Caught out

At the annual Law Society’s ‘Property in Practice’ last year, it was revealed that the Land Registry had uncovered more than £20m worth of property value which had been transacted with fraudulent titles.

This figure, together with several other notable sums released by the National Fraud Authority, suggests that robust processes are far from being in place to counteract this kind of crime. As a result, lender concerns show no signs of abating, with regular (and dramatic) changes to the size and membership of their panels now commonplace, with smaller practitioners being hit harder then anyone else.

The degree to which mortgage and title registration fraud is being perpetrated by using a false identity (or by stealing another person’s identity) has become a vital issue that lawyers must address from the moment that a prospective client first walks through the door. As such, an effective, comprehensive risk management strategy – including regular ID checks on a global scale – must be introduced as a matter of urgency for all firms.

At the moment, registration fraud can work like this: a client wants to transfer a property to a ‘relative’ in the form of a gift. There is no face-to-face meeting: just some photocopies of driving licences and passports sent in the post by the client to the solicitor, which were certified as true copies by another unverified ‘solicitor’. In many cases, the signatures are practically illegible and there is no solicitor identified as having signed for the certified copies.

Even so, once this documentation is in place, it is possible that the title can be transferred, as requested. No prizes for guessing what happens next. It transpires that the identity of the relative who was meant to be receiving the title of this property has been stolen, so that the fraudster can re-mortgage the property in order to obtain funds from the lender.

Unfortunately, some clear warning signs of this now-common scenario are often not picked up: the urgency of the transaction, communications at a distance, only one owner in the transaction. All of these things should send alarm bells ringing.

However, by using appropriate Anti-Money Laundering (AML) and anti-fraud controls to vet both UK and foreign nationals, law firms will be in a far stronger position to signpost these risks before disaster strikes, and also to build lasting credibility with lenders and the Solicitors Regulation Authority (SRA) in the process.

Clearly, traditional methods of copying passports and driving licences are simply no longer effective or robust enough. Instead, firms need to perform enhanced due diligence on all of the clients that present themselves, and especially when there is no face-to-face contact. Not only that, but the ability to accurately check ID will continue to play a vital role in limiting liability as well.

As such, the Law Society and the Land Registry are finally shining a clear light on the need for enhanced due diligence beyond the passport and driving licence. Firms will now need to have robust (and visible) anti-fraud procedures in place, including e-verification processes that will help to identify any potential problems far quicker, so that further investigations can be made if necessary.

Items such as address, age and other basic details that are needed to determine a person’s identity are now extremely easy to obtain electronically, so it is crucial that these facts are backed up by the audited ‘Know Your Customer’ (KYC) processes that meet the requirements of the SRA warning card. These checks are also integrated with more comprehensive company and director searches that can be linked to any prior suspicious activity.

Law firms will therefore need to look at their accepted administrative processes – and include their Money Laundering Reporting Officer (MLRO) in these discussions – in order to ensure that any additional fraud controls (especially those related to Land Registry registrations) are approached in the same way.

One area of particular concern for firms should be the management of the practice’s unique assets, including areas like the brand, stationery, email and company identity. In order to prevent the hijacking of the firm’s identity, companies need to be sure that their IT systems are thorough enough to ensure that all of these areas are adequately protected.

However, these problems can extend far beyond the four walls of the law firm. In an increasingly globalised economy, even simple property transactions are now conducted on a global scale. In the UK, a weak pound – combined with the buoyant economies of countries like China and Russia – has been fueling international investment in recent years.

When a tower block is sold in London, for example, there is a good chance that at least some inbound capital has been used to finance the purchase. Clearly, firms will need to determine not only where these funds are coming from, but also whether there are any other parties who may be involved in financing the purchase ‘behind the scenes’.

With international transactions like these now a regular occurrence, it’s easy to see why the need for global e-verification is so important in the fight against mortgage fraud. All of this information – especially the source of the funding – needs to be verified accurately. In other words, just because this capital has come from a bank doesn’t mean that it’s safe; firms will need to verify bank accounts and statements carefully, especially since keeping an extremely detailed trail of evidence is crucial in cases like these.

Law firms therefore, need to take the steps necessary to tighten their standards in this area and to make sure that they are complying with all current legal regulations. A new online Foreign National search system from MDA SearchFlow, now available to law firms, makes this much easier, as it is now possible to scan a wide range of databases, covering more than 240 countries.

When used alongside a firm’s wider KYC controls, e-verification searches like these can help to signpost potential issues that will enable firms to make more detailed enquiries before they carry out a transaction. In addition, evidence of search results can be used as part of submissions and audit trails to demonstrate due diligence.

Most firms would agree that it is essential that that all property is registered with a clean title, and indeed that a clean title exists in the first place. Sadly, a significant amount of property stock still exists, especially where it has not changed hands for many years or has done so informally. Therefore, making it ripe for stealing or, at the very least, where there is room for manoeuvre or doubt.

At MDA SearchFlow, we have always advocated and supported any measures to identify ID and to perform AML checks on potential clients, employees and companies, as well as practices adopting best in class fraud prevention through robust audit processes. We are now looking forward to working across the industry to encourage smarter data transfer between all parties, as well as the foundation of robust conveyancing communities that can work together to deliver the secure level of security that we all want to achieve.