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CQS – Understanding Mortgage Fraud

CQS – Understanding Mortgage Fraud

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CQS – Understanding Mortgage Fraud

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  1. CQS – Understanding Mortgage Fraud CQS Supporter

  2. Contents • Introduction • Learning outcomes • Part 1. The nature of the threat • Part 2. The risk to firms • Part 3. Managing the risk • Part 4. Scenarios • Resources • Next steps

  3. Introduction Welcome to this official online training course and assessment for members of firms which have successfully applied for Year 2 re-accreditation under the Law Society’s Conveyancing Quality Scheme (the ‘CQS’). Course authors This training course was devised and written by Peter Rodd and Tim Prior in April 2012. Welcome Click each name to find out more about the authors: Peter Rodd Tim Prior

  4. Introduction Peter Rodd Tim Prior Peter Rodd is senior partner of East Kent firm Boys & Maughan. He has been a residential and commercial property lawyer for over 30 years. Peter is currently chair of the Law Society’s Property Section Executive Committee, a member of the CQS Technical Panel and a member of the Law Society’s Money Laundering Taskforce. Peter is co-author of the Property Section Practical Guide to Anti-Money Laundering and has lectured for the Law Society and other organisations on a variety of topics including money laundering and mortgage fraud.

  5. Introduction Peter Rodd Tim Prior Tim Prior is a solicitor (non-practising), Fellow of the Institute of Risk Management (IRM), Lexcel consultant and specialist in risk management, compliance and professional indemnity insurance. Following 11 years with the Solicitors Indemnity Fund and 10 years with professional indemnity insurer Travelers, he set up his own company, PNCR Legal, in 2010. Tim is also a member of the CQS Assessment Panel and chair of the IRM Legal Risk Special Interest Group. He is a contributor to LexisPSL on risk and compliance issues and a regular contributor to Law Society publications. Tim is also a speaker at CLT and Law Society events on professional indemnity, risk and compliance matters.

  6. Learning outcomes Mortgage fraud poses a major threat to lenders, law firms and their clients. The purpose of this course is to raise awareness of the threats and to offer strategies which can be adopted to minimise them. By the end of the coursecandidates will have a better understanding of: • the nature of the threat; • the risks to firms and their clients; • strategies for managing the risks.

  7. CQS – Understanding Mortgage Fraud 1. The nature of the threat

  8. The nature of the threat • 1.1 THE REPORTED SCALE OF MORTGAGE FRAUD • Reported cases of mortgage fraud have increased as lenders and nationalised banks scrutinised their mortgage books following the 2007/2008 financial crisis. A 72% growth in reported cases of fraud was announced by the City of London Police in 2009, thought to have largely been caused by an increase in mortgage fraud during the previous year (Annual Report 2009, City of London Police, p.8). • The National Fraud Authority contacted lenders to obtain opinions on the scale of loss attributed to mortgage fraud during 2009. The Authority estimated the loss to the industry due to mortgage fraud was £1bn (see Annual Fraud Indicator 2011 and 2012, National Fraud Authority). • Following nationalisation of Bradford & Bingley’s mortgage lending operation, it was reported that the bank’s ‘provisions for fraud and professional negligence more than doubled to £388m’ (The Telegraph, 19 March 2010). The government announced it would pursue ‘negligence claims against solicitors who had acted on behalf of Bradford & Bingley…in…hundreds of buy-to-let mortgages’ (Gazette, 13 September 2010). • See also the annual Fraudscape reports published on the website of CIFAS.

  9. The nature of the threat • 1.2 The Response from Stakeholders • The Financial Services Authority (FSA) • Despite the downturn in the property market, the prevalence of mortgage fraud, which was a feature of the pre-2007 property boom, has continued. • In June 2011 the FSA published Mortgage Fraud Against Lenders: a thematic review of lenders’ systems and controls to detect and prevent mortgage fraud. • In the Review, the FSA is critical of lenders’ systems and controls to detect mortgage fraud. Lenders have reacted in a variety of ways, including reducing the size of the panel of solicitors whom they are prepared to instruct to act for them on mortgage work. • The FSA also noted in its Review: • ‘…the desire to acquire business and economise on process may cause lenders to run fraud risks’(p.3); and • ‘mortgage fraud remains a current issue with increasing levels of sophistication and innovation from fraudsters’(p.4).

