Six signs of money laundering – and how to spot them

Property transactions remain the most favoured route for those looking to clean illicit funds. Transparency International’s most recent analysis reveals that since 2016 more than 1,600 properties across the UK – worth an estimated £11.1 billion – have been linked to suspicious wealth. Over half of this total value is tied to purchases made through shell companies registered in British overseas territories.

For solicitors and conveyancers, this creates significant risk exposure. The property market’s high value, its capacity to absorb illicit funds in plain sight, and the involvement of multiple parties make it a prime vehicle for money laundering.

Conveyancing professionals are under increasing scrutiny from regulators, and the penalties for non-compliance are steep. But beyond regulatory risk lies something more fundamental: the profession’s role as a gatekeeper. As a regulated legal professional, your diligence helps safeguard the UK property market from becoming a safe haven for criminal funds.

The attraction for criminals

Several features make property transactions attractive for money laundering including: 

• Stability and value retention: real estate typically holds its value and is perceived as a stable investment.
• Opportunity for layering: criminals can obscure the origins of funds through complex transactions, nominee owners, or corporate structures.
• Potential for legitimisation: once criminal proceeds are invested in property and sold, the funds may appear clean.

Key warning signs

1. Unusual payment structures

Payment arrangements that deviate from expectations should always prompt further inquiry. Common examples include:

• a buyer using a third-party account with no clear connection to the transaction
• payment from jurisdictions known for high corruption risk or weak AML controls, and
• cash deposits that do not align with the client’s profile or declared source of funds. 

Such irregularities may be attempts to obscure the money trail so it’s important to scrutinize these arrangements and gather supporting documentation.

2. Ambiguous client profile

A fundamental aspect of risk assessment is determining whether the transaction makes sense in the context of the client’s profile. Look for indicators like:

• a low-income earner purchasing a high-value property
• a first-time buyer presenting funds from complex or opaque sources, or
• a client claiming to act on behalf of others without clear legal authority.

Verifying both the source of funds and the broader source of wealth is key. If they don’t align with the client’s background, it’s essential to document your concerns and consider whether enhanced due diligence or a suspicious activity report (SAR) is required.

3. Use of complex structures

Structures involving trusts, shell companies or overseas vehicles are not inherently suspicious, but they do require scrutiny. Look out for:

• multi-layered corporate ownership with no clear beneficial owner
• use of legal entities in secrecy jurisdictions, or
• frequent changes in ownership shortly before or after the transaction. 

You also must identify the beneficial owner and verify their identity. Opaque ownership structures are a common tool for money launderers so you need to look closely at the transaction and understand who ultimately owns or controls the entity involved. 

For corporate clients:

• obtain the company’s ownership structure
• identify and verify any beneficial owner with 25% or more of the shares or voting rights, or who otherwise exercises control, and
• record how verification was carried out.

With trusts, the full details of the settlor, trustees, and beneficiaries are required. Don’t rely solely on the Companies House register, especially when dealing with overseas entities.

Since August 2022, the Register of Overseas Entities (ROE) has added another layer of transparency, but you must still conduct your own verification.

4. Reluctance to provide documentation 

Delays or resistance in supplying identification, proof of funds, or confirmation of beneficial ownership may indicate an attempt to stall or mislead. This includes:

• clients offering partial or outdated documentation
• vague or evasive responses when queried, and
• unwillingness to participate in live verification steps (such as biometric video calls or object tests to detect deep fakes).

AML compliance hinges on timely and reliable documentation. Where this is not forthcoming, consider the risks of proceeding – and document your decision-making process.

5. Rapid resales or chain transactions

Patterns of quick resale or closely connected transactions should raise questions as they can be used to:

• layer funds through a series of property deals
• artificially inflate property values, and
• create the appearance of legitimacy through volume.

Scrutinise the chain. Are the buyers and sellers connected? Is there a pattern of under- or over-valuation? You are not expected to perform full forensic audits, but anomalies should be noted and queried.

