document; any indication that a party is not acting on his or her own
behalf; or that a party is attempting to hide his, her or the borrower’s
identity, as well as any indication of identity theft. When identified, red
flags should be reported internally per an institution’s AML program.
Many times, red flags simply require additional diligence to satisfactorily address concerns. There should be a process for addressing red
flags, however, as well as determining when to escalate them and how
to document results. It is critical to document anything identified as
suspicious and the rationale used in determining the decision on
whether or not a suspicious activity report (SAR) is filed.
Awareness of red flags is critical to an institution’s effectiveness in
reporting suspicious activity to assist law enforcement investigations
and for identifying fraud and laundering risks affecting the institution.
In 2016, a California residential mortgage fraud and money laundering
scheme cost financial institutions more than $16 million. Multiple parties involved in the scheme purchased more than 30 homes through
straw buyers using fraudulent loan applications. The straw buyers
secured more than $30 million worth of residential mortgages before
the scheme was uncovered.
According to a Department of Justice press release, “The loan applications contained materially false information as to the straw buyers’
income, employment, assets and intent to occupy the residences. The
Another mortgage scheme from 2015 involved a former real estate
developer purchasing a multifamily residence and then selling the
individual units as condominium units. According to the U.S. Department of Justice, the developer and two co-conspirators fraudulently
recruited straw buyers, promising them that they would not have to
pay anything upfront or make any mortgage payments along the way,
while also agreeing to cut them in on a share of the profits once the real
estate was sold.