December 2020 |

Money laundering and property

John Dobson is CEO at SmartSearch

For most people, the phrase ‘money laundering’ probably brings to mind Hollywood gangster films. But the truth is it is a widespread problem that is much closer to home than many realise.

Nowhere is this truer than in the property sector; buying a house is one of the most popular ways for criminals to launder the proceeds of crime. 

Money laundering is the process of turning ill-gotten gains into legal ‘clean’ money. There are usually three stages to the process: placement, layering and integration. Placement is moving funds from criminal activity such as drug dealing, human trafficking or terrorism, into the financial system. For instance, breaking up large amounts and depositing the smaller sums in different bank accounts.

Layering is used to then hide the trail by moving the funds around, usually by transferring the money from bank account to bank account.

Integration is the process of making the funds fully legal, for instance by investing in a business and mixing the funds with legitimate cash.

Property purchases are primarily used in the final stage, integration. To integrate their illicit funds, potential buyers will attempt to hide the origin of the money used for payment.

Methods include using cash to pay for a property and using third-parties that act as legal owners.

People buy property with cash for a variety of legitimate reasons, but it is also ‘route one’ in terms of money laundering. With nothing to trace the origin of the cash, once it’s used to make the purchase, it will be completely legitimised once that property is sold on.

Criminals will also buy properties in the name of a family member or friend with no criminal record, either by buying in their name, or by giving them the funds to buy.

Property is as attractive to criminals as it is to any investor. Prices rarely depreciate and owning property also provides an air of respectability, legitimacy and normality.

So, how do you spot a potential attempt to launder money? And why should you report it?

In order to assess the existence of a money laundering risk, it is best to confirm that a client is who they say they are, and to check if they are on a sanction or politically exposed person (PEP) list. 

The Financial Conduct Authority (FCA) recently warned it would be “actively monitoring” UK brokers and broker firms to assess their processes to prevent money laundering.

To ensure firms and brokers avoid fines, they should ensure they know their customer.

Knowing who your customer is has become more difficult through traditional ID verification. Forgeries have reached such a level of sophistication that means assessing a physical passport or ID is difficult even for an expert. Therefore, the only way to accurately assess whether a person is who they say they are is via an electronic verification.

The best and most efficient way to do this is through an automated anti-money laundering solution. This will confirm a person is legitimate in seconds, and also screen them against sanctions lists. The reason this is crucial is that if they are trying to launder money, it could result in huge fines for the broker.

Money laundering is not just the stuff of Hollywood, and brokers have a key role to play in preventing it.

The key for brokers is to do your due diligence. Using an anti-money laundering solution is the quickest method and will cover brokers from potential fines.