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AML and Property Fraud 2021: An Update for Conveyancers
This webinar will look at higher-risk conveyancing transactions, taking into account a range of factors.
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This webinar will look at higher-risk conveyancing transactions, taking into account a range of factors, such as the concealed dishonesty of a client, the nature of the transaction and the vulnerability of an individual disponor.
This presentation will focus on key issues, including identifying relevant risks and addressing major perils.
What are the requirements?
Watch the recorded webinar and review the documents
This course provides 1 CPD points
On completion of this course you will have covered:
Spotting warning signs of vendor property fraud and mortgage fraud
Key issues arising from the Law Society’s latest AML guide
The ongoing debate about paper versus electronic verification
What the Conveyancing Protocol and Code for Completion say about regulatory requirements
Risk factors inherent in transactions that are significantly below market value
Stephen Desmond has been delivering training for over 15 years during which time he has delivered more than 1,800 CPD events to
lawyers from a variety of backgrounds. Delegates at these
events have included practitioners from a variety of size of firms,
ranging from sole practitioners to City Solicitors.
a contributing editor to Butterworths Property Law Service, published
by Lexis Nexis, writing on the complex law relating to long and
short leases. He writes for the Solicitors Group on the subject
of commercial property. He
has run a university-accredited distance-learning course for aspiring
paralegals in the subject of residential conveyancing.
practicing Solicitor with several years post-qualification
experience, Stephen has represented many business and private
clients, including property investors and local authorities.
This webinar will look at higher-risk conveyancing transactions, taking into account a range of factors.
Welcome to this presentation brought to you by myself Stephen Desmond, on behalf of data law entitled AML and property fraud risks. This particular webinar is designed as an update for conveyances and as those of you who are practicing convince was well, no, this is an evergreen subject and a topic on a matter which is fundamental to the survival of a law firm. And also it's important to keep up to date with the ever changing landscape of fraud and the laundry this webinar well look at higher risk conveyancing transactions and instructions taken into account. A range of factors such as concealed dishonesty of a client and when there are signs that a client might be dishonest or that a transaction might be potentially fraudulent or perhaps that an individual might be at risk of being exploited given that they might own a very large property that's mortgaged and they themselves may be significantly at risk. First, I wish to consider some key aspects of the money laundering regulations. The first is if for example, you are ever instructed by a lender under the terms of the UK finance linda's handbook, you will know that for example, if you are a solicitor, you are required by the handbook to follow the Law Society's guidance relating to money laundering and to comply with the current money laundering regulations. So I will consider both professional guidance and also key aspects of the regulations themselves and the first that I wish to refer to because it provides valuable background information to a key aspects of this presentation is reliance and as it said on the slide, one relevant person, for example, a sister or a license convenience Sir can rely on another relevant person. And relevant person is defined by the money laundering regulations as including solicitors, license convinces and certain other practitioners, such as auditors and external accountants. So one convincer for example, Well, one license conveying sir can rely on another license contains or a solicitor to conduct customer due diligence cDD measures on their behalf. However, the convincer who is relying on the third party carrying out that client identification, the CDD measures, it's ultimately liable for any failure by the third party to carry out the required measures. And I'll show you an example of this as we go through this particular presentation. What this regulation does not prevent is customer due diligence measures being applied by an outsourcing service provider or agent provided that the relevant person remains liable for any failure to apply such measures. Moving on to our next slide. And this refers to regulation 19 of the money laundering regulations, which states that a relevant person, such as a law firm, must establish and maintain policies, controls and procedures to mitigate and effectively manage the risks of money laundering and terrorist financing identified in any risk assessment that person has undertaken. Now, the issue of policies, controls and procedures requires that there is a process in place for identifying and scrutinizing certain types of high risk cases, such as a transaction, which is complex or unusually large or where there is an unusual pattern of transactions or the transaction has no apparent economic or legal purpose. And we will come back to the issue of risk assessment because there has been some recent guidance on that specific issue. The final point that I just wish to refer to is the obligation to carry out enhanced customer due diligence measures in certain circumstances where a transaction is complex or unusually large. There is an unusual pattern of transaction or the transaction or transactions have no