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Self-Certs And Money Laundering

Mar 23, 2008
The Treasury has recently warned financial services firms to tighten their belts with regards to gaps in their services which could lead to money laundering activities by their clients. In particular the Government is targeting self-certification mortgages and the ability for applicants to defraud lenders by providing false information on mortgage applications.

Self-certification mortgages have been utilized by unscrupulous individuals for several years to obtain high levels of credit which is secured against UK properties by providing false information to the lenders. Knowingly providing information that is false or misleading is a criminal offense and can result in heavy fines and time in prison if the applicant is caught and prosecuted.

The reason that self-certs are targeted for this treatment is that proof of earnings is not required by the applicant. This type of mortgage product was first designed for self-employed workers and other people who have an income but cannot prove it through salary and wage slips. The lack of information requested by lenders of self-certification mortgages increases the prospect of applicants exaggerating or lying about their incomes when applying for a home loan.

The Government believes that self-cert mortgage fraud extends beyond home owners making false declarations about their income levels in order to obtain a larger mortgage balance. They believe that sophisticated criminal networks and terrorists are also using this loophole to raise money by defrauding mortgage lenders.

This can happen by applying for a larger mortgage than is required on a property, paying the vendor the lower, negotiated price for their home, and pocketing the difference. For this to work collusion needs to exist between the mortgage broker, property surveyor, and conveyancing solicitor. A fourth party is required to apply for the mortgage and buy the property but all four parties could potentially profit from the activity.

Because of the ease in which this fraud can be conducted and the alleged enormity of the problem the Treasury has warned UK mortgage brokers to be wary of either allowing their clients to exaggerate their incomes on self-cert mortgage application or turning a blind eye to it. The end result might be that the broker in question could be helping criminal gangs or terrorists to raise capital for their activities.

Because of this, the Treasury has warned financial services firms who help clients commit this offense to shape up or face action from the Financial Services Authority. The FSA has recently conducted their own survey into the problem and found that many firms are not only implicit in such fraudulent activities but are also unwilling to change their practices. The FSA has warned that such brazen disrespect of the rules could result in severe disciplinary activity.

For the individual mortgage applicant who applied for a self-certification mortgage the message is clear - lying about your income on the mortgage application or exaggeration your income in order to get a bigger home loan is clearly a criminal activity. The potential consequences of fines, prison time, and a criminal record makes this type of activity unattractive and with the Government gaining more interest in stamping it out it is clearly an activity to avoid.
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