Agents are relying on their own intuition and instincts to assess risk and to sniff out anything suspicious.
Key ‘red flags’ for agents included reluctancy to provide documentation, and funds from an unknown source, which came out top. Using instinct to assess the risk of a transaction is not advisable, nor will it comply with fifth directive legislation, which became law on 10th January 2020.
Understandably, when trying to win an instruction or close a sale, anti-money laundering isn’t necessarily a top priority. Unfortunately, criminals will use this as an opportunity to slip under the radar. Yes, it can seem like another unnecessary, administrative task but it is important to have robust procedures in place to help protect you and your business.
Spotting a risky transaction early can prevent your business from AML legislation failures which can result in fines or legal action, or from receiving unwanted and unfavourable publicity which can damage reputation.
Higher risk transactions require additional levels of caution and due diligence to remain compliant, so identifying them is half the battle.
Here are some of the common warning signs which may alert you to a higher risk transaction:
1. Beware of instructions that seem too good to be true; if a transaction is unusually large, or the owner seems happy to take a lower amount than a valuation suggests, this might signal that further scrutiny is required.
2. Short-term ownership can be an indication of potential money laundering and can be cross-referenced against the date of purchase shown on the Title Register document to assist with assessing the level of risk. Furthermore, most lending institutions will not finance the purchase of properties where the current owners have owned the property for less than six months.
3. When carrying our identification checks clients don’t always like answering questions, but this is a normal and necessary process when buying or selling a property so if your client seems to be trying to withhold information, providing incomplete or inconsistent information or cannot provide the right documentation, then they may be trying to hide something. Always ensure you have properly verified the identity of all parties involved in a transaction before proceeding.
4. Is your client a UK resident? There is naturally a higher level of risk associated with buyers and sellers residing outside of the UK. A non-UK resident will require additional checks and due diligence, so it is important to understand your compliance responsibilities in these cases.
5. Is your client a politically exposed person (PEP)? Clients who are politically exposed, pose a higher degree of risk as they can be susceptible to fraud or bribery. It is not always easy to identify a PEP, as self-assessments can be falsely completed, so it can be useful to use electronic checks. In identifying a PEP, you are required to carry out enhanced due diligence which includes seeking advice from management, checking the source of funds and ongoing monitoring of the transaction.
Whilst you should not rely solely on your instincts to judge the level of risk, it is still important to trust them. If something seems suspicious or cause for concern then ensure you have raised this with your Nominated Officer, who will be able to advise you on what action to take.
The presence of one or more of these warning signs, won’t always signal criminal intent but it may mean a transaction is higher risk and therefore you may need to carry out additional checks or more robust customer due diligence to ensure you are fully compliant.
It’s not always enough to get a copy of someone’s passport and these days identification documents can be more easily forged, so it can be helpful to use electronic verification services to establish identity or run further background checks such as checking to see if a client is a PEP or on any financial sanctions lists.
The Financial Action Task Force (FAFT)
The FATF website has more information on potential indicators of money laundering, as well as up to date information on high-risk jurisdictions.