apparent economic or legal purpose. Now, as I promised at the beginning of this recording, I would refer to key aspects of the money laundering regulations but also update you on some more recent professional guidance in this high risk area of practice And the Law Society in 20 21 via the Legal sector affinity group did update quite substantially. It's a moral guidance and I just want to focus on some key aspects of this. The first is the guidance on reliance and what the Law Society AML Guide says is that reliance does not necessarily mean obtaining certified copies of documentation from other regulated professionals for due diligence purposes. Mhm. And it may not always be appropriate to rely on another person, especially where there is a high risk of money laundering requiring enhanced due diligence measures. Furthermore, the guide warns that you cannot rely on due diligence carried out by another party without fulfilling certain qualifying conditions. It's beyond the scope of this presentation. To look at those conditions, but I will just highlight the headings for each one of the sections which sets out the conditions. And this is when you are relying on a 3rd party when granting reliance to someone else, relying on somebody in the UK. Under the guidance on relying on somebody else who is based elsewhere in the world Next. The Law Society Practice Guide also goes into more detail in relation to examples of red flags and there are so many examples which are set up. I can only in the short presentation, select a few of them, but these include red flags relating to the client. For example, if the client is excessively obstructive, secretive or unwilling to meet you or if the client asks you for shortcuts or unexpected speed in completing a transaction. The Law Society guidance, unsurprisingly, then loss looks at source of funds. Red Flags and the source of funds can be unusual due to a variety of factors, such as funds been received from or sent to high risk countries. A client using multiple bank accounts without good reason, purchasing an asset with cash and then rapidly using it as collateral for a loan. Just one example of that not cited in the guide is where a fraudster uses dirty money to buy a property with cash within a short space of time we mortgages, that property takes the proceeds of the mortgage disappears without a trace, leaving no repayment made getting back to the red flags. There is a request to change the payment procedures previously agreed upon, without logical explanation. So what we can see here is the Law Society based on maybe some hypotheticals, but also I know some real life examples where these red flags have arisen and the red flags are giving us a warning that there may be cause for further concern. But as this is an update rather than an entire overview of the subject, I will continue looking at what the most recent Law Society amL guidance says about Red Flags. Another section in the practice guide, which refers to red Flags is the nature of the transaction. So this can be unusual patterns of transactions which have no apparent economic purpose, significance differences between the declared price and the approximate values as judged either by the legal professional or in respect to some reference. Just a quick aside, I've mentioned on that, as many of you will know, it's not always apparent when a transaction is at an undervalue or indeed a significant undervalue. But of course there could also be fraud involving overinflated property prices as well. And it's a difficult one for the convincer who is not a valuer, but it may be that certain factors of the transaction point to a significant risk of the property being disposed of at a significant undervalue or overvalue back to back transactions. This is where somebody, for example, by the property And disposes of it within, say, six months, rapidly increasing the price. And you might think, well, what's unusual about that? Just a quick aside on that if you have a client who is a property developer, the property developer may well carry out extensive renovation which justifies the quick turnaround resale within a few months and at a much higher price. But are there circumstances such as a property being resold at a much higher price than being bought when there appears to be no objective justification at all for that significant difference? Another source of red flags that the law society has highlighted its property work and this is inclusive of ownership issues such as where there is sudden or unexplained changes in ownership, such as flipping where you have a property purchase and it is then sold subsequently for a much higher price to the same buyer. But different fraudsters are involved and they're using different identities. And it wasn't so long ago, there was a real life case where this happened, the property was being flipped. So a fraudster Impersonating the real owner sold the property to be b did a back to back sale to see for a much higher price. There were various factors which could have pointed the buyer in both cases to look out for the risks of fraud which subsequently became apparent lost sight email bell Guide then guide also looks at red flags relating to funding methods and mentions that transactions not involving a mortgage have a higher risk of being fraudulent though a payment being made through a mainstream banking system is not guaranteed to be clean. Indeed, I would just add to that that the practitioner must carry out their own due diligence independently of whether a bank has done the same. Another red flag for funding issues is large payment from private funds, especially if your client has a low income and there are payments from a number of