Regulation  

How to spot money laundering red flags in overseas property purchases

  • Describe the challenges the property sector faces over money laundering
  • Explain the signs to look out for when money laundering is suspected
  • Identify the uses of electronic verification
CPD
Approx.30min

We have just carried out a survey of 500 regulated businesses, including those in the property sector, as part of our ongoing Electronic Verification Uncovered campaign, which argues that regulated firms should use digital onboarding to ensure they properly identify and screen clients. 

Almost one in five (18 per cent) of property firms said they had seen a rise in criminals attempting to launder money or commit financial crime through their businesses in the past year.

And more than one in 16 (6 per cent) said they had been the victim of money laundering or financial crime in the past six months.

Wake-up call

These findings should sound a wake-up call to regulated firms that organised criminals are increasingly active, and that the threat of money laundering in the property sector is a very real one. 

There can be a tendency to portray money laundering as an anonymous, white-collar crime. 

But it is nothing of the sort. It is usually a front for the proceeds of the very worst crimes – people trafficking, tax dodging, internet scamming and international corruption. Its victims are often the poorest and most vulnerable in their societies.

Experts like Oliver Bullough, financial journalist and presenter of How to Steal a Trillion, BBC Radio 4’s insightful series on money laundering, go even further and maintain that the crime threatens to undermine the UK’s open economy and national security.

The National Crime Agency, the UK’s leading agency against organised crime, agrees with them: “Money laundering has the potential to threaten the UK’s national security, national prosperity and international reputation.”

This backdrop of increased criminal activity around the property sector – particularly from foreign actors – has put property firms on the front line in the fight against organised crime.

And the weight of responsibility on firms to know their customers and keep pace with ever-changing compliance and sanctions rules has never been heavier. 

That is probably why property firms accounted for almost half of those censured by HMRC on a list of 79 firms reprimanded for breaches of the regulations between April and December last year. The reprimands brought fines and reputational damage for a range of property firms, which included estate agents, commercial property firms, valuers and auction houses. 

Red flags

So, against that backdrop, what are the red flags that brokers and advisers should look out for when dealing with overseas clients who want to use their cash to buy property in the UK?

In essence, good due diligence is about firms taking the right steps to manage their risks of exposure to criminality responsibly and effectively – not just at the beginning but right through the course of any transaction.