6. Source of funds / source of wealth

A common pitfall is confusing these two concepts. They are related but distinct:

• source of funds refers to the origin of the money used for a specific transaction (such as bank account, sale of a previous property), and
• source of wealth refers to the origin of the client’s overall assets (such as inheritance, salary, business income).

Understanding both is essential for assessing whether a transaction is commensurate with the client’s financial profile. For example, a modest income earner using offshore funds to buy a £2m property should raise questions.

Document your reasoning clearly. If the source of funds is a gift or a loan, obtain confirmation and evidence from the third party.

The importance of robust CDD

The foundation of any AML defence is thorough client due diligence (CDD). Under the Money Laundering Regulations 2017 (as amended), you must:

• identify and verify the client’s identity
• understand the nature of the transaction
• establish the source of funds and source of wealth, and
• identify beneficial owners where applicable.

CDD should not be treated as a one-off event. It is a continuous process and if the matter changes significantly, or if new information comes to light, CDD must be refreshed.

Enhanced due diligence (EDD) is required when dealing with higher-risk situations, such as politically exposed persons (PEPs), high-risk third countries, or complex structures.

The role of technology 

Technology can significantly reduce the risk of human error and improve compliance outcomes. Using online platforms enables you to:

• digitally verify ID and run PEP / sanctions checks in real-time
• capture and assess risk profiles consistently across the firm
• generate a clear audit trail of actions taken, and
• ensure policies, controls and procedures are aligned with current regulations.

However, even the best technology can be deceived. AI-generated identities are designed to pass digital verification. To mitigate this:

• introduce dynamic verification during live calls (ask the client to say a random phrase or hold up an object)
• layer your checks by combining ID documents, biometric checks and independent address verification, and
• train staff to recognise behavioural anomalies – such as urgency, last-minute changes, or IP addresses that don’t align with the claimed location.

The importance of reporting 

If you know or suspect that a transaction involves criminal property, your employees must make an internal Suspicious Activity Report (SAR). After this, your money laundering reporting officer (MLRO) must decide whether to make a defence against money laundering (DAML) to the National Crime Agency (NCA). Note that:

• SARs are confidential. Never disclose to the client that you have submitted one.
• You can report suspicion even if you do not know the exact nature of the crime.
• If you seek a DAML, allow the statutory time for consent to be refused before proceeding with the transaction.
• Keep detailed records of your decision-making and reports submitted.

Filing a SAR is a legal duty. It also protects you and your firm from accusations of turning a blind eye.

Embedding AML into your firm’s culture

Regulations require all firms to have appropriate policies, controls and procedures (PCPs) in place. These should reflect the firm’s size, nature, and risk profile. PCPs should cover: 

• client risk assessments
• ongoing monitoring protocols
• training and awareness
• record-keeping and documentation, and
• escalation and reporting procedures.

AML is not just about ticking boxes. It needs to be embedded into the culture of the practice. Regular training, managerial expectations and clear accountability are all essential.

Annual reviews of your risk assessment and PCPs are required under regulation 18. Make sure they remain fit for purpose and aligned with the latest guidance.

Avoid common pitfalls

Even experienced professionals can fall into traps, especially under commercial pressure. Be alert to:

• relying on outdated risk assessments or templates
• skipping EDD because the client is well-known or referred
• failing to challenge clients on incomplete or inconsistent information
• assuming another party in the transaction has done the due diligence, and
• poor or missing documentation, especially around source of wealth.

Every matter should be assessed on its own merits. Familiarity or urgency should never replace compliance.

Evolving risks and regulatory focus  

The risk landscape is not static. Criminals continually evolve their methods, and regulatory scrutiny is only increasing. Areas to watch include:

• use of digital assets and cryptocurrency to fund property transactions
• abuse of nominee agreements and power of attorney to hide beneficial ownership
• proliferation of shell companies in overseas jurisdictions, and
• increasing international cooperation in AML enforcement.

Staying up to date with legal sector guidance, NCA typology reports, and SRA alerts is essential.