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Anti Money Laundering and Lawyer Due Diligence

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According to the International Monetary Fund (IMF) in 2017 the size of the “hidden” or “black” economy in the UK was just over 6% of Gross Domestic Product (GDP) i.e. roughly £100bn. This is a massive cost to the country.  Crooks who are looking to use property to carry out money laundering have a formidable adversary defending our government’s tax receipts.

Yes, your friendly, local solicitor. And his secretary.

It starts off tricky …

Increasing numbers of people are now required to check that people buying property are who they say they are.  For example, in a rather weird turn of events, estate agents, who have no involvement in the handling of money, must check their buyer’s identity.  Apparently, making agents ask buyers for a copy of a passport and a bank statement will act as a deterrent to the crooks.

Which frankly is a bit of a leap of faith.

However, for lawyers, who do handle money for their clients and mortgage lenders, things are more involved.   As lawyers rarely meet their clients now, any copies of such documents must be certified. This means stamped and signed by an authorised person such as another solicitor. This is not just a compliance exercise.  Mortgage lenders will often contact us to check the name and registration number of a solicitor who has identified a person.

Things get more complicated …

Once the lawyer is confident they know who their client is and they have the money, then more work is required. They are then expected to determine where the money originally came from, which can be time-consuming, especially if it has come from abroad.

Even when it’s buyers who are getting the money as a gift from the Bank of Mum and Dad, things rarely go smoothly. The lawyer must identify who Mum and Dad actually are, which again requires certified copies of identification documents, and this can be particularly difficult.

Then the case unfolds

It’s not enough just to check the clients’ identification at the start and be done with it.  Whilst the case is progressing, lawyers must re-evaluate the transaction constantly. They need to be sure at all times there are no suspicions of money laundering activity.

We had a case where six weeks into the process we discovered the buyer and seller were co-owners of the same company and the seller was actually lending the buyer the money to buy the property.

We decided we could not continue. The agent could not understand why this was the case as we had been happy to proceed at the start.  Of course, under the “tipping off” rules we could not explain why we had made this decision and this put a strain on the relationship.

Conclusion

Lawyers bear huge responsibility of protecting their clients and mortgage lenders against fraud and money-laundering.  Fake identification documents are easily available and lawyers need to start using smarter technology to make the process of protection more efficient and effective.