individuals or sources. Of course aml checks would need to be done and checking the source of funds would need to be done in respect of every one of those individuals. But there is also a risk that there could be some kind of fraud or money laundering going on. It's beyond the scope of this presentation being an update to look at the issues of reporting these matters to your money laundering. Porting officer who then decides whether to report them externally. But clearly these red flags will highlight where there might be a cause for suspicion which then prompts you to then make those reports. Just also to highlight, just also to highlight that this era have rib Utes too solicitous firms for failing to comply with the rules that I've just mentioned. So one firm was acting in the sale of a residential property where the client was not the genuine owner of the property. The sorry, found they had never met him in person so therefore the firm should have carried out enhanced customer due diligence to verify his identity. Remember I mentioned about reliance earlier. The NRA also said they had obtained from the client copies of his I. D. Documents that had been certified By a 3rd party as true copies of the original. However, the 3rd party had not actually verified the genuine identity of the fraudster or the client. Now that just highlights that if you are relying on another 3rd Party to do the id checks then they must actually verify the identity of the client who was instructed you. This firm was also rebuked for taking several months to notify the era. Once it became aware of the fraud, they promptly notified their professional indemnity insurers, but not the sa ra another Sole practitioner. This time in 2021. Both of these cases, in 2021 was rebuked for preparing a declaration of trust on the instructions of a fraudster who did not even own the property. The signed declaration purported to give equity in the property to a 3rd Party who was a vulnerable elderly person who genuinely thought on the back of this declaration of trust that this fraudster had kindly given him a share in the equity of this property and in reliance on this fraudulent declaration, this vulnerable person provided the fraudster with significant funds. The solicitor was rebuked because while the client had provided the solicitor with his passport, he had not produced any evidence of his residence or evidence that he owned the property in question. Next I want to look at the issue of paper versus electronic documentation and there has been skepticism I've heard convinces expressed about electronic checks, but I just want to mention a couple of cases where the actual documentation produced to the convincer was actually fraudulent. So what are the signs of this? So in PMP property otherwise known as the dream market? What happened here? Was there was a fraud in two different cases involving two separate properties in London, both worth More than £1 million pounds both and mortgaged the fraud debased abroad and who did not live at the property. Let's look at the paper documentation issues in these cases. The first one is the Court of Appeal noted that in the case of the first fraud, that the signatures on the fittings and contents form and property information form did not correspond to the signature on the passport. I might think I don't ordinarily carry out those kind of checks on an ordinary sale when you have a high risk transaction. High value transactions, then such checks may be necessary. Not my words, the Court of Appeals ruling. The vendor was also pressing for a rapid completion. I think it's also worth mentioning that the solicitor in England as the client to have his transfer signed by a solicitor who was practicing in Dubai and it turned out that the signatory was actually a debt collector who had been suspended from legal practice. So there was some risks involved in the PNP property case. The second case in this appeal was dream far. And what really struck me about this case is you had one office of the conveyancing firms in the Northwest and it had another firm in London but the client instructed in the Northwest even though the client was known to be based abroad and their client had apparently gone to a sole practitioners solicitor based in London and asked him to certify copies of a driving license and tv licence as true copies on their face. Remember I mentioned earlier, it wasn't referred to in this case by the court of appeal. But reliance is not just getting a third party to certify that documents are true copies. But anyway, getting back to the documents provided first. A Tv licence is not mentioned as being a source which the law society practice notes allows has been useful for the verification of UK based clients. The other oddity was the driving license that apparently only been issued a few days before being certified by the solicitor And it was valid for just over three years. Now I would order everything a driving license lasts for a fixed term usually 10 years but on occasion it can Be three years for medical reasons or ill health, no other steps were taken by the firm to verify the client's identity and what the court of appeal and the firm itself later accepted was that the firm should have insisted that his clients attended for a meeting at its London office with proof of identity and the proof of address. What happened in this case is the net sale proceeds within sent to a firm in china that dealt with something to do with the purchase of plant and equipment. The money was never recovered just briefly. Law Societies protocol and it's code. So the Law Society convincing protocol Which was updated in 2019 just say use the most up to date version of the code