Money-laundering loopholes missed by property firms

Up to 70% of property firms surveyed for an anti-money laundering campaign have not changed their approach to onboarding new customers since sanctions were imposed on Russia after its invasion of Ukraine.

The disturbing statistic is revealed in a comprehensive, cross-sector survey commissioned by SmartSearch, a UK provider of anti-money laundering (AML) software.

The survey is the second in SmartSearch’s continuing Electronic Verification Uncovered campaign, which aims to make financial firms aware of the dangers of relying on flawed, old-fashioned methods of identity verification, and shows “the worrying size of the challenge when it comes to closing AML loopholes being exploited by criminals in the UK”.

Decision-makers in 500 regulated UK businesses across the legal, property and finance sectors were questioned on a range of AML compliance issues. Their answers revealed continuing shortfalls in the way some regulated firms check on new and continuing customers and continue to rely on hard-copy documents rather than digital checks to identify them.

More than a third (34%) of firms in the finance and banking sector and 47% of those in the legal sector had also not changed their approach to new customers since the sanctions were imposed.

The Know Your Customer (KYC) process has come under closer scrutiny since the sanctions – which placed restrictions on individuals, entities, and their subsidiaries, and introduced legislation to limit deposits held by Russian nationals in UK bank accounts – were introduced.

SmartSearch’s campaign argues that regulated businesses should use digital onboarding to ensure they properly identify and screen clients.

The gaps in new customer checks were compounded by some property firms’ continued reliance on hard-copy documentation to verify new clients’ identities. Almost half (45%) of those surveyed said they were using documents like passports or utility bills to identify new clients – even though 14% of them admitted they were “not confident” in their ability to spot a fake.

A fifth of financial firms and 23.5% of legal companies also relied on manual checks – with 16% of firms in the financial and banking sector admitting they were similarly “not confident” about spotting a fake. That figure was one in ten among firms in the legal sector.

Martin Cheek, SmartSearch’s managing director, said:

“Our latest survey shows the worrying size of the challenge when it comes to closing the AML loopholes being exploited by criminals.

As the Government increases its censures on companies for breaching compliance rules, some are continuing to risk fines and reputational damage by either failing to increase their surveillance in the light of sanctions or relying on outdated manual checks. Or both.

Such firms are unwittingly exposing themselves, and the UK, to the proceeds of some of the world’s worst crimes – people trafficking, drug running, tax dodging and scammers who prey on the most vulnerable.

Regulated businesses need to ensure they are doing everything they can to prevent these crimes and the only way to do so is to embrace electronic verification (EV). EV uses credit reference data, combined with other reliable sources, to create a unique ‘composite digital identity’ which is virtually impossible to fake.

Not only that, a system like SmartSearch’s can complete a check in just two seconds.”

 

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