Virtual offices have been blamed for unwittingly allowing fraudulent companies to operate under their business address services. But strict security measures and heightened awareness means the tide may be turning.

Virtual office and business address services have long offered support for small and growing businesses. But unfortunately, they have also been exploited by fraudulent investment companies who use their business addresses as a front to cover up illegal activity.

In the UK earlier this year, Operation Broadway – a multi-agency taskforce led by the City of London Police, City of London Trading Standards and the Metropolitan Police – released details of a massive criminal investigation across London.

The investigation involved spot checks to serviced and virtual office premises across the capital to “disrupt boiler room activity” and also generate awareness of the scams. Unfortunately this particular investigation revealed that a small number of operators had failed to carry out adequate checks on the companies using their services. Despite the negative impact of this revelation, it has served to highlight the absolute necessity of keeping up to date with compliance procedures and staff training.

Know Your Customer

“It is essential that operators of virtual offices and business centres know who are using their services,” says Jennifer Brooke, Executive Director of the BCA. “You cannot assume they are who they say they are.”

“Even if a potential client comes in on a Friday evening and wants to sign up immediately for a virtual office, promising to send their identification on Monday morning, this is unacceptable. All identification and relevant documentation must be provided at the time of signing up, not later. Until that point they cannot use your address or your building.”

Jennifer refers to ‘Know Your Customer’ – a detailed guide containing compliance and best practice procedures for serviced and virtual office operators, such as which ID to ask for, and how to cross-check and confirm the validity of details given.
Yet it is also human instinct that helps operators lock out criminal activity. “No system is 100% watertight,” she said. “Operators and staff must also rely on training and instinct,” which includes checking that the applicant and their photo ID are one and the same person.

ID verification companies such as Contego provide comprehensive real-time systems to help workspace and virtual office operators validate both new and existing clients, which adds an extra layer of security and helps prevent human error. Other systems such as Pin It Down reference Companies House data to inform operators who is using their business address.

Unauthorised use of a building address is illegal, yet many operators don’t know they’re a victim of squatting.

“There are more fraudsters trying to get through the system, but there is also much more awareness about the threat,” added Jennifer. “Operators are better informed than ever before and are carrying out their due diligence.”

Global approach

The same applies to virtual office procedures in other countries, although protocols differ across the world.

Alliance Virtual Offices, which operates chiefly in the U.S., follows a strict process of ID and data collection. Mike Sullivan, Chief Marketing Officer, says they utilise various systems such as NetVerify by Jumio, which verifies client details.

“We’ve recently started offering a free online notary service, which evaluates photographic identification to ensure compliance,” explained Mike. “It ensures all elements in the CMRA form are completed accurately, as required by U.S. Postal regulations.”

The online notary process, Notary Cam, takes a few minutes to complete and has improved the speed and accuracy with which clients conclude the process. Of course with a qualified notary involved, the risk of fraud is significantly reduced.

“It adds another layer of security that can’t be bypassed. They can’t sign up to a virtual office before all of the relevant documentation has been received and verified,” added Mike.

Alliance Virtual Offices isn’t the only organisation taking anti-fraud measures to the next level. The GWA (Global Workspace Association) has a ‘FraudWatch Pledge’ and offers Best Practices Guidelines to its members.

Companies like Alliance Virtual Offices are working to make the process easier for clients through automation – yet equally more difficult for potential fraudsters. This, in addition to heightened awareness and enhanced staff training, is helping to prevent suspected criminals from slipping through the net and, ultimately, repair the image of an industry that offers an important support mechanism for legitimate businesses.

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