for completion by post. It also says take steps to satisfy yourself And to satisfy any 3rd party obligation as to the identity of your clients and continue to keep this under review. It also mentions that the bias convincer will expect the seller's convinces to comply with the undertakings in the Law Society Code for completion by post. And if the seller's convincer is unwilling to do this, this should be communicated to the buyers complain sir. At the earliest stage only. Now looking at the code which does have to be formally adopted. Remember in the Ta 13 replies to requisitions, there is a specific question which asked the seller's convinces to confirm that they will adopt the code on completion in the light of the fraud in dreams far, the code was updated to clarify and codify what was stated in day in the dream of our case. That all references in the code to seller are references to the person or persons who will at the point of completion be entitled to convey the legal and or equitable title to the property. And all references to the seller's solicitor are to the solicitor, purporting to act for the party named as the seller in respect of the contract or purported contract that the buyer has entered into in order to acquire the property. Furthermore, a new paragraph was added, which stated in terms that where the seller solicitor holds or receives money receive for completion, the sellers lister receives and or holds that money on trust for the person or persons who provided it to be either paid away only in respect of a completion, in which the seller remember, the true owner executes and delivers a valid conveyance or transfer, or it is repaid to the person who committed it if completion does not take place. So, in other words, the separate undertaking in the code to have the seller's authority to receive the purchase money on completion is according to the notes accompanying the code and undertaking that the seller's solicitor has authority from the true owner of the title to the property named in the contract to receive the purchase price, and that such person is at the point of completion entitled to convey such title as the contract. States will be conferred next moving on to vendor property fraud and will even look at one buyer fraud. The dream of our case mentioned previously was an example of vendor property fraud but I want to return to the subject of fender property fraud in the context of recent updates. So the NRA's money laundering reporting officer issued an annual report For the year ending October 2020 and observations in this report included the key themes of money laundering related activity remain broadly unchanged since the previously. Yeah, including money laundering linked to residential property conveyancing, aborted property transactions and money laundering linked to vendor fraud was identified as a key theme in the SARS that we reported the Esra in 2020 also published its risk outlook for AML which included a spotlight on vendor fraud and the NRA warned certain risk factors that firms should be cautious about. For example, there is pressure to complete very quickly, minimal work is instructed, for example, no searches are requested, funds are coming from or going to a third party who is unconnected. The NRA also issued an update In April 2021 entitled House sale fraud reminder, which states that red flags might include ID documents that do not look genuine, for example, differing typeface on passports, all driving licences. So I certainly encourage practitioners to keep their knowledge of these issues up to date by reading the original report and documents to which I have just referred. However I mentioned previously to firms that have been rebuked for perceived failures to correctly apply the money laundering regulations and associated guidance. I will now look at one issue where in september 2021 two solicitors were suspended from practice for a period of two months, two years in one case, in 18 months in another, they had acted for a client Who had engaged in fraudulent quick sale property schemes. Between 2013 to 2000 and 17, the solicitors disciplinary tribunal found that they had been reckless in their failure to recognize the hallmarks of fraud and money laundering in the dozens of transactions they worked on in This four year period, they breached the trust of their vulnerable clients in need of cash by sending life changing sums of money to third party companies repeatedly, in circumstances where there appeared to be no basis to do so. Also, they had not obtained clients informed consent to make these payments. The more senior of the two solicitors had also entered into a referral arrangement and received fee income as a result, thereby compromising her independence and that of the firm. West Midlands police, by the way, launched a separate investigation into fraud and money laundering offenses carried out by the firm operating this quick sale scheme. But that's not all the law society has also been very active in providing advice on mortgage fraud. So the Law Society updated Its mortgage fraud practice note in January 2020 and the practice note for focuses on very specific risks, such as large scale mortgage fraud, which can arise in Buy to let property purchases or three mortgages. Use of non bank lenders, particularly I would imagine a lender that's not an institutional lender that subscribes to the UK finance lenders, handbag flipping and back to back transactions that we mentioned previously when properties bought and sold and resold quite quickly if not simultaneously with the purchase. The practice notes also highlights other methodologies involving mortgage fraud. So these include after the event mortgaging