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Fraud Awareness- A guide to protecting you and your business

Fraud Awareness A guide to protecting you and your business


Contents The Importance of Fraud Awareness

• Prevent Fraud & Protect Yourself

• Your Responsibilities & Knowing Your Customer

• Reporting Concerns & Suspicions

• Tipping Off

• Lenders

• Court Cases

• Money Laundering

Top Fraud Concerns

• Income & Employment Fraud

• Scheme Abuse

• Credit Abuse

• Deposit Fraud

• Credit Abuse

• Transparency

• Introducers

• Out of Area

• High Risk Areas

• Cancelled/Declined Cases & Non- Provision of Documents


The Importance of Fraud Awareness

Prevent Fraud & Protect Yourself

What is the definition of mortgage fraud?

Mortgage Fraud is a deliberate attempt made to deceive, materially

misrepresent or avoid legal obligation, in order to obtain property and/or

financially gain from the mortgage advance.

MAB have a clear stance on this; we have a zero-tolerance policy towards those who are or have been involved in fraud, or/and those who should have

reasonably been aware that it was taking place.

The transaction requires the provision of one of the following by the applicant

and/or associated third parties

• Non-Disclosure

• False application Information

• False Documentation


Your Responsibilities & Knowing Your Customer

You, as the adviser, are responsible for the application you submit to a lender.

The following responsibilities are an FCA requirement;

• Customer Due Diligence

• Record Keeping

• Reporting Suspicions

You are not only responsible for obtaining the required documentation to

support the mortgage application, you are also responsible for carrying out the

necessary due diligence checks to ensure you truly ‘know your customer’.

Your customer may tell you they are employed and provide you with payslips

and bank statements but how do you really know they are telling the truth?

What actions are you performing to verify the information your customer has

supplied you with is legitimate?

Unfortunately, many advisers are removed from lender panels because they

have unknowingly submitted fraudulent mortgage applications. In the majority

of cases it is because the adviser has not taken the time to carry out the

necessary due diligence checks prior to submitting the full application which

may lead the lender to believe the adviser is either complacent or at worse

complicit.

Know Your Customer- Toolkit

The following tools will be invaluable to you and will aid you in validating the

information your customers have provided you with. Using these systems

should form a part of your standard due diligence checks on every case.

Google

Google Maps/Street View

192

LinkedIn

Companies House

Credit Safe

Rightmove/Zoopla


Experian/Call Credit/Equifax

EIDV

Your FCM

The Risk Team (Phil Rosenbrock, Nicola Mawby & Dawn Bradshaw)

Fraud Prevention Checklist


Reporting Concerns & Suspicions

As an adviser in a regulated sector you are required to report potential risks

and suspicious activity.

If you have concerns about a case or believe a case may pose a potential risk,

then first and foremost do not submit a full mortgage application.

Complete a fact find, obtain the required documentation and discuss your

concerns with your FCM in the first instance. If you require any further advice

or guidance please complete a Risk Referral Form and send it to the Risk Team

in Derby who will then review the case.

Some examples of where you would send the risk referral form are:

• High Risk Country Deposit

• Payslips and Bank Statements not corresponding

• Lack of case transparency or plausibility

The Risk Team may ask you to provide/obtain more information. This would

not be classed as ‘tipping off’ providing you don’t make your customer aware

of your concerns.

*A risk referral form must be completed in all cases where you are dealing

with a PEP (Politically Exposed Person)

A Suspicious Activity Report (SAR) should be completed where you have

knowledge or suspicion, of where there are reasonable grounds for having

knowledge or suspicion that somebody is engaged in, or attempting money

laundering, or terrorist activity.

Money Laundering Reporting Officers (MLRO)

Sharon Trinder- MLRO

Phil Rosenbrock- Deputy MLRO


Tipping Off

There are 2 tipping off offences;

1. Disclosing a Suspicious Activity Report (SAR)

It is an offence to disclose to a third person that a SAR has been made by any

person to the police, HM Revenue and Customs, the NCA or a nominated

officer, if that disclosure might prejudice any investigation that might be

carried out as a result of the SAR.

2. Disclosing an Investigation

It is an offence to disclose that an investigation into a money laundering

offence is being contemplated or carried out if that disclosure is likely to

prejudice that investigation.

The following would not be classed as tipping off;

• Asking the customer more questions to better understand their situation

• Asking the customer to explain large credits going in/out of their bank account

• Asking the customer to provide additional documentation

• Asking the customer to clarify something you feel is unclear • Telling the customer you are unable to assist them with their application

and walking away from the case


Lenders

Lenders have increasingly sophisticated systems for identifying potential fraud.

The number of mortgage brokers removed from lender panels in connection

with fraud and quality issues has also increased significantly. If the lender

believes the adviser has been complicit, turned a blind eye or didn’t follow

procedures properly then they can be removed from the lender’s panel.