  10. The nature of the threat In their submissions to the FSA, lenders identified third parties such as solicitors, brokers and valuers as the main sources of mortgage fraud risk (p.2 of the Review). Following its review, the FSA has published CP11/31 Mortgage Market Review: proposed package of reforms. The proposals include ‘making income verification a requirement for all mortgages’ and ‘requiring all mortgage intermediaries to be Approved Persons and to hold a mortgage qualification’ (see section 7.22).

  11. The nature of the threat The Law Society (a) Guidance All conveyancers should be familiar with the latest Mortgage Fraud Practice Note and the Property and Registration Fraud Practice Note . (b) The Law Society Conveyancing Protocol General Obligation 4 of the Protocol specifically addresses fraud: ‘4. Endeavour to maintain vigilance to protect and guard against fraudulent or other illegal behaviour encountered in the conveyancing process’. The standard procedures of the Protocol also help solicitors to fulfil their role as ‘gatekeepers’ of the process by reminding them of the steps needed to check, in particular: the identity of those involved, the source of purchase monies, and for any incentives or direct payments.

  12. The nature of the threat • (c) The Conveyancing Quality Scheme • One of the main aims of the CQS is to deter fraud by creating a ‘trusted community’ of firms. This is achieved by requiring members to: • undertake a rigorous application and re-accreditation process; • meet high practice management standards; • adopt the Law Society Conveyancing Protocol, Standard Conditions of Sale and Law Society Code for Completion by Post; and • complete training courses.

  13. The nature of the threat Solicitors Regulation Authority (SRA) The SRA established a Fraud and Confidential Intelligence Bureau to gather information and intelligence. The Bureau has a telephone and email service which allows members of the profession to report cases of serious misconduct and dishonesty among their fellow regulated professionals and their employers (tel. 0845 850 0999; fraud@sra.org.uk). The SRA responded to the increased incidence of mortgage fraud by embarking on a project to ‘profile the involvement of solicitors and make recommendations for improved prevention, intelligence-gathering and enforcement action’ ([Gazette], 17 September 2009). Also in 2009, the SRA updated its Property Fraud Warning Card. The SRA’s position on fraud was made very clear in a statementpublished on its website in 2011: ‘We do not tolerate fraud from those we regulate. [They] are in a position of trust and often have to hold large amounts of money on behalf of their clients. Personal integrity is central to their role and they are bound by our Principles to protect client money and assets, and to act in the public interest’

  14. The nature of the threat • Safeguards against fraud were incorporated into the regulatory obligations embodied by the SRA Principles and the mandatory Outcomes of the SRA Handbook, introduced in 2011. Principles 1, 2, 4, and 10 are particularly relevant: • ‘1. uphold the rule of law and proper administration of justice. • act with integrity. • 4. act in the best interests of each client. • protect client money and assets.’ • The SRA also published a Draft Supervision and Enforcement Strategy for Conveyancing in 2011, which recommends that firms: • ‘…evaluate the risk posed by property-related fraud…and determine what policies, procedures, systems and controls to put in place to minimise the possibility of being used, unwittingly, as a vehicle for criminal activity.’ • More recently, on 26 March 2012, the SRA published a Bogus Firms and Identity Theft Warning Notice.

  15. The nature of the threat Council of Mortgage Lenders (CML) and Building Societies Association (BSA) (a) Disclosure of incentives The Disclosure of Incentives Form was updated in March 2012. It aims to prevent mortgage fraud in relation to newly built or converted properties by seeking to accurately identify a property's true value. (b) Fraud guidance The CML provides information online which identifies various forms of mortgage fraud for its members and others (see Fraud: awareness and protection). (c) Mortgage Verification Scheme If, after carrying out its own checks on a mortgage application, the lender has inadequate evidence of declared income and suspects fraud, it may apply to the HMRC under the Mortgage Verification Scheme. HMRC will check declared income against information obtained for tax purposes and reply that declared income is either ‘verified’, ‘not verified’ or that ‘information is unavailable’.

