What Anti-Money Laundering Means in a Law Firm

1.1Anti-money laundering in one paragraph

Money laundering makes money from crime look clean, and buying property is one way to do it. So the law makes a law firm check each new client before it acts. On a risky matter, the firm also checks where the money comes from. This workbook follows those checks on one new client, from the first call to the end. You are a trainee in the real estate team at Hollanby Darroway LLP, a law firm in Cambridge, and you act for the buyer.

1.2How money is laundered through a building

Money laundering usually runs in three steps:

• Money in. Money from crime goes into a bank or a business.
• Moved about. It passes between companies and countries until its trail is hard to follow.
• Spent as if clean. It buys something lawful. A building is a large, lawful-looking place to park money.

A law firm can be used at the last step. It holds the buyer’s money in its client account and pays the seller. So the law puts the firm on watch.

Your firm acts in buying land, and that work falls within regulation 12(1)(a) of the Money Laundering Regulations 2017. So the Regulations apply to this purchase in full.

1.3A new client buys an office building

Merranby was formed in England in December 2026 to buy one building. In January 2027 its only director, Oliver, asks your firm to act. The building is an office block in Cambridge, let to tenants who pay rent. A pension fund is selling it for £5,000,000.

Merranby’s only shareholder is a company in the British Virgin Islands. That company is held in a family trust, which Oliver’s father-in-law set up. The trustee is a trust company in Jersey.

Merranby needs no loan. It will pay a deposit of £500,000 on exchange, when both sides sign the contract and are bound. It will pay the rest from its shareholder’s account at a Swiss bank on completion, when the building changes hands. Oliver wants to exchange in February.

1.4Why each side wants what it wants

Why would a family buy a building through a new company, owned by a company abroad and a trust? The family has good reasons:

• A let building pays steady rent, year after year.
• A company abroad and a trust keep the family’s affairs private.
• A purchase with no loan can move fast, and the family wants speed.

Holding property this way for privacy is lawful and common. Oliver may simply be guarding his father-in-law’s privacy. Your firm’s job is to check, not to judge.

The seller, a pension fund, wants a fast and certain sale.

Your firm wants the work and the fee. But it may not act until its checks are complete. Its people also commit crimes if they help launder money or fail to report a suspicion. And its regulator can now fine it without limit for failing in these checks.

1.5What the firm must check

Law firms call the checks the Regulations require client due diligence (CDD). The Regulations say “customer due diligence”. CDD means finding out three things:

• Who the client is, checked against a reliable, independent source.
• Who stands behind it, through every company and trust.
• What the deal is for.

Each person who ultimately owns or controls the client is a beneficial owner. A company’s director is not always one. Behind Merranby stand a company abroad and a trust, so you must look past Oliver.

On a high-risk matter, the firm checks more. It asks where the money for the deal comes from. It also asks how the owners came to have their wealth.

What makes a matter high risk? A red flag is a fact that should make you look closer. It is not proof of a crime.

A new company is a red flag, and so is a client in a hurry for no clear reason. One flag alone may not matter much, but several together usually do. Chapter 2 shows how the firm weighs them for Merranby.

1.6Three crimes a lawyer can commit

The Proceeds of Crime Act 2002 makes three things crimes for a lawyer:

The first crime is in sections 327 to 329 of the Act. It can catch a lawyer who suspects the money comes from crime and does the deal anyway.

Julian is the firm’s money laundering reporting officer (MLRO). The firm’s checklist turns the duty to report into one rule for every member of staff. Breaking that rule can be the crime of failure to report:

The words “reasonable grounds to suspect” matter most. Missing the signs is no excuse if a careful lawyer would have seen them. You need no proof, and a report to Julian meets your own duty.

Julian then decides whether to send a suspicious activity report (SAR) to the National Crime Agency (NCA). If the firm reports before it acts, the report can also give it a defence for acting, as Chapter 8 explains.

1.7The road from the first call to the end

The checks on Merranby run for about four months, and later chapters take each stage in turn:

1.8Your job

Helena asks you to open the matter. You will record every check in the Client Due Diligence File (“the File”). Part A sits on the matter file, where the whole team can see it. Part B is Julian’s own record, kept apart.

Your first task is Tab 1, the matter opening checklist. Before any work starts:

• Read each paragraph of the checklist with Helena.
• Initial each paragraph, and have Helena initial it too.
• Note why the Regulations apply: the firm acts in buying land.
• Note that no money may be received until the checks are complete.
• Record each check with its month and its source. Never write a view of the client.
• Take any worry to Julian as soon as you can.

The checklist is the firm’s rulebook for this matter. Each later tab carries out one or more of its rules.