Money laundering is a serious offense, especially when used by terrorist organisations. When assessing risks on commercial mortgage loans, lenders take steps to spot potential laundering activities.
As detailed in an August 2017 MortgageFinanceGazette.com article, in the past, most money laundering activities connected to property were from cash buyers, usually by overseas businesses paying cash for commercial properties. Money laundering using property purchased with a commercial mortgage is less common. As cash purchases come under more scrutiny from authorities, it could be that money launderers will turn to commercial mortgage deals as they raise fewer alarm bells.
When a commercial mortgage is applied for, a number of checks are made by the lender and their solicitor to get to know the borrower. At this stage, the criminals use legitimate businesses and bank accounts to provide deposit funds. The laundering process happens when the criminal repays the mortgage early using illegally gained cash. There are fewer checks on early payments.
In June 2017, stricter controls to prevent money laundering were introduced. Risk assessments must now take into account the country where the business operates and the type of business. Technology is helping by providing a large amount of data that lenders can use to spot potential money launderers.
Checking is not confined to new borrowers; lenders are required to check and monitor the status of existing loan clients too.
Money laundering using commercial mortgages is not a huge problem, but by being more diligent, lenders are doing their best to combat its threat.