  16. The nature of the threat 1.3 IDENTIFYING FRAUDSTERS Although the majority of large-scale frauds are orchestrated by gangs of highly organised, sophisticated criminals, a small number of fraudsters are professionals, such as solicitors, surveyors, architects, and accountants. Indeed, ‘fraudsters will usually use at least one professional at the core of the fraud, to direct and reassure other professionals acting at the periphery. Mortgage brokers and introducers have been used in this role in the past’ (Mortgage Fraud Practice Note, para.3.3.5). Fraudsters come in all guises. It is therefore important that you do not make assumptions about your clients and other professionals involved in the transaction. Don’t treat all clients as potential criminals but do challenge them if their instructions don’t ‘stack up’. The slightly contradictory advice of former President Reagan is worth bearing in mind: “trust, but verify”.

  17. The nature of the threat • 1.4 Vulnerable Property • Fraudsters are always searching for properties to target. Sometimes a property is so obviously vulnerable that different fraudsters target the same property. • No property is immune so it is important that you are aware of the possibility of fraud in every case. However, it is worth noting that certain circumstances and schemes are likely to be particularly attractive to fraudsters. • The Land Registry has warned that fraud may be more likely to arise in the following situations: • ‘where a relationship breaks down • where a property is empty or is bought to let • where the owner is abroad or absent • where the owner is infirm or in a home.’ (Land Registry Public Guide 17 How to Safeguard against property fraud, para.2.)

  18. The nature of the threat • Other properties vulnerable to fraudsters are identified in the Law Society’s Property and Registration Fraud Practice Note at para.2.3: • ‘tenanted properties; • high value properties without a legal charge; • high value properties with a legal charge in favour of an individual living overseas; and • properties undergoing redevelopment.’

  19. CQS – Understanding Mortgage Fraud 2. The risk to firms

  20. The risk to firms • 2.1 EXPOSURE TO RISK • A firm caught up in a mortgage fraud may be exposed to the following risks. • Criminal prosecution of a member of the firm under the Fraud Act 2006 and/or Proceeds of Crime Act 2002. • The maximum penalty under the relevant section of the Fraud Act 2006 is 10 years’ imprisonment and/or an unlimited fine. “ You can find yourself criminally liable if your client commits mortgage fraud, because of the extension of the definition of fraud in the Fraud Act 2006 and the anti-money laundering regime in the UK. You can be liable even if you were not aware of the fraud or actively participated in it. Courts will assume a high level of knowledge and education on your part. They will often be less willing to accept claims that you were unwittingly involved if you have not applied appropriate due diligence. (Law Society Mortgage Fraud Practice Note, para.1.2.) ”

  21. The risk to firms • A professional negligence claim by the lender. • Whether or not there has been a fraud, the lender may pursue a negligence claim against the solicitor. The starting point is whether the solicitor has complied with the duties set out in the lender’s instructions. The court will also consider the actions of a reasonably competent solicitor in view of the rules of professional conduct and guidance in force at the relevant time. Other factors may be negligence by other professionals such as the valuer, intermediaries such as brokers or referrers, or a lender’s imprudent lending decision. • Breach of trust claim for money held in trust for the lender. • In Lloyds TSB Bank PLC v.Markandan and Uddin [2012] EWCA Civ 65 a firm of solicitors (M&U) was held liable for breach of trust in paying mortgage monies, despite it being acknowledged that M&U was also a victim of the fraudulent impersonation of a firm of solicitors. The court may grant relief wholly or partly from this liability under s.61 Trustee Act if the defendant has acted honestly and reasonably, and ought fairly to be excused for the breach of trust. However, in this case the court found that undertakings given by the fraudsters posing as a law firm were a nullity and the actions of M&U were not those of a reasonably competent solicitor.

  22. The risk to firms • Investigation by the SRA where there is suspicion of misconduct. • Also, if it is proven that a solicitor has acted dishonestly the usual ruling of the SDT is to strike the solicitor off the Roll of Solicitors. See Bryant and Anorv. The Law Society [2007] EWHC 3043 Admin for the test of dishonesty applied. • Monitoring by the CQS. • If a period of monitoring or investigation uncovers material breaches of CQS requirements, the firm will be excluded from the Scheme. “ In the 12 months to the end of December 2009, the SRA completed 106 investigations into firms where there was suspected misconduct in relation to mortgages or property. Of these 106, 22 firms have been closed down by the SRA, 24 cases have been referred to the police for investigation, and 30 cases have been referred by the SRA to the Solicitors Disciplinary Tribunal’. (“SRA gets tough on property and mortgage fraud”, www.sra.org.uk, 27 January 2010). ”

