We start our story at the bottom of the world in New Zealand, with a seemingly straightforward real estate transaction. Little did anyone know that the protagonists in this story, Alexandra, her husband Alexei, and her father-in-law Leonid, would become entangled in a web of suspicion and red flags.
Unveiling a real estate web
It all began when Alexandra approached a local real estate firm to sell her house. Sarah (name changed for privacy reasons), our story’s compliance hero, was tasked with verifying the legitimacy of the transaction, and immediately hit the first warning sign. “The first step was to check Alexandra was the actual owner of the property. I ran a check via Property Guru [a local online property register] and the owner’s name did not match Alexandra’s.”
Curiosity piqued, Sarah asked Alexandra the obvious question of why she was attempting to sell a property she did not own. Alexandra revealed that her father-in-law, Leonid, residing in Russia, had granted her and her husband Alexei joint power of attorney for his affairs in New Zealand.
Warning signs and red flags
With three individuals involved, each party needed to undergo verification before the sale could proceed. Alexandra successfully completed the process, but Leonid, residing in the high-risk jurisdiction of Russia, refused to participate in the electronic identity verification (EIV) procedure. “He’s an older gentleman so I wasn’t surprised. But given the lack of transparency from the start of the engagement it raised another red flag for me. And we still needed to verify his identity,” explained Sarah.
Undeterred, Sarah requested that Leonid provide translated and certified identity documents. When they finally came through Leonid's documents were outdated, raising another red flag. Complicating matters, Alexei, Alexandra's husband, also avoided completing the EIV form, instead choosing to send certified copies, through Alexandra's email address, an unconventional approach.
“And then Alexandra started sending angry emails accusing us of being biased because of her Russian background. Again, another red flag, because why would you get angry if you have nothing to hide?”. After a month of back-and-forth, Alexandra finally provided Leonid's certified documents.
Limited source of funds information
In parallel to this process, Sarah asked for proof of Source of Funds used to purchase the property they wanted to sell. Alexandra submitted a sale and purchase agreement showing they had previously purchased another house, of which the proceeds were used to buy the current house they were trying to sell. Normally not a red flag, but, “It had only been owned for a year.” So, once again they were asked to prove where the funds had come from to purchase that property.
As the tension escalated, Sarah suggested contacting their lawyer to obtain the sale and purchase agreement of the first house. However, the lawyer revealed they had no involvement in that particular transaction, raising another red flag.
Strange requests and screenshots
Meanwhile, Alexei, who had been largely elusive throughout the process, finally completed the EIV procedure using his New Zealand passport. However, his name and address failed verification. Sarah requested he try again with his New Zealand driver's licence.
Keep in mind that all this time, the correspondence is going through Alexandra’s email. “We then got another email from Alexandra showing a strange screenshot of the EIV form saying Alex can’t complete it.”
It turned out that Alexei was in Russia, and the peculiar screenshot resulted from internet restrictions prevalent in both Russia and China. Given the commercial pressure to onboard the customer and get the transaction complete, the Money Laundering Reporting Officer (MLRO) made the decision to personally contact Alexei. He did not respond and then suddenly, the EIV form materialised, but once again, Alexei's name and address failed verification.
The MLRO requested Sarah obtain his certified Russian identity documents. This was a problem though, as Russian nationals cannot hold dual citizenship. His Russian passport was still valid though as his New Zealand passport had only been issued in the last few years.
The final straw
Given the company’s low risk tolerance, Sarah was still asking for a Source of Funds that proved how they paid for the original property. “Suddenly I got an email from our MLRO which just said ‘STOP!’”
Turns out that the Source of Funds had come into New Zealand via US dollars through a Forex Brokers Limited, a company owned by convicted fraudster, Russell Maher. Maher is “a foreign exchange broker who defrauded his clients of approximately $1.55 million by using forged documents has been sentenced to three years and four months’ imprisonment.” From there it was deposited into two major New Zealand banks.
In the end the transaction was completed. Despite so many red flags the only tangible issue was Alexei’s New Zealand name and address failures. Everything else was circumstantial.
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.