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Why do property transactions give rise to enhanced due diligence checks?

Jul 2, 2018

Not a day goes by when we are not faced with news of identity theft or online fraud, and so it should be no surprise that if you are buying or selling a property, as your lawyers, we will ask you for several documents to confirm your identity and also query any large amounts of money you have in your bank account.  Here Pam Kamel, Paralegal in our Property team, explains in more detail why we ask these questions, and explains how they can keep you from fraudulent or criminal activities on your property.  

Property transactions are different from other areas of law where questioning and supporting evidence to this degree will be asked due to the large sums of money involved.  Property lawyers are more susceptible to criminal activity such as money laundering, which, according to an article published recently by a popular tabloid, costs the UK economy £24 billion yearly.  As a result, the Solicitors’ Regulation Authority, who authorises and regulates many law firms, has warned that law firms are one of the key targets for those wishing to launder money.

“It is for this reason that property lawyers must put in place rigorous systems and procedures to ensure they are not used as a channel to facilitate criminal activity,” explains Pam.  “Not only do we have regular checks in place for our clients’ safety, we also undertake regular training on how to identify suspicious behaviour and possible money laundering attempts; an area we are regularly audited on.”

Lawyers can also be personally impacted if they are seen to be negligent, and could face imprisonment or a fine, a suspension, or a complete strike off from practicing as a lawyer, as well as much unwanted media attention.   “There have been recent cases where Courts have found lawyers liable for losses caused to property purchasers who have been victims of fraud, even where those lawyers representing buyers were not purposefully negligent,” continues Pam.  “These cases highlight why we ask these questions; our clients should not feel we are automatically suspecting them of criminal activity but we are asking these questions to protect them as much as, if not more, than ourselves.” 

Protecting against fraudulent sellers

In the case of P&P Property v Owen White and Catlin LLP, a buyer lost £1 million to a fraudulent seller. The seller’s solicitors, Owen White, were originally instructed to act for the fraudster, a fact they were obviously not aware of at the time, who wanted to refinance the property.  Part way through the transaction, the fraudster decided to sell the property, as opposed to refinance it.  They alleged to live in Dubai, and their identity documents therefore came from Dubai.  When Owen White carried out money laundering identity checks, the checks came back saying there was not enough data to verify that the person resided or had any connection with the address in question. Owen White justified this to themselves with the fact the fraudster lived in Dubai.

The buyer therefore sued the seller’s solicitors for their failure to spot and avoid fraud, despite the warning signs that arose. The case went to several tiers of courts, and the Court of Appeal came to the decision the seller’s solicitors were liable for the error.

In a similar case, Dreamvar (UK) Limited v Mischon de Reya, the buyer was defrauded of £1.1 million. The seller’s solicitors (Mary Monson Solicitors) did admit that necessary checks to verify the identification of their client had not been carried out and so the buyer’s solicitors (Mischon de Reya) made a claim against them. The Court of Appeal came to a similar decision as that made in P&P v Owen White and Catlin LLP.

In an unsuspected twist, the buyer’s solicitors were also found to have shared liability with the seller’s solicitors, even though they claimed that they had acted reasonably and honestly.

Pam concludes, “These cases should bring some solace to buyer’s as the Court of Appeal commented that it is the seller’s solicitors who are best placed, and therefore mainly responsible for proving the identity and spotting potential fraudulent activity by the seller.  Here at Warner Goodman, while we cannot guarantee the safety of your money, we carry out all the necessary strict checks and have years of experience in identifying concerning behaviour.  If you are buying or selling our property and you are not asked strict identity and financial questions by your chosen law firm, you should be concerned about whether you are protected.  We strive to provide all our clients, buyers or sellers, with the highest standard of client care and quality while also protecting your property, assets and funds.”

If you have any questions regarding your property and or would like to find out more about the necessary checks we maintain, you can contact Pam or a member of the team on 023 9277 6524, or by email at pamelakamel@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.