In some cases, the earliest indication that an adviser has a problem is

confirmation from the lender that they have been removed, and there may not

be a right of appeal. The end result can be that an adviser finds it difficult to

remain authorised or obtain authorisation from elsewhere. Even if they are

fortunate to remain authorised they will no longer be able to hold themselves

out as representing the whole of market.

Some reasons for removal may include:

• Submitting inflated income figures and/or false income documents

• Submitting business on behalf of another person

• Submitting buy to let applications as residential or residential as buy to

let (Scheme Abuse)

• Non provision of requested documents/high level of cancelled cases

• Lack of transparency or plausibility on cases submitted

If a lender asks for additional information or documentation, then failure to

supply this may lead them to take an adverse view of you and/or the client

unless you provide an explanation. It is therefore important to communicate

with the lender as to why information or documents cannot be provided and

keep a record of the contract.


Court Cases

Where mortgage fraud is found, there is always a possibility that you and/or the customer could be taken to court which is why it is so important to carry out due diligence and retain detailed fact finds/notes.

If you were summoned to court regarding an application you had submitted, how confident would you feel that you had carried out all of your responsibilities as the adviser?

The main 3 lines of defence used against mortgage professionals are:

1. The broker/mortgage adviser did it

The defence counsel will imply that the applicant told the truth and the broker falsified their details to get the case approved in order to be paid a procuration fee

2. The client is the victim of impersonation fraud

The defence counsel will challenge the broker, lender and solicitor over the identification of the applicant. They try to portray their client as a victim of impersonation and generally try to imply that the various parties involved in the mortgage process didn’t correctly identify the applicant

3. General confusion

The defence counsel will ask a lot of irrelevant/technical questions to make the mortgage process appear more complex that it actually is. Once the jury loses interest or is very confused, the defense then, ask them how an applicant (who is not the expert) would be able to place a fraudulent mortgage application


Money Laundering

Money Laundering is defined as;

“The way in which criminals conceal the origin and ownership of the

proceeds of their criminal activity, so that it appears to have come from a

legitimate source and appears to be clean”.

Money is the prime reason for engaging in almost any type of criminal activity.

Money-laundering is the method by which criminals disguise the illegal origins

of their wealth and protect their asset bases, so as to avoid the suspicion of

law enforcement agencies and prevent leaving a trail of incriminating

evidence.

Terrorists and terrorist organizations also rely on money to sustain themselves

and to carry out terrorist acts. Money for terrorists is derived from a wide

variety of sources. While terrorists are not greatly concerned with disguising

the origin of money, they are concerned with concealing its destination and

the purpose for which it has been collected. Terrorists and terrorist

organizations therefore employ techniques similar to those used by money

launderers to hide their money.

The Proceeds of Crime Act (POCA) defines situations where people are said to

be engaged in Money Laundering.

These include if an individual: conceals, disguises, converts or transfers

criminal property enters into an arrangement which they know or suspect

might help another to acquire, use or control criminal property acquires, uses

or takes possession of criminal property themselves.

The activity does not have to occur in the UK and criminal activity abroad will

be treated as though it has been committed in the UK.

There are 3 stages to the process;

1. Placement

2. Layering

3. Integration


There are four main offences which staff and advisers need to be aware of under the Proceeds of Crime Act;

• Arranging

• Acquisition use and possession

• Concealing

• Tipping off

If you are found guilty of tipping off or failing to report an individual suspected

of money laundering you could be at risk of a prison sentence, fine or both.


Top Fraud Concerns

Income & Employment Fraud

How to spot the Red Flags!

Things to watch out for/check:

• Google the customer name, employer name and/or company name (if

self-employed) to check;

o It exists!

o How long it has been established/how large/small it is

o Who owns the company (could it be the customer?)

o Could the customer work for a family member?

o Use Companies House, Creditsafe and Duedil to verify details

o Carry out a Street View search to check the premises look reasonable

• Print off all payslips and look at them at the same time;

o Is the employee number reasonable for time at firm and size of firm?

o How long has the customer worked at the company, if its 3 months or

less, could this be false or staged income? What was their previous job?

o Are the payslips very basic? Is this reasonable?

o Do the payslips all match?

o Check for any spelling mistakes/general mistakes

o Is the customers pay reasonable for their age and job role?

o Is the net pay the same amount every month and is it always a round

figure? Is this likely taking in to account tax and NI?

o Do the YTD figures add up?

o If the customer has two jobs’, then check it is reasonable- quite often a

2nd job is a false job

o Obtain a P60 where possible (even if the customer has changed jobs)

• Cross reference the payslips, bank statements and P60 to make sure the

following correspond;

o Amounts

o Payment Method

o Pay Date

o Employer Name and Address


o NI Number

• Ring the employer where possible to verify the customer works there

(avoid using any telephone numbers provided by the customer)

Scheme Abuse- Hidden Residential



BTL (Hidden Residential)

• FTB’s- what is their explanation for buying a BTL before a residential and

is it plausible?

