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Fighting fraud in the commercial sector

Fraud is a dirty word. Ever since money was invented, people have spent huge amounts of time and effort working out how they can get their hands on more and more of it; and not all of these methods have been scrupulously honest.

Sadly, in the last few weeks, reports are beginning to reach me of brokers attempting a kind of advanced fee fraud. The mechanics of the deal are usually the same.

The client contacts a broker and offers an outline of a deal. The broker says he can place that deal and asks them to submit an appraisal fee of, say, a couple of hundred pounds.

The client does so, and the broker confirms receipt of the details and confirms again that the deal can be done and suggests a low rate and/or high LTV which is not generally available in the market.

The next stage is that the broker charges the client a further valuation or appraisal fee (this is not to be confused with the fees a lender would charge to actually carry out a valuation) of around a couple of thousand pounds.

Assuming the client agrees and pays this fee, the broker then says that the deal is ready to go to offer and that a final fee of around a couple of thousand is needed to complete the formalities. Assuming the client is still willing to go ahead (and few get this far), the final fee is paid, the deal is then usually derailed with requirement of additional security or guarantees which the client is unable to supply. End of transaction.

We have had several examples of this kind of fraud come in to us at the NACFB office. Sometimes it is member brokers who bring us the details after theyve referred one of their clients and have come up against this kind of practice.

Really experienced brokers should know better: if a deal looks too good to be true then it probably is; and if you do have to refer you need to carry out some due diligence.

Luckily, at the moment, the problem doesnt seem to be huge in terms of numbers; its usually the same names that keep cropping up again and again. Nevertheless it is something the Association takes extremely seriously simply because only takes a few bad apples to tarnish the reputation of the whole industry. Zero tolerance is the only option as a good reputation is extremely fragile.


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