AML red flags in real estate transactions: What conveyancers need to know

03 October, 2023

It’s no secret that property purchases can be an effective way to launder funds, as they tend to involve large sums of money changing hands, complex transactions and little oversight.

While most clients will be above board, it pays to understand (and refresh one’s memory on) common red flags that can indicate funds from illegal activity are being filtered into a property purchase or sale. This vigilance is necessary regardless of size or location – bad actors can target large firms where they hope to slip through unnoticed, or small firms where they assume conveyancers won’t have the appropriate experience or tools to spot them.

Catching these warning signs early allows you to conduct enhanced due diligence, ask more questions and potentially file a suspicious activity report (SAR) with the HMRC or SRA. Here are some of the top red flags to look out for in real estate transactions:

Third-party involvement

One of the most common techniques for laundering money is to use a third party or proxy to make the purchase on behalf of the real buyer. This avoids linking the property to the criminal in official records. 

Watch for signs like someone other than the named purchaser handling the negotiations and paperwork, or the buyer joining very late in the process. This could indicate they are trying to avoid background checks.

Irregular sale price 

If the purchase price seems significantly higher or lower than expected for no clear reason, it may be a sign of price manipulation. Paying above market value can allow larger sums to be laundered through mortgages, while undervaluing lets surplus illicit cash change hands separately.

Unusual fund sources

The source of funds used for a deposit or fees may seem suspicious – for example large amounts of physical cash with no paper trail. If funds are coming from an unrelated third party or foreign account, more questions should be asked.

Remote buying 

A buyer purchasing property far away from where they live or work for no clear reason can be a red flag. This distance makes it harder for authorities to uncover connections between parties.

Complex trusts

Watch for property purchases made under complex business structures or family trusts with no easily identifiable beneficiary. This can indicate an attempt to disguise the true owner. It also pays to look at beneficiaries and trustees carefully - if it’s a family trust, are they all family, or are there unexplained people in the mix?

Unusual behaviour

If you notice inconsistent behaviour from a purchaser throughout the transaction, like changing key details, stalling signing or being evasive, it may warrant a closer look. 

Quick resales

Frequent buying and selling between related parties is a potential sign of cycling funds through property to appear legitimate. 

The big picture

Of course, one red flag on its own doesn't mean illegal activity – but several together should prompt you to carry out enhanced due diligence on the parties involved. It’s easy to slip into thinking that AML checks are a box-ticking exercise, but money laundering and financial crimes do have real victims that are only a few steps removed from the money that is being transacted.  By staying alert to red flags and investigating unusual activity that comes across their desks, conveyancers can be effective safeguards on the frontline against money laundering.

About First AML

First AML simplifies the entire anti-money laundering onboarding and compliance process. Its SaaS platform, Source, stands out as a leading solution for organisations with complex or international onboarding needs. It provides streamlined collaboration and ensures uniformity in all AML practices.

First AML transforms an otherwise complex and manual process into one that is simple, cost-effective, and compliant for businesses. By delivering efficiency and time savings, it protects reputations and enables companies to stay on the right side of history in the face of global threats.

Keen to find out more? Book a demo today! No time for a long demo? No problem. See what Source by First AML can do for your business in 2 minutes – watch the short demo here.