• Could the applicant afford this mortgage on a residential basis? If not,

then carry out further checks to satisfy yourself that the case is a

genuine BTL

• Is this the applicants first BTL? If so why now? How old are they? Does

their explanation seem plausible?

• Where is the deposit coming from? If the applicants are being gifted the

deposit, then ask yourself how plausible it is that somebody would want

to help them purchase an investment property

• Always obtain proof of deposit

• Check the applicants current address to see if it is being marketed for

sale or letting. If it is, ask the customers to explain what their plans are.

If you are not happy with their answer or doubt their intentions, then do

not proceed with the case

• Is the BTL property some way from their current residence but near to

where they work?

• Compare the new BTL property with their current residential property. Is

the BTL bigger, worth more or in a more desirable area? If so, speak to

the customer and ask them for an explanation

• Contact the selling agent to ask them what they believe the nature of

the transaction to be


• Sell landlords insurance where possible. If the applicant tells you they

are arranging it themselves, ask them for a copy of the policy document

• Never take what the customer says at face value

Scheme Abuse- Hidden BTL



Residential (Hidden BTL)

• The new residential property is not within reasonable commuting

distance of the client’s job

• The applicant is not selling their current property e.g. they are doing a

Let to Buy

• The applicant has a current residential property and says they are

downsizing when there is no obvious reason to do this and/or it is not

plausible

• The applicant says they are relocating to another part of the country

• The applicant states they are going to let their current residential out

and move in with family

• Compare the new property against the property they are purchasing,

does it seem plausible?

• Applicant lives with family/friends/rents and already owns a number of

BTL’s but says they now want to purchase a residential property

• Compare their existing residential property against the property they

are buying. Does the transaction seem reasonable and plausible?

• Contact the selling agent to ask them what they believe the nature of

the transaction to be

• Sell home insurance where possible. If the applicant tells you they are

arranging it themselves, ask them for a copy of the policy document

• Never take what the customer says at face value


Deposit Fraud



• A deposit may have come from the proceeds of any type of crime. Look

for evidence of this on bank statements and satisfy yourself that the

clients could have realistically saved the amount of money they say they

have

• Gifted deposits are perfectly legitimate but in some cases may be

fraudulent. Obtain a gifted deposit letter and donor bank statement to

evidence the source of funds. If the gifted deposit is coming from

overseas it is recommended you get 3 months donor bank statements

and the applicants bank statement verifying the funds have been

received from the donor

• Is the deposit coming from a loan rather than savings, do the bank

statements show a recent loan; do the bank statements support a

history of saving?

• Is the source of deposit from abroad; is the country on the ‘Risk’ list and

in need of being cleared by compliance before you can proceed?

• Some lenders do not accept deposits from overseas, you must always

ensure that the lender will accept the source of deposit before

submitting an application

• Are multiple contributions to the deposit being made; this could indicate

an attempt to get around currency controls by splitting the money prior

to leaving the country and then recombining it in the UK or may be an

attempt to cause confusion

• Is the client vague about the source of the deposit or unwilling to

provide evidence?

• Most lenders will not accept a deposit from a director’s loan account

and will also be cautious about the funds coming from the customer’s

business

• Be aware of potential for fraud on new build incentives or valuations


High Risk Factors

Lack of Transparency

The transparency of a case is extremely important to a lender and it is not

uncommon for a lender to decline a case where they feel there is a lack of

transparency. A lender needs to be able to fully understand the

case/transaction without having to make additional enquiries. If the lender

has to contact, you or the customer due to lack of transparency this could not

only result in the lender declining the case but it could also lead the lender to

doubt you as an adviser.

You, as the adviser should know the customer and transaction better than

anyone which is why it is imperative that a detailed fact find is retained on file

and sufficient notes are made to explain any un-clear or complex aspects of

the case. It is not acceptable to retain information in your memory alone. Best

practice is to document everything so that your case reads like a book. Ask

yourself, if a lender carried out a full review of one of your cases would

everything be completely transparent and would it make sense to them?

Example Case:

• FTB residential purchase application submitted

• Customers age 50 and 55

• Currently live and work in London

• Purchasing a property in Glasgow

• Both applicants employed by London based firms

• Payslips, bank statements and P60’s on file

• No notes or additional information on the file

The lender felt the application lacked transparency which concerned them.

They were forced to contact the adviser to seek clarification. Unfortunately,

the broker could not remember what the customers had told him and he had

not made any notes on his file. The lender placed the case on hold and asked

the broker to contact the customers again to provide an explanation.


Introducers

Introducers are often vital to the success of a mortgage adviser or business.

