The sanctions screening company said brokers who fail to carry out the checks on clients risked prosecution and a seven year jail term.
It also claimed that the majority of mortgage broker networks appeared to be lax on financial sanctions checks and did not inform broker members of the legal requirement to screen clients for sanctions.
Financial services firms have a legal obligation under the Proceeds of Crime Act to ensure that clients with whom they do business are not on the sanctions list and guidance from the Financial Services Authority states that firms should be able to demonstrate that their clients are not on the HM Treasury sanctions list.
But Chris Clare, director of Sanctions Search, said most firms rely heavily on the guidance they receive from their networks.
He said: “What we are finding is that the major networks appear not to be protecting their smaller broker clients – which in our view leaves them very vulnerable to punitive fines for not adhering fully to the law.
“Firms are under the impression that if the network has not told them to screen against the sanctions list they cannot be prosecuted for failures as a result – which is clearly incorrect and frankly asking for trouble.”
Individuals involved in dealing with a customer are vulnerable to committing the criminal offence which underpins the legislation, which can result in seven years in prison.
Clare also claimed that “the network can probably wriggle out of its obligation as it did not deal with the client”.
And he said: “It is a matter of deep concern that networks are taking such risks with professional brokers’ liberties by exposing them to this level of risk. That said, it is the individual’s responsibility to ensure he or she is not breaking the law.”
Research performed by Sanctions Search said that some major mortgage networks believed they were exempt from sanctions legislation altogether.
Clare added that this was incorrect citing the fine which RBS incurred last year as an example.
He said: “We are very concerned that a small firm is going to be hit with a heavy fine or directors fined and imprisoned for breaches - all because the majority of networks are failing to get on board with this.”
As the Treasury regularly updates its sanctions list, Sanctions Search asked brokers what methodology they had in place for on-going screening.
Clare said: “The results were patchy at best and we found that where there is an attempt to comply, a lack of understanding of the rules and the risk leaves the firms carrying out woefully inadequate checks on their data, most notably re-screening after HMT updates.”
Sanctions Search conducted a telephone survey of 100 calls to brokers and networks. Around eight out of ten small firms were unaware of key government legislation relating to money laundering and terrorist activity.
Networks Tenet, Legal & General, Sesame and Mortgage Intelligence were unavailable to comment
