Loan and mortgage fraud in Malta : a comparative analysis of its significance and consequences with particular reference to the Maltese banking sector

Abstract

Mortgage loan fraud is a real estate white-collar crime which may take many forms and usually involves a myriad of real estate professionals. In the United States, the Financial Crimes Intelligence Unit described mortgage fraud as “an escalating problem in the United States”. In the United Kingdom, the National Fraud Strategic Authority ranks organised mortgage fraud as “one of the most serious fraud types that has faced the UK in recent years.” The drivers behind mortgage fraud are complex and that there are several common psychological and environmental conditions that foster the occurrence of fraud. Nevertheless the fundamental element that must exist is awareness of a control weakness that can be exploited for financial gain. The aim of the present thesis is to investigate the occurrence and significance of mortgage loan fraud in the Maltese context. Chapter 1 surveys the motivation of the thesis, the research aim, the research methodology and the terminology used. Chapter 2 deals with the definition of mortgage loan fraud, the distinction between fraud for profit and fraud for housing and the most common mechanisms through which mortgage loan fraud is perpetrated. Factors and conditions that contribute to the occurrence and propagation of mortgage loan fraud are examined. The chapter seeks to explain as to how and why the Maltese banking system has sheltered itself from massive fraudulent practices. Chapter 3 evaluates the relevant legislative provisions relating to fraud in Malta, the United States and the United Kingdom. The evaluation is undertaken on a comparative basis and the Maltese provisions relative to the offence of fraud are weighed against the provisions in English law. Chapter 4 deals with the role of regulatory authorities, the issue of mandatory fraud reporting and importance of information sharing initiatives in the context of combating mortgage fraud. The critical role of specialized anti-fraud units and the relationship between mortgage loan fraud and the anti-money laundering regime are also discussed. Chapter 5 examines the importance of strong anti-fraud practices, policies and structures employed by banks aimed at preventing mortgage fraud, with particular emphasis to the internal practices employed by Maltese banks. Whilst Maltese banks have in place adequate procedures and practices aimed at preventing the occurrence of fraud, more needs to be done at other levels. The lack of a clear regulatory structure for key professionals involved in the loan origination process, the absence of information sharing initiatives which are central to a strategy to reduce the threat of mortgage loan fraud, the integration of anti-money laundering measures with anti-fraud efforts and a stronger institutional structure which actively investigates and regulates suspicions of financial fraud and which acts as a buffer between financial institutions and police authorities are some areas examined in this thesis.