  23. The risk to firms • 2.2 GUIDANCE • Current guidance on mortgage fraud is contained in the Law Society Mortgage Fraud Practice Note. Also relevant are: • the Law Society Property and Registration Fraud Practice Note; and • the SRA Bogus Law Firms and Identity Theft Warning Notice. • Previous warnings and advice from the Law Society • The Law Society ‘Green Card’ Warning on Property Fraud was issued in March 1991 and updated in 1996 and 1999. It put solicitors on official notice of the danger posed by mortgage fraud and was held by the court to reflect the duties a solicitor had to the lender. See Paragon Finance Plc v. Crangle & Co [1999] EGCS 25. • Following the introduction of the Solicitors Code of Conduct 2007, the SRA replaced the ‘Green Card’ Warning with a ‘Property Fraud Warning Notice’ (last updated in April 2009). This warning notice is currently pending review as it was written and issued before the introduction of the SRA Handbook.

  24. The risk to firms • 2.3 TYPES OF RISK • There are various types of risks that firms dealing with conveyancing transactions will need to assess. Three of the key types of risk associated with mortgage fraud are: • identity fraud; • value fraud (including income misrepresentation); and • criminal source of funds. • These are not the only risks associated with mortgage fraud. Fraudsters’ methods evolve regularly according to the opportunities presented by economic conditions. Conveyancers are advised to refer to the list of methodologies in section 3 of the Law Society Mortgage Fraud Practice Note and also be aware of the advice in the SRA Bogus Firms and Identity Theft Warning Notice. • Summaries of some of the known methodologies related to identity and value fraud are given on the following slides.

  25. The risk to firms • Identity fraud methodologies • Some of the knownmethodologiesfor identity fraud include: • impersonating deceased individuals; • impersonating conveyancers; • inventing fictitious law firms or fictitious branch offices of genuine law firms; • applying to the Land Registry to change the contact address of the registered owner, particularly for vacant properties, and then impersonating the owner; • use of false passports, payslips and utility bills; • use of genuine documents in a false name; • creation of fake companies, particularly impersonating branch offices of large well known companies.

  26. The risk to firms • Value fraud methodologies • Some of the knownmethodologiesfor value fraud include: • Back-to-back sales with inflated value; • misrepresentation of income on the application; • significant under-valuation; • off-contract payments; • undeclared deposits from third parties; • non-arms-length sales involving companies; • unusual ownership structures or complicated re-sale arrangements to avoid tax; • use of incentives to obscure the true value; • after-the-event mortgage applications.

  27. CQS – Understanding Mortgage Fraud 3. Managing the risk

  28. Managing the risk 3.1 Risk management Framework Regulatory requirements of the SRA Handbook “ [Principle] 8…[You must] run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles. O7.3 …identify, monitor and manage risks to compliance with all the Principles, rules and outcomes and other requirements of the Handbook… O7.4 …maintain systems and controls for monitoring the financial stability of your firm and risks to money and assets entrusted to you by clients and others, and you take steps to address issues identified. O7.5 …comply with legislation applicable to your business… O7.6 …have a system for supervising clients’ matters, to include regular checking of the quality of work by suitably competent and experienced people. ”

  29. Managing the risk CQS requirements The CQS Core Practice Management Standards (CPMS) require a CQS firm to have a risk management policy (CPMS 1.1), an anti-money laundering policy (CPMS 1.2) and procedures in relation to mortgage fraud (CPMS 1.3). The AML policy must include: ‘a: the appointment of a Nominated Officer usually referred to as a Money Laundering Reporting Officer (MLRO) b: a process for making disclosures within the practice and by the MLRO to the authorities c: identification checking of: - own client - conveyancer acting for the other party d: training of personnel e: the proper maintenance of records.’

  30. Managing the risk In relation to mortgage fraud: ‘[CQS] Practices must have procedures in relation to the avoidance of involvement in mortgage fraud including: a: the person responsible for the procedures b: a documented review of the procedures at least annually, to verify they are in effective operation across the practice’ (CPMS 1.3). A CQS firm will also have a procedure in place to: ‘c: maintain lists of different conveyancing types of work that the practice will and will not undertake including any steps to be taken when work is declined on grounds that it falls outside acceptable risk levels. This information must be communicated to all relevant staff and must be updated when changes occur.’ (CPMS 3.5) In relation to new instructions, a CQS firm will need to ‘document how decisions will be made as to whether to accept new instructions from existing clients or instructions from clients who have not instructed the practice before’ (CPMS 5.2).

