Prime for crime – is the UK property sector doing enough to prevent money-laundering?

Prime for crime – is the UK property sector doing enough to prevent money-laundering?

The financial services sector is an obvious target for criminals looking to launder illicit funds, but it’s far from just a problem for the big banks. Financial crime affects an ever-broadening range of sectors, and the UK property market is high up the list.

Michael Harris, Director, Financial Crime Compliance at LexisNexis Risk Solutions, shares his thoughts on how the property industry can play its role in the fight against financial crime.

The large sums of money being transferred on a daily basis make the property industry an attractive proposition for criminals. Efforts to leverage this flow of funds for financial gain range from phishing emails, to money laundering, to conveyancing fraud. And the potential for a high return on investment provides criminals with the opportunity not only to ‘legitimise’ ill-gotten gains, but even to turn a profit.

Capital gains

A recent report from Transparency International warned that London’s high-end residential market is a prime target for money laundering. The Panama Papers, and most recently the Paradise Papers, shone a spotlight on ‘secrecy jurisdictions’, where offshore entities are created to conceal the identity of real buyers.

The report highlighted that 91% of overseas companies that own property in London do so via a secrecy jurisdiction.  In addition, there is no data available on the real owners of half of the 44,022 London land titles owned by overseas companies. If anonymous persons continue to be allowed to purchase property, this could pose a serious reputational and financial risk to the sector. To effectively prevent dirty money from flowing into the property market, identifying and risk-assessing the ultimate beneficial owner is critical here.

That is not to say that it is just the London real estate market which is at risk, however. While London’s higher prices and global city status make it a highly attractive option, financial crime affects the wider UK housing market, and should not be viewed as a problem confined to the capital.

Weak spots

The UK property market can be affected by financial crime at multiple points. In the sales process, mortgage fraud can occur when there is a lack of verification on the individual borrowing, and escrow accounts can offer an attractive honeypot through which money launderers can funnel cash due to the high volumes of transactions which process through them. The lettings market is also vulnerable, wherever the level of due diligence conducted on landlords and prospective tenants falls short, transactions are left exposed to criminal activity.

Financial criminals will aim to target both small and large agents, and as such both are vulnerable to attacks. Larger firms are also likely to have a financial services arm to their business, which can itself be a target. Many of these divisions are unlikely to have the same level of security, processes and resilience to protect against financial crime compared to a large financial institution, and therefore can become a target for criminals seeking to commit fraud or launder money.


Upping the defences

So, what can the estate agency sector do to reduce the risk of financial crime? Future Financial Crime Risks 2017, a recent report from LexisNexis® Risk Solutions, highlighted challenges and opportunities which banks in the UK have concerning combatting financial crime, and some of these findings have relevance in the property market.

The report provided insight on information sharing and the Suspicious Activity Reports (SARs) regime, and the effective reporting of suspicions to law enforcement is an area where estate agents can help in the fight. The National Crime Agency’s 2017 SARs annual report showed that estate agents only accounted for 0.12% of the total reported SARs from October 2015 to March 2017. By improving their SARs reporting practices, estate agents can help law enforcement gain a clearer view of financial crime within the property sector, and potentially improve their ability to identify and prosecute criminal activity.   

Future Financial Crime Risks 2017 also highlighted that technology can be a double-edged sword. Complex and unwieldy legacy systems can leave financial institutions exposed to financial crime, yet new technologies are empowering organisations to more effectively identify and prevent money laundering. Estate agents have their own challenges in this space – outdated hardcopy processes used to verify identity and establish the level of risk associated with a party are unlikely to be robust enough in the digital age.

Technology can provide a conduit to the global risk information estate agents need to effectively identify potential financial crime, creating an intelligence hub on known and suspected criminals, and those individuals who present a higher level of risk such as Politically Exposed Persons (PEPs).

The defences against criminals will only ever be as strong as the weakest point, making it critical that the property sector rises up against the threat of criminal funds flowing through the industry. By ensuring the right processes and technology are in place, estate and letting agents can play a significant role in the fight against financial crime.

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Latest Comments

Tony Gimple
Tony Gimple 09 Dec 2017

Linking professionalism to limited company borrowing is a flawed concept. Despite S24 etc., limited companies are the most tax inefficient way of running a property business and leave borrowers seriously...

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Evelyn Attwood
Evelyn Attwood 01 Dec 2017

It's normal. If you plan to buy a house in one of the most beautiful spots in the country you should pay a high price.

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Evelyn Attwood
Evelyn Attwood 01 Dec 2017

I think that the situation will be the same at December.

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Scott Garnet
Scott Garnet 06 Nov 2017

If you have a patio or a porch it is important to make sure that any connecting doors are secured. Good advice for sliding glass doors is replacing the panels with storm resistant glass and getting heavier...

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richardrawlings
richardrawlings 01 Nov 2017

What has not been mentioned here is the effect of not only higher interest payments, but also that these payments are less likely to be offsettable as a business cost due to the scaling back of mortgage...

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Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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