It’s no secret that property purchases can be an effective way to launder funds, as they tend to involve large sums of money changing hands, complex transactions and little oversight.
While most clients will be above board, it pays to understand (and refresh one’s memory on) common red flags that can indicate funds from illegal activity are being filtered into a property purchase or sale. This vigilance is necessary regardless of size or location – bad actors can target large firms where they hope to slip through unnoticed, or small firms where they assume conveyancers won’t have the appropriate experience or tools to spot them.
Catching these warning signs early allows you to conduct enhanced due diligence, ask more questions and potentially file a suspicious activity report (SAR) with the HMRC or SRA. Here are some of the top red flags to look out for in real estate transactions:
One of the most common techniques for laundering money is to use a third party or proxy to make the purchase on behalf of the real buyer. This avoids linking the property to the criminal in official records.
Watch for signs like someone other than the named purchaser handling the negotiations and paperwork, or the buyer joining very late in the process. This could indicate they are trying to avoid background checks.
Irregular sale price
If the purchase price seems significantly higher or lower than expected for no clear reason, it may be a sign of price manipulation. Paying above market value can allow larger sums to be laundered through mortgages, while undervaluing lets surplus illicit cash change hands separately.
Unusual fund sources
The source of funds used for a deposit or fees may seem suspicious – for example large amounts of physical cash with no paper trail. If funds are coming from an unrelated third party or foreign account, more questions should be asked.
A buyer purchasing property far away from where they live or work for no clear reason can be a red flag. This distance makes it harder for authorities to uncover connections between parties.
Watch for property purchases made under complex business structures or family trusts with no easily identifiable beneficiary. This can indicate an attempt to disguise the true owner. It also pays to look at beneficiaries and trustees carefully - if it’s a family trust, are they all family, or are there unexplained people in the mix?
If you notice inconsistent behaviour from a purchaser throughout the transaction, like changing key details, stalling signing or being evasive, it may warrant a closer look.
Frequent buying and selling between related parties is a potential sign of cycling funds through property to appear legitimate.
The big picture
Of course, one red flag on its own doesn't mean illegal activity – but several together should prompt you to carry out enhanced due diligence on the parties involved. It’s easy to slip into thinking that AML checks are a box-ticking exercise, but money laundering and financial crimes do have real victims that are only a few steps removed from the money that is being transacted. By staying alert to red flags and investigating unusual activity that comes across their desks, conveyancers can be effective safeguards on the frontline against money laundering.
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.
25 November, 2023
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