Home Legal & Compliance Stamping down on money laundering in the housebuilding boom  

Stamping down on money laundering in the housebuilding boom  

by Jackson B

By Geoff Dunnett, Professional Services Director, Shieldpay

The property sector in the UK is experiencing a significant period of fluctuation. When the pandemic hit, the property market came to a halt and construction was altogether ceased. Fast forward a few months and the sector is experiencing a boom.

The Chancellor’s decision to temporarily scrap stamp duty and the Prime Minister’s call to put housebuilding at the heart of economic recovery has kickstarted activity again.

But while it’s encouraging to see the Government prioritising housing there is a more sinister side of the property industry which needs attention before it spirals out of control.

A major problem across the property industry, be it property sales or construction, is the prevalence of money laundering. Bricks and mortar has long been a good front for fraudulent activity and this is especially true when property prices are rising fast.

Residential property has been seen as a good way to launder money. Property purchased years ago with illicit funds could well be sold for a profit now and offer a great investment return for fraudsters. Equally, the property market may be an appealing place to dispose of some illicit proceeds with fraudsters looking to reap the returns of the rental market.

At the other end of the spectrum, large construction projects can also be fertile ground for fraud. Often, they involve large sums of money and costs which are relatively easy to inflate. Not to mention the fact that they have the advantage, for fraudsters, of involving many different people, organisations and contracts, which makes it possible for criminals to disperse large amounts of money into the economy.

This is a problem that existed before Covid-19 and won’t be erased by the housing minister, Robert Jenrick, waving his magic wand on the planning system.

With the market gradually recovering from the losses of Covid-19, there’s an added risk that money launderers will exploit the unusual circumstances of this time. Housebuilders need to recover their financial losses and will be under pressure to accelerate projects. Queue fraudsters jumping on the opportunity to deposit their dirty money into a sector getting back on its feet.

This means that it has never been more important for thorough due diligence checks to be completed before a project starts, which involves full background checks on contractors, building firms, architects and merchants – all of whom must be required to comply with know your client (KYC) and anti-money laundering (AML) checks.

Furthermore, the pandemic has ushered in the onset of a more digital world. Face-to-face identification and due diligence are being phased out in place of online checks, which in some cases, enhances the risk of money launderers hiding behind false identities. Not only is this a problem for large, multifaceted projects, but even estate agents could be exposed to a higher level of risk when carrying out due diligence and obtaining certified identification documents from an individual buyer or seller.

However, technology can be the solution if applied properly and adopted widely. Developers should adopt technology that makes managing payments easier. There are platforms that can enable borrowers to keep track of capital and allow lender funds to be allocated and disbursed appropriately. And these are especially important where there are numerous parties involved in a project where it’s vital to ensure that funds are kept track of and disbursed in line with the original lending criteria.

Ultimately, for lenders to manage their risk and to view developers as safe and reliable prospects, it needs to be demonstrable that payments will be safeguarded throughout the lifecycle of the project, only ending up in the originally anticipated hands of thoroughly vetted parties.

Some solutions also have the added benefit of being able to streamline KYC and AML checks and make sure that they are done regularly and efficiently. This is technology which can be adopted across all areas and asset classes within the real estate industry.

If the Government really wants the country to “build, build, build” then there needs to be more collaboration with the tech platforms and solutions that are paving the way for safer, more efficient, and more streamlined projects from construction right through to home moves.