According to a recent article by Estate Agent Today, a bad tenant will cost a landlord approximately £33,000 in defaults, legal and eviction costs. In particular, if applicants falsify their financial and residential history, then that leaves landlords and agents across the UK more vulnerable to experiencing these very real financial costs.

In the current uncertain economic environment, where rental housing stock is low, demand is outstripping supply, rental prices are sky high and mortgage rates are spiralling, there will always be an alarming rise of fraud and financial crime.

Apart from the obvious falsifying documents when applying for a rental property there are other red flags that both agents and landlords need to be aware of. 

We take a look at the current issues regarding fraud and crime and what letting agents and landlords can do to protect themselves better.  

How do financial crime abusers exploit the letting industry?

A good starting point is to understand how fraudulent behaviour surfaces and how you can identify unusual or suspicious patterns related to fraud and financial crime. 

Some of the types of things to watch out for are: 

• Upfront cash payments – Whilst it may be great for your cash flow to receive upfront cash payments for renting out a property, it’s also a great way for money launders to rinse their cash. As they evade the regulatory reporting thresholds for cash by making payments from multiple bank accounts and sources. This is something to be particularly aware of if you are a high-end lettings agent. 

• Unusual tenant profiles – By this we mean the rental value being asked may not be suitable to the lifestyle profile of the applicant. This could indicate potential money laundering or tax evasion is taking place.

• Suspicious landlord behaviour - If the landlord is not fully complying with their legal obligations, it could be a sign of the landlord being open to potential corruption and/or bribery. This also means there is a higher risk of money laundering.

• Applicants applying before seeing the property - If the applicant has not viewed the property or has only seen it on the internet this could be a potential indicator of financial crime taking place. So it’s important to understand the reasons why.

• Overseas applicants - Overseas applicants, especially from a high risk third country identified by the EU, FATF and HM Treasury (HMT), that are identified as high risk for money laundering and terrorist financing or subject to financial restrictions/sanctions. It is important to assess the financial crime regimes in countries where the property renter/applicant is located and to identify if the regimes are weak or in a highly corrupt jurisdiction.

• Multiple lets - If multiple lets are being taken up by applicants for no apparent reason, and then being immediately sub-let, this could be considered unusual and a way of passing fraudulent money between hands.

• False documentation – this one is probably one of the things you are most aware of already. With many applicants falsifying documents during the tenant referencing process. Including bank statements, residence documentation and prior landlord/employment references in order to secure rental properties on false pretences. But note, this is not just about amending a PDF documentation, but using advanced software and tools to fraudulently amend financial and residential history. It’s probably a good idea to ask your tenant referencing company what checks and balances they put in place to avoid such scenarios.

• Properties being rented out illegally - A property that is bought or constructed using illegally obtained funds may subsequently be rented out to provide an apparently legal source of income in order to camouflage movements of funds between various jurisdictions (for example, the tenant and the landlord are located in different jurisdictions).

Just because you’re a big agent with a financial services arm to your business, does not mean you’re immune to attacks. Financial criminals do not differentiate on size.  You’re still unlikely to have the same level of defences to protect yourself against financial crime as major banks and financial institutions. This leaves you vulnerable to criminals seeking opportunities to commit fraud and launder money. But there are some steps you can take to protect yourself from criminal and fraudulent behaviour.

What can agents do?

It’s important that agents consider the following to help combat the issues outlined above:

• Technology: technology previously presented a challenge for estate agents, who have previously not had the necessary systems in place to truly understand the level of risk a relationship presents. Technology plays a crucial role in identifying fraudulent behaviour and financial crime.

• Information sharing: Agents and their stakeholders need to share information in a safe and secure way to improve the outcomes and counter financial crime initiatives.

• National Crime Agency and Action Fraud: Filing Suspicious Activity Reports (SARs) to the National Crime Agency is one area where estate agents can drive improvements. Sharing suspicions through SAR’s will help estate agents to better combat the wider prevalence of financial crime in the economy.  Furthermore, a submission to Action Fraud is the appropriate way for estate agents to report instances of fraud and cyber crime, and this can be completed online.

• Policies and Procedures: Having robust procedures to combat financial crime is wise. E.g, Know Your Customer (KYC) is a control procedure where estate agents can assess and identify risks related money laundering, fraud, etc

• Training: Agents should train employees so they’re aware of their responsibilities and the need to promptly report suspicious activity to the nominated officer. 

• Due diligence: Just because someone is willing to pay cash upfront doesn't mean they are going to be responsible tenants. Do your KYC, check ID, Right to remain etc

How can Canopy help?

Here at Canopy, we utilise the latest technology and controls to help agents alleviate the complications and stress of Know Your Customer and customer due diligence on landlords and tenants. They include the following services and processes:

• Experian Delphi credit check;
• Biometric ID verification across 191 counties
• Facial likeness verification
• Sanctions, PEP and Adverse Media checks
• Document verification
• Right To Rent Checks
• Anti-money Laundering Checks
• Savings Verification
• Open Banking Income & Affordability verification

If you need further information or help, please get in touch with the Canopy team to discuss how we can assist you.