where fraudsters use private funds to purchase a property, then mortgage the property and subsequently disappear, failing to make any payments at all. Another one to look out for are court orders for sale obtained by fraudulent means. Where criminals target unoccupied and boarded up property, apply for account. Ical order for judgment against the owner for non existent debt. The property is then sold pursuant to court order for sale, it's sold at an inflated price to another criminal who mortgages the property and disappears. There are also risks pertaining to identity and ownership, such as a client who has apparently owned the property for many years but has very vague or limited knowledge of the property. Member of case not so long ago, where a fraudster was Impersonating the true owner, but apparently had been unaware that the property being an H. M. O. That was unlicensed had had a planning enforcement noticed registered against it. And also the fraudster had indicated in the property information form that there was a single person, one person living in the property When in fact being an H. M. O. there were eight or 9. The practice guide also highlights warning signs pertaining to value. Such as the mortgage is for the full property value or there is money left over from the mortgage after the purchase price has been paid and you are asked to pay this money to the account of someone you do not know or two. An introducer under the section protecting your firm. The practice guide says that fraudsters may ask you to the use the reliance provision of the money laundering regulations to minimize the number of due diligence checks that you conduct. There's also warning about formal restrictions requiring that a conveyance to certify a client side. And the warning from the law society. Is that be aware that placing a restriction on the title is in some cases equivalent to guaranteeing the identity of the registered proprietor that said if you're selling a property and agreeing to adopt the loss I. D. Code for completion by post. That is exactly more or less what you are doing in relation to the person making the sale, let's look at an actual recent case which went all the way to the Supreme Court. What you had in this case was MS grande owner and a mr Mitchell had entered into a written agreement Which related to four properties, including the property concerned in this case on Bueller Road and in this case, Maria grande owner agreed that she would take out mortgage loans in respect of these four properties, but agreed that Mr Mitchell would in effect have control of the properties so he would pay all the monthly mortgages as and when they became due receive rents from tenants, carry out repair work and Pay her 50% of the net profit when any of the buff properties are sold. So the freehold of 73 Bueller Road was originally purchased by MS Hedley And in about July two 2002 Mitchell paid 30 £1000 to Miss Hedley for the grant of 125 year lease of part of Bueller Road comprising a rear ground flat. On the date of purchase, he entered into a loan facility of £45,000 for a period of six months secured by a legal charge over the property with B. M. Samuels. Three months later, he then entered into a form of purchase whereby he purported to sell the property to Miss Grondona at three times the price that he had paid a few months earlier, and she managed to obtain a Birmingham mid shares mortgage advance in the amount of 70 6000 pounds bearing in mind the stated purchase price was £90,000. Remember we have been warned about frauds involving cases of properties being sold within a short space of time of purchase at a much higher price. Just also as a quick aside, let's not also forget that the UK finance lenders handbook does require a convincer to report to London if the registered proprietor has been registered for less than six months. But getting back to this case, there has been fraud involved in this case, the respond to MS grande owner dishonestly misrepresented on the mortgage application form, that the sale from Mitchell was not a private sale, that the deposit monies were from her own resources and she was managing the property. The purpose of the fraud was to raise capital finance for Mitchell from a high street lender, which he would otherwise not have been able to obtain. For some strange reason, the solicitors in this case failed to register the transfer and the Birmingham mid shares mortgage. But Let's just put two aside that specific point. The main point from our perspective is not the solicitors mistake, but the fact that MS Grondona was a knowing and willing participant in the mortgage fraud against Birmingham Mid shares. We don't know any more information. It's not possible to tell from the court judgment whether the solicitor notified Birmingham Mid shares That the property had been bought three months earlier for a third of the price is now being resold at. I highly doubt that that's the case, but certainly the failure to make that report probably was the primary factor in helping the client to facilitate this particular fraud. What about any arrangement though, which is designed to conceal the true beneficial ownership. Now, you mentioned the case of Sansom versus Gardner. So what we have here is and this will link on by way of background information. Two cases that I will refer to in just a moment. But Sanson versus Gardner was a case where the property was purchased in the name of the defendant who then resold the property and purported to pocket all of the net sale proceeds. The purchase of the property had been substantially funded. Bye the claimant in this case and at the time of purchase, the claimant had provided basically all of