However anecdotal evidence from lenders is that 80% of fraud cases originate

from introducers. Vigilance in this area is one of the most significant things you

can do to protect yourself.

All ‘business related’ introducers have to be registered and approved by MAB

before leads can be accepted. It also makes sense to do your own due

diligence on any introducer you enter in to an agreement with, particularly if

they approach you first. If you are in doubt as to whether or not an

introducer agreement is required, please contact the Risk Team at Derby for

advice.

An introducer is an individual or professional business that introduces business

to you or recommends new customers to you on a regular basis and could be

any of the following:

• Estate Agents

• Accountants

• Solicitors

• IFAs

• A Friend

• An Existing Client

• A Colleague or Ex Colleague

• A Local Business (financial or non-financial)

• A Translator

Regardless of the source of lead, whether it’s a friend, colleague or from

another professional business it is imperative that you treat all cases with the

same level of due diligence.




• Multiple recommendations from the same client over a short space of

time

• Introduced business that is out of area/non face to face

• Someone who flatters you by saying you were recommended from a

previous client for whom you did a great job. Always ask for the name of

the individual who recommended you and document this on the file

• A ‘shadow’ introducer who acts as a conduit for leads from other

introducers e.g. property clubs

• An unknown introducer who contacts you out of the blue and asks if

they can start passing leads to you

• An introducer who says who says they are too busy to handle all the

leads they get

• An introducer who is qualified to submit mortgages but says they have

decided to stop doing mortgages themselves

• Somebody who insists on being involved in the mortgage application

process or wants to attend the appointment with the customers

• An introducer who is vague about how their business operates and how

they generate leads


Out of Area/Non Face to Face

It goes without saying that there is automatically an increased risk when you

deal with a customer who is not local to you OR you have not seen face to face.

Fraudsters often target brokers who are not local to them because they believe

it is far easier to commit fraud when they deal with somebody who isn’t an

expert in the area they live and also because it is far easier to lie/commit

mortgage fraud over the phone that it is face to face.

As a result of this increased risk it is your responsibility as the adviser to ensure

that additional due diligence checks are carried out.

Points to bear in mind/check:

o Request original copies of all documents (send back by recorded

delivery)

o If the customer is not local to you ask them why they want to use you?

Why are they not using a local broker? Is the explanation plausible?

o Make sure the case notes are detailed and transparent

o Record the source of the lead and look out for any trends

o Do not believe everything the customer tells you however nice they are

o Always attempt to see customers face to face where feasible e.g. meet

the customer at a half way point

o Make sure all the standard due diligence checks are carried out in

addition to the above- ensure you have verified all aspects of the case


High Risk Areas

There are a number of areas in UK that pose an increased risk to Mortgage and

Identity fraud. It is important to understand that this does not mean that all

customers from these areas are attempting to commit mortgage fraud

however it is worth considering that there may be an increased risk within

these areas so familiarise yourself with them and be extra vigilant where

necessary.

Also remember mortgage fraud can be committed in any part of the country

and not just in the fraud hotspots.

Top 10 Fraud Hotspots in London

East Ham

Romford

Woolwich

Croydon

Barking

Dagenham

Ilford

Walthamstow

Lewisham

Enfield

Top 10 Fraud Hotspots Outside London

Essex

Middlesex

Reading

Slough

St Albans

East Sussex

Leeds (Bradford, Wakefield)

Manchester

Birmingham

Humberside (Hull)

*Source- Experian 2015


Cancelled/Declined Cases & Non- Provision of Documents

Cancelled/Declined Cases

If you, the customer or the lender cancel a case for any reason, please make

sure you provide detailed notes regarding the cancellation/decline and upload

all relevant e-mails received from the customer or lender on to the case.

A high % of cancelled cases can often be an indication of attempted mortgage

fraud, system manipulation or at the very least poor sales quality so it is

extremely important that the reason for cancellation is transparent and well

documented.

If a lender declines an application without an obvious explanation, try and find

out the full reason and discuss this with the Risk Team before attempting to

place the case elsewhere.

Non- Provision of Documents

If a lender asks for additional or specific documents relating to a case, you have

submitted and the documents are NOT provided within a reasonable amount

of time it is highly likely that the case will be declined and marked as ‘non

provision of documents’.

Many lenders now monitor the number of ‘non provision of documents’ cases

and report back to the network. A high % of non-provision of documents cases

could indicate attempted mortgage fraud, a poor sales process and/or a lack of

due diligence.

This highlights the importance of obtaining and verifying all the relevant

documents PRIOR to submitting the full mortgage application. There are no

exceptions to this rule and an ‘urgent’ case is not an acceptable explanation.

It is also worth considering that as soon as you submit a full mortgage

application the customer no longer has any incentive to get the requested

documents to you.

Please be aware that submitting a full mortgage application prior to obtaining

all required documentation would be a breach of MAB’s compliance policy.