  31. Managing the risk • 3.2 Risk Assessment • A risk assessment for each new matter will be carried out by the person responsible for allocating work in the conveyancing department or the fee earner instructed by a client. • Such an assessment will be conducted according to the firm’s policies and procedures and will cover the possible risks associated with the carrying out of the transaction. Some of the questions addressed by the assessment might include: • are there any unusual features to the transaction, the property or the instructions you have received? • has the matter been allocated to an appropriate fee earner with the necessary skills and experience to carry it out? • has consideration been given to the element of risk in terms of money laundering: • is it a high value cash purchase? • is the client previously unknown to the firm? • is there no obvious reason why you are being instructed?

  32. Managing the risk 3.3 SCOPE OF DUTIES TO THE LENDER Lenders’ requirements Following a number of negligence claims made by lenders in the early 1990s, it became obvious that many solicitors were unclear about the extent of their duties in cases of joint representation. Many firms recognised the borrower as their client but were vague about the duties owed to lenders. This problem was exacerbated by the fact that each lender had different instructions, and the requirements within them for the solicitor were increasing. An attempt was made to agree standard mortgage instructions, which culminated on 1 October 1999 with the introduction of the CML Lenders’ Handbook and revisions to Rule 6 of the Solicitors Practice Rules to restrict the scope of solicitor’s duties in joint representation cases (see ‘Conveyancing Rules OK’ [Gazette], 12 May 1999). The lender’s requirements are set out in the instructions to the conveyancer and usually incorporate the provisions of either the CML Lenders’ Handbook or the BSAMortgage Instructions. It will help to minimise the risk of mortgage fraud if the up-to-date instructions are followed correctly.

  33. Managing the risk Duties to the clients It is important for conveyancers to remember that, where they are instructed to act for the lender and the borrower, they have an equal duty to act in the best interests of both clients. This duty derives from Principle 4 of the SRA Handbook 2011: ‘[You must] act in the best interests of each client’. It is reinforced by General Obligation 2 of the Law Society Conveyancing Protocol: ‘Where acting for a lender as well as for a buyer/seller, the duties owed to the lender are no less important than they are for any buyer/seller, subject to the nature of the instructions.’

  34. Managing the risk • 3.4 MANAGE the risk of client identity fraud • The CML Lenders’ Handbook and BSA Mortgage Instructions require that: • ‘You must follow the Law Society's guidance relating to money laundering and comply with the current money laundering regulations and the Proceeds of Crime Act 2002 to the extent that they apply’ (para.3.1.3/para.B11). • Anti-money laundering (AML) obligations - client identity • A solicitor’s obligations under the Money Laundering Regulations 2007 include: • to establish procedures relating to ‘customer due diligence’ (CDD); • to undertake CDD to identify and verify the client’s identity before establishing a business relationship or carrying out an occasional transaction; • to identify and, applying a risk-sensitive approach, verify any beneficial owners, and obtain information on the purpose and intended nature of the business relationship; • to conduct ongoing monitoring of a business relationship on a risk-sensitive and appropriate basis (see the Law Society’s Anti-Money Laundering Practice Note).

  35. Managing the risk In short, you need to ask questions to satisfy your obligations under the Money Laundering Regulations and to check for possible mortgage fraud. Having asked the questions, you need to ensure that the information is recorded in your CDD sub file and that you ask for documentation to back up the information the client has provided. How far you have to go back in your enquiries and how much information you need will be dictated by the transaction and the perceived level of risk. All property transactions carry an element of risk in this respect. Anything which is unusual about the transaction or client should be a matter of concern and be investigated further. Assessing the level of risk from instructions Firms need to take a risk-sensitive approach to determine the extent of the CDD required. A firm may document in a ‘risk register’ the level of risk posed by the different instructions it is likely to receive and predetermine the extent of CDD required for different risks.

  36. Managing the risk • For example: • Low risk • A client you have acted for before and see face to face. • Medium risk • A new client from the local area or moving to the local area who you meet face to face. • A referral from an existing client, who you see face to face. • A corporate entity. • High risk • A new client who has no connection with the local area and you may not see face to face. • A corporate entity from a foreign jurisdiction, particularly where it is difficult to obtain information. • An assessment of risk should be made at the outset and at each stage after whenever you learn something new. Remember that transactions which appear to be low risk at the outset may change.