the funds, but told his solicitor that will sort of trust declaration out after completion of the purchase. What I think is really important is that if your client asked you to do a similar thing, then ideally you want the trust declaration to be sorted out before you exchange contracts. But what was curious about this case is that the property had been put in the first defendant's name to enable the claimant to evade payment of capital gains tax on any subsequent resale. And I just mentioned that Because in April 2020, the government brought in rules which stated that UK residents were if they sold the property in respect of which they own capital gains tax, They would be liable within 30 days of disposal to submit a particular return to HMRC and also within 30 days pay money on account of their tax liability. This rule change was brought in for non UK residents back in 2015. I'll just mention There have been four cases where the purchaser was pursued by HMRC who imposed penalties for failing to make the report when they re sold their properties when they weren't eligible for principal private residents relief for example. And in all four cases, the client blamed their solicitor for not warning them about the Cgt risks. Next I want to refer to sham agreements and first, by way of background, I wish to refer to the definition of a sham from Lord Justice. Dept lock in the snuck in London and West Riding case and no Justice Dept Lock said that the word sham means Axton or documents executed to the parties to the sham which are intended Buy them to give to 3rd parties or to a court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations if any, which the in parties intend to create. And authorities show that this principle as to identifying whether a transaction is a sham is not limited to bilateral documents such as contracts. Book could also b applied to a trust unilaterally declared by a settler and it is the intention in that case of the settler alone, which is decisive in the case of a unilateral declaration. Just a brief example of that, by way of background, to illustrate the point and then I will move on to a recent case where a sham was alleged to have existed Midland bank versus Wyatt. The circumstances of this case very simply stated was that the property had been purchased by Mr Mrs Wyatt as a family home. They then execute the legal charge in favour of midland bank. The bank then obtained judgment and a charging order nisei for unpaid sums against Mr Wyatt. He claimed the charging order should not be made absolute because a few years earlier he had entered into a declaration of trust given his equity in the property to his wife and two daughters, Kirstie and Olivier referring to the declaration of trust. The court noted that it stated that the property was held in the shares and it also been executed by Mrs Wyatt who was not the subject of the charging order. Nice. I it was declared that Mr mrs Wyatt from the date of the declaration would hold the property one half for agatha, the wife And one quarter each for the two daughters. Mr Wyatt then held the I'm trust declaration in the safe at the family home and the solicitor involved in this case did recollect advising Mr Wyatt to make such a deed to protect his family and remembered drawing up the deed, but the deed had never been returned to the solicitor by the client. And some time before the charging order, Nisei, he had removed the deed from his house safe and handed it to another firm of solicitors. The wife said that yes, she had signed it. She didn't recollect signing it, but in matters to do with family finances, she usually relied on her husband. The court was satisfied. This declaration was a sham and did so on the basis that Mr Wyatt used it for a rainy day. He had never had any intention of endowing his Children with his interest in the property, which at the time was his only real asset. It was executed by him not to be acted upon to be put to be put in the safe for a rainy day. Therefore it was a sham and accordingly the declaration was unenforceable. So that provides us with some background to our next case, which is a more recent case in which the snook case was also considered what you had here was a gentleman called Mr Charles who jointly owned property and he had been made bankrupt in 2011. He owned one property jointly with a Miss Monroe. He also had titled to another property registered jointly with himself and a Miss Benjamin one Property, Cuckoo Avenue. The other property. Rydell Gardens. Now let's not forget that if his name is on the legal title, as a joint owner, the bankruptcy vests all of his beneficial interest in the property in his trustee in bankruptcy, but he remains as a legal trustee on the title. Now, after his bankruptcy, he engaged in discussions with Mr Agarwal who controlled various companies with the word victors in their names. And the purpose of these discussions was so that Mr Agarwal would primarily raise funds from other people by borrowing monies so that Mr Charles could have his bankruptcy and old and have existing mortgages on both of these properties. Removed. Problem was is that neither Miss Benjamin nor Miss Monroe, who were named in both transfers of properties, actually signed the deed and the purchaser in both of these cases was a company controlled by Mr Agarwal with the name victors in its name. So the companies were referred to by the court As V one and v. two. A day before the simultaneous exchange, a completion of both of these properties. The court annulled the bankruptcy of Mr Charles. Clearly, on the basis that Miss Monroe and Miss Benjamin, the respective car owners would sign the contract and transfer. So this had been a fraud. As