The advice from official organisations like the Law Society, which describes money laundering through property as a “major problem”, is extremely helpful.
Money laundering warning signs
Look out for:
- cash-only buyers;
- an unusual sale price;
- a buyer attempting to mislead a lender (for example by exaggerating the sale price);
- payments from a number of individuals or sources;
- funds provided by one person and registration in another person’s name;
- funds provided by unknown third parties;
- transactions involving nominee companies or multiple owners;
- sudden or unexplained changes in ownership; and
- direct payments between buyers and sellers.
Beware of customers who cause suspicions that they may not be who they say they are. Their attitude could be unusual, secretive or vague. They might be keen for a quick transaction or could request key changes mid-way through a transaction.
Identify the source of funds
Customers should be able to explain the sources of their funds. Payments through the mainstream banking system are not necessarily clean so make sure your information about the source of funds is consistent with your knowledge of the client.
You could be forgiven for assuming that property firms would be very cautious in this climate of increased sanctions, a heightened threat of being the victim of money laundering attempts and the threat of fines and reputational damage for breaching the rules. But, for many, the reality appears to be very different.
A concerningly large proportion of the property firms who responded to our survey also said they had not changed their approach to onboarding new customers since the war in Ukraine began. In fact, it was an astonishing 70 per cent of them.
To make matters worse, almost half (45 per cent) of the surveyed firms also said they still relied on hard-copy documents like passports or utility bills to verify the identity of new clients – even though 16 per cent of them also admitted that they were “not confident” about being able to spot a fake document.
This is far from effective due diligence and these anti-money laundering loopholes might well explain why money laundering criminals continue to gravitate to the property sector.
The government’s move to cleanse the UK property market of dirty money, however, should not deter legitimate overseas investors. Far from it. But it should concentrate the minds of the property firms with whom they deal.
They should absolutely ensure that they have the best tools and processes in place to mitigate their compliance risk with overseas customers.
Another way is to use electronic verification. EV is the quickest and most effective way for brokers and advisers to navigate this compliance minefield.
From verifying the identity of onboarding clients to sanction list checking and monitoring, EV is the best way for brokers and advisers to do their due diligence on overseas investors, particularly as the money laundering carried out by increasingly sophisticated criminals is on the rise.
EV can carry out checks on new customers without the need for manual methods of verification. It can identify people on sanctions, politically exposed persons, special interest persons, and relatives and close associates in minutes. And it will identify customers operating in high-risk companies and monitor customers – daily, if necessary.