  37. Managing the risk • Referrals • Anything that is unusual or different should be regarded as a warning sign. This includes things which, whilst not routine, may not at first sight appear threatening. • For example, a new client’s request for a remortgage to be completed quickly because the funds are required for another purchase is not unreasonable or suspicious in itself. However, where that client is also a first referral from a mortgage broker who has begun referring clients to you because ‘you get on with it’, it may be warning sign to prompt you to ask further questions. • You should always consider: • How well do you know the broker? • Will you meet the client? • Are you able to complete full CDD without difficulty, or are you put under pressure to complete the matter without delay? • Is there a veiled threat that there will be no more referrals? • Ensure that all your referrers of work are reported to the Head of Conveyancing or Senior Responsible Officer and that all new sources are thoroughly vetted.

  38. Managing the risk • It is always flattering to receive work as a result of a referral. However, if you receive instructions from a client from outside your area and there is no apparent reason why he has instructed you, you should exercise caution, consider why, and perhaps ask questions. • Similarly work referred from a broker may not be all that it seems. Consider: • Why is the broker sending you work? • Are these reasons genuine and plausible? • Is there anything unusual about the work? • Will you meet the client? • Is the broker local? • How well do you know the broker? • Is there a common factor (e.g. the same firm acting for the other side) in a series of referred transactions? • Firms with conveyancing business that is weighted heavily to a particular type of property, buy-to-let for example, or heavily reliant on a small number of referrers may be more vulnerable to fraud. Such factors may also influence the SRA’s risk profiling of the firm.

  39. Question Question - Managing the risk Is the following statement True or False? Click to select your answer. You are asked by a mortgage broker to act for a client who has already exchanged contracts to buy a property. You are told the client used to work for a law firm and knows what he’s doing, but that he needs a solicitor to deal with the mortgage and to complete the purchase and registration. There is considerable scope for mortgage fraud in this 'unusual' sort of transaction so you will need to carry out very careful CDD and ask the buyer a number of questions. True False

  40. Question Question - Managing the risk Is the following statement True or False? You are asked by a mortgage broker to act for a client who has already exchanged contracts to buy a property. You are told the client used to work for a law firm and knows what he’s doing, but that he needs a solicitor to deal with the mortgage and to complete the purchase and registration. There is considerable scope for mortgage fraud in this 'unusual' sort of transaction so you will need to carry out very careful CDD and ask the buyer a number of questions. True False The correct answer is True.

  41. Managing the risk • Clients you don’t meet in person • If you don’t meet a client face to face, the Money Laundering Regulations require you to carry out ‘enhanced due diligence’ (reg.14). • The Law Society recommends: • ‘In applying the risk-based approach to the situation you should consider whether it is appropriate to: • seek further verification of the client or beneficial owner’s identity • obtain more detail on the ownership and control structure of the client • request further information on the purpose of the retainer or the source of the funds, and/or • conduct enhanced ongoing monitoring’ (Anti-Money Laundering Practice Note, para.4.9). • Enhanced due diligence can often be achieved by use of third party electronic verification.

  42. Managing the risk • Difference between AML obligationsand lender’s instructions • The CML Lenders’ Handbook and BSA Mortgage Instructions have identical specific requirements for proof of a client’s identity (para.3.1.6/para.B13). However, adequate proof of identity for the Handbook/Instructions may not meet the solicitor’s AML obligations and vice versa. • ‘3.1.6 Unless you personally know the signatory of a document, you must ask the signatory to provide evidence of identity, which you must carefully check. You should check the signatory's identity against one of the documents from list A or two of the documents in list B: • List A • a valid full passport; or • a valid HM Forces identity card with the signatory's photograph; or • a valid UK Photo-card driving licence. • any other document listed in the additional list A in part 2.

  43. Managing the risk • List B • a cheque guarantee card, credit card (bearing the Mastercard or Visa logo) American Express or Diners Club card, debit or multi-function card (bearing the Switch or Delta logo) issued in the United Kingdom with an original account statement less than three months old; or • a firearm and shot gun certificate; or • a receipted utility bill less than three months old; or • a council tax bill less than three months old; or • a council rent book showing the rent paid for the last three months; or • a mortgage statement from another lender for the mortgage accounting year just ended; or • Any other document listed in the additional list B in part 2.’ (CML Lenders Handbook).