a result, a second bankruptcy was made against Mr Charles. In fact, he procured the annulment of his bankruptcy of their fraud and the court also noted that the company's named as V one V two had also been controlled by a fraudster. So his discussions with Mr Charles had also been fraudulent. So what happened is in both cases the companies have taken out mortgages on the properties. So what the court did is It looked at section 63 of the law of property at 19 25, which basically states that a conveyance operates to pass all the transfer als interest in the property to the buyer unless the deed says otherwise. So, as far as the two transfers, because neither Miss Monroe nor Miss Benjamin had executed the respective transfers, the transfers could not take effect at law and as a result, Neither v. one or V two as the trans free were entitled to be registered as the proprietor of the property. So the next argument was this must have been a sham arrangement in the sense that the transfer of mr Charles on his half share was a sham. And the court said the tr ones were not a sham as between mr Charles and V. One or V two as the case may be because they intended the transfers to have legal effect. So because the Tr ones only Bound v. one and V two and Mr Charles, their effect was to Vest in the transfer three in respect of both properties. A half share of the equity of each property. Therefore, the charges granted by the triads freeze in respect of each property also dis entitled the mortgage e from being registered as proprietor, Although by virtue of Section 63. Each charge was effective as a charge over the transferees. Equitable interest in the property. The court, also referring to the earlier grand donor case I referred to stated that it is possible for purported transaction to be both fraudulent anna sham, but it is also possible for a fraudulent transaction not to be a sham and to have some effect. Yeah. The court also in this case applied fraud and equitable principles to confirm that even though the fraudsters v want to be too would benefit in some way from the court judgment. The most important thing was to deny the frost Mr Charles enjoying a benefit to which he was not entitled moving on to property and registration fraud. The Law Society updated its practice note, Property registration fraud in June 2020. I just proposed to highlight just a few aspects of what was said by the Law Society in this updated practice note first, the warning given about the risk of impersonation that risk applies to conveyances and lenders. There is a section in the practice guide on seller frauds and the Law Society state that you must seek evidence from your client, which shows a clear and sufficient connection between them and the property you have been instructed to sell. You should check that the evidence provided is consistent with the information on the Open Electoral Register. There's also some examples of questions that should be asked of a client who does not reside at the residential property. The practice note also considers certain categories of owners who may be more susceptible to register title fraud. This can include a sole owner, an elderly person who is in a care home, who owns a property owners living abroad owners whose property is empty or talented. Also, the Law Society note that the hmm land registry have identified certain properties as potentially being particularly vulnerable to transactional and registered title frauds, including high value properties without a legal Charge. Remember the two London properties in the dream of our case. High value properties with the legal charge in favour of individual living overseas and property is undergoing redevelopment. Also, the practice note makes reference to overseas clients and makes a suggestion that one way of establishing the client's identity would be to obtain a notarized copy of the client's passport and proof of address, asking the notary to have those documents legalized or have an apple steel added. I now wish to refer back to electronic customer due diligence measures. So, having previously noted that paper documentation does not necessarily eliminate risk of the documents being provided to a solicitor being apparently authentic, but still being fraudulent. What I would note is what the money laundering regulations of 2017 specifically state about electronic customer due diligence measures. So, for the purpose of the relevant regulation, information may be obtained from a reliable source which is independent of the person whose identity has been verified where it is obtained by means of an electronic identification process. That process is secure from fraud and misuse and capable of providing assurance that the person claiming a particular identity is in fact the person with that identity to a degree that is necessary for effectively managing and mitigating any money laundering or terrorist financing risks. And there is more reference to use of a trust service which I have referred to in the accompanying note. The legal sector affinity group issued an advisory note in april 2020 which was related to covid but also mentioned the money laundering and terrorist financing risk in legal practices. And this stated that as an alternative to face to face documentary verification. Legal practitioners may adopt or further utilize electronic means of I. D. And V. Identity and verification where appropriate to the risks present in the client or transaction, the guidance and gives examples of such methods but warns that if you are considering whether to use a digital I. D. M. V. Service, you must carefully consider whether it provides the assurances which are needed. If we then look at the Law Society's Am