According to anti-money laundering technology platform, Credas Technologies, when it comes to money laundering within the property sector, there are three general types of risk to consider: -
Customer risk: Focussed on the buyer or seller themselves.
Transactional risk: Focused on the property and the finance of a transaction.
Geographical risk: Not just the nationality of a buyer, but whether or not their location matches that of the property they are purchasing.
However, previous research by Credas Technologies found that almost half of property professionals carry out their own AML checks which can be a tall order at the best of times, let alone in the middle of a property market boom.
So when are they most susceptible to the illegal attempts made to launder money during a property transaction?
Initial Preparation - Low to Medium Risk
The initial preparation stage can require some action, but the threat of money laundering can be fairly easy to detect. Many buyers will look to secure a mortgage in principle and this requires a raft of personal information such as name, address, date of birth, income, expenditure and existing credit agreements.
Mortgage lenders should check proof of funds and so any red flags around complex loans should come to the forefront at this point. Cash buyers should also raise an initial flag at this point, but just because these initial checks have been done, it doesn’t mean estate agents can rest easy. They are responsible for carrying out their own AML checks and must ensure these are done properly, regardless of how stringent the checks already made by mortgage lenders have been.
Property search and making an offer - Medium to High Risk
It’s at this stage that estate agents, in particular, need to be at the top of their AML game. ID checks are essential when registering a buyer's interest and this is when you must be considering any customer, transaction or geographical risks.
Can you verify the buyer? Are they offering way over or under the asking price of the property? Are there any other mismatches between the buyer and property? Is this one of multiple successive transactions they’ve made recently? Are they purchasing within the UK from a nation with weak AML regimes?
This is when your AML procedures will be tested and any customer, transaction or geographical red flags should be reported immediately, especially if it is related to a new-build purchase as they carry a far higher risk.
Working towards completion - Medium to High Risk
Just because an offer has been accepted, conveyancing solicitors should not assume a buyer is AML compliant and the threat remains at its highest when working towards completion.
They too should carry out their own due diligence to investigate proof of ID, funds and the source of said funds. The red flags associated with customer, transaction and geographical risk are still relevant at this stage and so anything they think may have been missed by a mortgage lender or estate agent should still be reported.
Exchange and completion
By the time a transaction completes, any buyer should have been subjected to multiple checks by mortgage lenders, estate agents and solicitors. They should be happy that the buyer is who they claim, their source of funds is proven and legitimate and they are able to pay both the seller and other costs associated such as stamp duty.
Tim Barnett, CEO of Credas Technologies, said: “While the threat of money laundering is fairly low during the initial stages of the transaction process, being able to fully qualify a buyer in terms of both their identity and their financial suitability can set the tone for a fully compliant property sale.
"It also helps those at the sharper end of the process to rest easier knowing these checks have been executed properly and the buyer they are dealing with is legitimate.
"Of course, this isn’t always the case and many stakeholders within the home buying process will execute their own AML checks to varying standards of success. This means that those further down the line must remain diligent to the threat of money laundering at all times, but particularly when an offer is being made and progressed to completion.”