  44. Managing the risk • Verifying the client’s identity • Take a moment to consider your firm’s procedures for verifying identity, for instance: • who copies the passport in your firm? • is this delegated to the receptionist or office junior? • is the passport checked? • Verifying the client’s identity involves more than obtaining a copy of the client’s passport. You are not expected to be an expert but it’s prudent to make some basic checks, such as: • Most importantly, does the photo in the passport look like the person in front of you? The passport could be more than 10 years old and people change. (If the photo looks different, what action would you take?) • Does the passport number at the top match that in the code at the bottom? • Does the date of birth match that at the bottom? • Does the passport have a letter ‘M’ for a male or ‘F’ for a female? • Has the passport been granted for a period not exceeding 10 years and 9 months?

  45. Managing the risk • Whilst conveyancers are not required to be experts in forged documents, they should not ‘ignore obvious forgeries’ (Anti-money Laundering Practice Note, para.4.3.3). Conveyancersare advised: • Not to simply accept documents at face value, especially if there are any other suspicious signs. (It’s possible to acquire ‘replacement wage slips’ from companies that specialise in ‘recreating’ them for people who have ‘lost’ the originals.) • To be wary of clients who provide copies rather than producing the originals. • To ensure the identity given corresponds with the information on the mortgage documents and the bank accounts relating to the transaction. • Signatures • Does the signature on the passport match the client’s signature on your terms and conditions of business? • Do you subsequently check that the signature on the mortgage deed matches the signature on the passport?

  46. Managing the risk • The Mortgage Fraud Practice Note gives the following guidance on signatures: • ‘You must ensure that you and your staff only witness signatures where you have actually seen the person signing the document. If any contract or mortgage documents have been pre-signed, you must either: • verify it was pre-signed in the presence of a witness[; or] • have the documents re-signed in your presence • You should take note of all signatures on transaction documents and consider examining and comparing signatures with other available documentation if: • you notice a discrepancy between signatures on the documentation • you have concerns about the identity of any of the parties to the transaction • the transaction is higher risk because it exhibits a number of the warning signs of mortgage fraud.’ (Para.5.5.)

  47. Managing the risk • The CML Lender’s Handbook (at para.3.1.7) and BSA Mortgage Instructions (para.B.14) have the same additional requirement regarding the signatory: • ‘You should check that any document you use to verify a signatory’s identity appears to be authentic and current, signed in the relevant place. You should take a copy of it and keep the copy on your file. You should also check that the signatory’s signature on any document being used to verify identity matches the signatory’s signature on the document [that] we require the signatory to sign and that the address shown on any document used to verify identity is that of the signatory.’ • Warning signs • You should look out for anything that appears suspicious or unusual, such as: • Does the age of the seller appear at odds with the length of time the title documents show he has been the registered proprietor? • Does the apparent owner occupier ask you to address correspondence to a different address?

  48. Managing the Risk of Fraud • Various reasons may be given for using another address. For instance, the client may claim he: • has put furniture into storage and is living with a friend; • has moved in with his partner; • has had trouble with post being stolen; • does not want to receive letters as he prefers email for speed and will call in to sign paperwork. • Does the client promise to bring or send paperwork but fail to do so? • Does the client continue to postpone the first meeting with your firm? • Does a company which is the registered proprietor change its name? (Remember that even if the name changes, the company registration number remains the same.) • Check that the company for whom you are acting has not been incorporated after the date the company was registered as proprietor of the property (see Property and Registration Fraud Practice Note, para.3.3). You should not enter into a business relationship with a client until you have completed and are satisfied with your CDD, unless the transaction is “low risk”.

  49. Question Question - Managing the risk Is the following statement True or False? Click to select your answer. You act for the buyer. In response to a request for proof of identity, the buyer sends you a copy of a utility bill less than three months old which has been downloaded from the Internet. This is unacceptable for your CDD. You should insist on supply of an original bill. True False

  50. Question Question - Managing the risk Is the following statement True or False? You act for the buyer. In response to a request for proof of identity, the buyer sends you a copy of a utility bill less than three months old which has been downloaded from the Internet. This is unacceptable for your CDD. You should insist on supply of an original bill. True False The correct answer is True.