All Guide of 2021 to which I previously referred. There is a section on technology and this mentions a range of reg tech tools as they call them, which can be helpful but they are not a guaranteed solution to AML or terrorist financing risks. Nor are they a guarantee that by using them that you are in compliance with the money laundering regulations. Ultimately responsibility for choosing to use such electronic verification services ultimately sits with the legal practice and practitioner. But if we go further into section 7.3 of the Practice Guide, the Law Society state in an increasingly digital age, it is clear that non face to face customer onboarding can no longer be viewed as always high risk. The use of electronic I. D M V is increasingly viewed as being as robust as traditional verification methods, such as physical documentary evidence such as passports, driving licenses and the like. The use of E I D M V is not without risk or human error. And it also mentions negative information sources used by E. D. And V providers, such as deceased persons lists may also help affirm gain comfort in the verification of the clients or beneficial owner's identity by E I D N V. So this is just a slide which two summarizes some of the points which are made by the Law Society as regards technology. But what it really indicates is that it is the responsibility of the legal practice to be satisfied with a degree of comfort and assurance that is provided by the verifier or verification provider. Just mention that the land registry has issued a practice guide 81 and this is about encouraging the use of technology in identity verification. The land registry practice guide makes clear that this practice guide is separate to the land military requirements for how confirmation or evidence of identification is to be provided as part of an application for registration. Yeah. The enhanced level of check which is defined by reference to a set of requirements is collectively known as the land registry. Digital Identity standard. What the land registry also state is it? If a conveyance sir carries out the steps described in the standard land registry will not pursue any recourse claim against the conveyance sir resulting from the registration of a fraudulent transaction on ground. The identity checks were inadequate. There are four requirements but each requirements contains quite detailed guidance. So requirements 1, 2 and three must be carried out by all conveyances acting for a party to the transaction requirement. One is obtain evidence requirement to check the evidence Requirement three match the evidence to the identity requirement for Is an additional check to be carried out by the convincer who represents a transfer or borrower or less or in the transaction. And requirement for is to obtain evidence to ensure the transfer or borrower or less or is the same person or entity as the owner. The land registry also indicate that a conveyor who carries out these requirements to achieve the standard should remain vigilant during the rest of the transaction. That said. It is worth mentioning that the land registry still regards these standards as optional. Notwithstanding. The use of the word must in the phrase that I mentioned earlier. There is a separate recording that I will be doing for data law on land registry, digital identity standards and electronic signatures on deeds. But really I want to just provide a summary of some of the matters that we have referred to already. Just by way of reminder, we've looked at some key aspects of the money laundering regulations on reliance. This is on a 3rd party to carry out customer due diligence. We've seen what the Law Society, Animal Guide says about what reliance is and what it isn't. We've also seen firms rebuked by the NRA for not carrying out reliance in the manner which was required. We also highlighted the red flags which are highlighted in the Law Society's 2021 a.m. L. Guide. And it's fair to say that list of examples of red flags has understandably grown as new risks emerge. We've looked at the debate of is paper documentation safer than electronic verification. And probably it's fair to say that electronic verification is becoming more sophisticated and secure, but neither method is entirely free of risk and bend the fraud is certainly a type of fraud of concern. I mentioned it in the PMP and dream of our cases. We've also seen warnings about vendor, we've also seen the sra issuing recent warnings about vendor property fraud. The law society has updated its practice note on mortgage fraud risks and so it's really important that we be aware of these issues and a reminder in the victors case where mr Charles had forged the signatures of two co owners that it's really important to look at the circumstances of the case. Yes. His bankruptcy order was in all the day before the sales of these properties in this case. But what due diligence had the solicitor in either case done in respect of the co owners? Remember they had had their signatures forged and when you're dealing with cases such as Mr Charles where there is a bankruptcy and even though his bankruptcies been annulled and you've got to co owners and the proposal is to pay off all of the mortgages. Well it's clearly important that enhanced due diligence measures be undertaken in such cases. We also looked at the land registry digital identity standard for which the land registry has provided a practice note and that brings me to the end of this presentation. I want to thank you for joining me and for listening in. I hope that you have found this update useful and I do hope that some state in the future you'll be able to join me on another webinar for data law. Thank you