Cash-intensive businesses and red flags

You’re reviewing a conveyancing file.

The client? A sole trader running a cash-based business.

The declared source of funds? “Business savings from the last few months.”

It’s a scenario that looks fine on paper but demands deeper analysis.

Cash-intensive businesses aren’t inherently suspicious, but they are commonly exploited at the placement stage of money laundering. Illicit funds are introduced into the financial system by commingling them with legitimate earnings. This is especially effective where turnover is high, controls are weak, and transaction-level records are minimal.

Add real estate into the mix, an ideal channel for the integration of cleaned funds, and you’re dealing with a classic high-risk scenario. If you’re not looking at the context behind the numbers, you’re not really assessing the risk.

Understand the business beyond the labels

Don’t stop at “restaurant” or “car wash”. Go deeper:

• What does the business actually do day-to-day?
• What’s the typical transaction size and frequency?
• How does money enter and leave, in what form and with what controls?

Key insight

Launderers often misrepresent or overstate the scale of the business. A local Italian shop reporting $80,000 in monthly revenue might pass a basic check, but would fail a sense check once you factor in operating hours, seating capacity and pricing.

If the business has an online footprint, for example reviews or social media, check whether the stated activity matches reality. No Google presence, zero online orders and still claiming high turnover? That’s a mismatch.

Tip

Ask what proportion of revenue is cash, then verify it. A business saying “90% cash” while depositing funds only twice a month suggests either concealment or staging.

Review documentation critically, not just for completeness

Anyone can provide a bank statement. Your job is to test whether the documents support a consistent and credible story.

What to request

• 6 to 12 months of business bank statements, depending on risk level
• Till summaries or POS reports showing cash versus card split
• Tax filings and annual accounts, ideally prepared by a third party

What to watch for

• Deposit frequency: A high-cash business should be depositing frequently. Large infrequent cash drops can suggest backloading or layering
• Structured amounts: Repeated deposits just under $10,000 or local reporting thresholds are a known red flag
• Mismatch between declared revenue and declared tax: If the turnover suggests high earnings but tax filings are low, ask why

Red flag pattern

Vague documentation, short timeframe and a large one-off deposit create a high likelihood of laundering attempt.

Don’t take accountants at face value

An accountant’s involvement doesn’t equal comfort. Always verify their legitimacy through regulatory registers. If the accountant is a cousin, friend or someone with no web presence or licence, that lowers the credibility of any figures they've signed off.

Also assess what they’ve actually done. Did they prepare the accounts or just forward them? Do they stand behind the figures or is it all client-supplied data?

Build escalation logic into your thinking

Mid-level compliance teams often ask, “When do I escalate?”. Try applying the following framework, keeping in mind it’s not about proving wrongdoing, it’s about recognising when there’s no longer a clear and credible story behind the money.

Source of funds versus source of wealth: when to go further

If the business explanation only covers the immediate transaction but the client has other signs of high wealth, such as multiple properties, overseas transfers or private school fees, the funds may be coming from broader sources. That’s when you shift into source of wealth territory.

Tip

How did the client build up this level of wealth over time? Was the business truly the vehicle, or is it just the justification?

Common laundering patterns involving cash businesses

To help connect the dots, here are a few real-world typologies:

• Front business layering: Illicit cash is fed into a legitimate business which overstates revenue and then makes “clean” payments out
• Property integration: Once funds are cleaned through a business account, they are used to purchase real estate for long-term storage of wealth
• Complicit professionals: Accountants or lawyers help validate false narratives by signing off doctored accounts or incomplete explanations

Knowing these patterns helps shift your role from checklist compliance to proactive risk disruption.

The real value of a proper review

The point of source of funds checks isn’t to trip up genuine clients, it’s to identify when the story doesn’t hold. If you approach cash-intensive clients with that mindset, you’ll avoid both blind spots and overkill.

Cases like Operation Machinize show how everyday businesses are repurposed for laundering schemes. A good compliance officer doesn’t need to solve the crime, but they do need to know when the puzzle pieces no longer fit.