
• High value
• Unregistered
• Where there is no restriction on the register to comply with

Other Characteristics

• Quick sale required
• Quick, back to back sale (increased price)
• Funds going abroad or to an unusual destination
• End of chain transaction
• Value of property is unusually low without a good/plausible and verified reason

 

Compliance in a Box from Landmark is a simple pay-as-you-go toolkit to help agents fulfil their KYC obligations. From one account you can undertake and evidence:

• Verification of buyers and sellers within a minute
• Enhanced due diligence where your risk assessment identifies it is needed
• Confirmation of home owners
• Identification of beneficial owners in cases where businesses are involved… and more

For more information about undertaking and evidencing your compliance with the Money Laundering Regulation 2017, sign up below or please contact Compliance in a Box on 01524 220013.

* Source: Anti Money Laundering Supervision: Estate Agency Businesses 

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