Business aircraft escrow companies are turning away far more “undesirable” prospective clients and detecting more attempted fraud, according to Corporate Jet Investor’s recent Town Hall online meeting on closing transactions.
Joan Roberts, Insured Aircraft Title Service vice president, told delegates: “We have seen a lot more undesirable people trying to set up escrows with us and airplanes that we consider undesirable. We know they will come under investigation somewhere down the road.”
Roberts was unsure what sparked the increase in dubious escrow proposals. Factors accounting for the rise could include what she described as drug cartels having greater access to the US or recent high-profile indictments in the business aviation industry.
Confirmation of the need to reject suspect business was supplied by fellow panellist Jeff Snowden, Aero-Space Reports Escrow Department. “We are turning away more customers than we ever have – not because of the volume of business but because it’s just not worth the risk. All it takes is one bad transaction to ruin your business.”
‘One bad transaction to ruin your business’
While domestic US transactions are relatively easy to vet, international deals prove harder and cause the greatest concern for Aero-Space Reports.
The remedy to the problem of dubious deals is far greater emphasis on know-your-customer (KYC) research and due diligence studies before agreeing contracts or making money transfers, the speakers agreed. Asked by one delegate whether OFAC (Office of Foreign Assets Control) checks would offer sufficient KYC assurance, Roberts replied: “OFAC searches are absolutely not enough.” Her company uses a range of different methods including the services of Lexus Nexus, World-Check and even simple Google searches.
OFAC searches alone are certainly not sufficient, agreed Snowden. Google searches were a good place to start due diligence studies, he added.
Both speakers noted a reduction in the time available for KYC research. “I had an example yesterday where I was requesting information from a potential buyer before closing,” said Snowden. “They told me: ‘I am not going to know until Friday if I’m going to accept the airplane. And if I accept on Friday, I want to close on Monday.’ That would mean, over the weekend getting all the information from a KYC point of view to register the plane and get everything else done.”
Roberts added: “A lot of times the brokers or sellers don’t have the information they need to give us until the last minute. While that makes it very stressful, the information is just not available to give to us.” Also, the advent of the FAA accepting DocuSign documents has further increased pressure to close deals quickly.
Both speakers also agreed attempted fraud was becoming significantly more troublesome. “There are constant fraud attempts by people,” said Roberts. “Every day I get an email saying send me your updated wiring instructions. But we have not changed our wiring instructions in years. So, if you get an email from me saying that, look again because it is fictitious.”
‘That’s really terrifying’
Another ruse was for fraudsters to try to exploit the company’s name – Insured Aircraft Title Service – by amending the first letter of its email address from the capital letter I to the lower-case version of L. “It looks exactly the same but it’s not,” said Roberts. “That’s something else that’s really terrifying.”
Snowden said: “We have always seen a lot of bad actors but even more so now.” He urged anyone in the industry who encountered fraud to report it to the authorities, such as the FBI or the Department of Homeland Security. “The more we can report it to them [the authorities], the more they can keep a watchful eye.”
Fraud was also becoming more common in the luxury yachting industry, according to Roberts.
On a brighter note, Roberts told the Town Hall: “We are seeing a great increase in [business aircraft] closings.” The slowdown in business traditionally expected between January to April failed to happen this year. Business has now returned to normal or better than normal levels.
Snowden, of Aerospace-Reports, also reported a significant upturn in business over the past 11 months, after the deep trough of last spring. “March and April last year were two of the worst months we have seen in the history of our company,” he said. “But since June 1 until now, it has been crazy, with volumes almost double [normal levels]. When I talk to the brokerage community, the only thing I hear that could slow this down is the supply issue. Is there going to be enough planes for people to trade?”
The Town Hall meeting, ‘The mechanics of closing transactions’, took place on Wednesday April 14th. Also taking part were David Hernandez, shareholder Vedder Price and Jack Gilchrist, founding director and shareholder of Gilchrist Aviation Law. You can watch can listen here or on Spotify and other popular podcast platforms.
Meanwhile, the next Town Hall meeting – Changing habits of business aviation – takes place on April 28th 2021.
Jeff Snowden, Aero-Space Reports: “All it takes is one bad transaction to ruin your business.”
Joan Roberts, Insured Aircraft Title Service: “There are constant fraud attempts by people.”
