Paper-based processes making residential property easy target for money-launderers

In a recent tm:tv session, tmgroup’s CEO Joe Pepper explored how and why the residential property market continues to be a target for money-launderers.

Joined by Simon Wilkinson, Board Member of Propertymark (NAEA), Olly Thornton-Berry, Co-Founder & MD of Thirdfort Limited, James Liffen, Partner and Head of Mishcon de Reya’s Residential Property team, and Andrew Kimpton, Mortgage & Protection Adviser, Just Mortgages, the panel discussed how issues surrounding inconsistency, lack of regulation, and reliance on paper-based processes need to be addressed to help the industry move forward. You can watch the full session here.

£4.5 billion is laundered through residential property every year

Money laundering continues to be a huge challenge, with £4.5 billion of “dirty money” estimated to have gone through the residential property last year, and some believing the actual figure is closer to £30 billion. Why is this such a problem? Looking at the bigger picture, money laundering activity typically passes funds to terrorist groups, drug dealers, and other unsavoury characters. Yet there are also terrifying, direct consequences for property professionals too, with jail time and unlimited fines at stake for those (even unintentionally) finding themselves involved in such activity.

However, we’re beginning to see changes for the better, as Simon Wilkinson, Owner of the Wilkinson Partnership and Board Member of Propertymark (NAEA), comments:

“Beyond the introduction of the 5^th and 6^th AML Directives, heavy fines and high profile cases have come into play. HMRC have also been doing more audits over the last few years, so property professionals are taking AML practices far more seriously. Unfortunately, we’re still seeing a handful of ‘rogue’ agents not following proper practices and leaving themselves open to sanctions, which will be a question of when they get prosecuted – not if.”

Manual processes leave gaping holes for criminals to take advantage of

Why is residential property so attractive to money launderers? Quite simply, it enables a quick and easy way to “clean” hundreds of thousands of pounds in a single transaction. Coupled with many law firms, estate agents, and mortgage brokers still using older, manual methods to complete AML due diligence, this provides huge motivation for criminals to develop new and increasingly sophisticated methods to outsmart “the human eye”.

In a world where fake bank statements, ID documents and utility bills can be bought online for as little as £5, the industry needs to take a long hard look at how it is practicing AML due diligence, as Simon Wilkinson, Board Member of Propertymark (NAEA), continues:

“Part of the problem is the lack of regulation across the industry resulting in poor practices being rife. This is evident in the latest research from the SLC and SRA as, at the end of last year, a series of random surveys from the SLC found that two-thirds of firms were non-compliant with their AML rules, whilst the SRA found that 65% were just using a boilerplate template for their AML due diligence.”

Artificial Intelligence and facial recognition technology can help detect fraud

Fortunately, innovative technology providers are rising to the challenge and solutions are now available that use Artificial Intelligence, facial recognition technology, and more, to verify identity documents and source of funds – saving time and reducing risk, as Olly Thornton-Berry, Co-Founder & MD of Thirdfort Limited, comments:

“It’s very easy for a fraudster to change an ID to a new address to outsmart a simple database check. However, when this is layered with Artificial Intelligence that can detect whether a document is real or fake, and facial recognition technology to prove that an individual is who they say they are, it suddenly becomes a lot harder for criminals to succeed.”

The pandemic-led surge in remote-working practices has helped to boost the adoption rates of technology-led AML checks too, as James Liffen, Partner and Head of Mishcon de Reya’s Residential Property team, comments:

“Since lockdown began, we’ve had to bring in practices we didn’t even think were available, such as companies doing online verification checks for us. While we were always very thorough and comfortable we were doing a good job, digital solutions now offer us that extra layer of protection. It’s proved a fantastic opportunity to see how technology will be vital moving forward. Even when we go back to the office, we’ll be using it.”

Digital collaboration will be key to stamping out money laundering

Moving forward, it’s clear the time has come for property professionals to “go digital” in order to better protect their businesses and their clients from money laundering activity, and put a stop on the billions of pounds of “dirty money” flowing through the residential property market each year. As consumers become increasingly tech-savvy, it’s equally important that the industry moves away from the manual time-consuming processes and duplication of effort we are currently seeing.

The industry also needs to consider practical solutions as to how multiple providers can all work together to deliver a joined up, time-saving and secure solution to everyone involved, as Andrew Kimpton, Mortgage & Protection Adviser, Just Mortgages, comments:

“As more solutions come to market, I think we’ll need to adopt a system similar to how we all currently work with credit reference agencies, allowing various property professionals to work with their choice of provider, but still receive the same information.”

Individual providers also need to consider how they communicate and collaborate with industry partners to enable this, as Joe Pepper, CEO at tmgroup, comments:

“Collaboration across the industry is key to success and building solutions with open APIs will help to facilitate this, so we are increasingly able to join solutions together to not only make things better for property professionals and consumers, but make it harder for criminals to succeed.”

Want to find out more? Watch the full “Dirty Money in the Property Market” tm:tv session here.

Kindly shared by tmgroup

Main article photograph courtesy of Pixabay