Money laundering: Legal services still high risk
The emergence of third-party managed accounts (TPMAs) “may, in time, reduce” the risk of law firms’ client accounts being used by criminals for money laundering, the government said yesterday.
It came in the 2025 National Risk Assessment [1] (NRA), which – like its predecessors in 2017 and 2020 – rated legal services as at high risk of being used for money laundering but low risk in relation to terrorist financing.
The position had not significantly changed over the past five years, said the NRA, which is produced by HM Treasury and the Home Office.
“Criminals are often drawn to legal service providers due to the veneer of legitimacy legal professionals can offer due to perceptions of the sector’s integrity.
“The nature of the services offered, and the volumes of money that can be moved through them also contribute to the sector vulnerabilities, although the speed of transfer can often be slower than in some other regulated sectors.
“Non-compliance levels remain relatively low across the sector, but the vulnerabilities the sector is exposed to and the scale of money laundering involving the legal sector have also remained high since 2020.”
The services most at risk of abuse for money laundering purposes continue to be conveyancing, trust or company services and misuse and exploitation client accounts.
Though regulators considered barristers and advocates to be exposed to a lower level of risk, “the potential for AML [anti-money laundering] non-compliance in these activities remains”.
The NRA cautioned that criminals may use “a combination of legal services to frustrate due diligence efforts and complicate transactions”.
It explained: “Whilst criminals typically seek to use a single lawyer or firm, ultra-high-net worth criminals wishing to avoid scrutiny may employ the services of several firms. This can make it more difficult for a single [legal services provider] to identify illicit activity, particularly where inadequate source of funds checks are performed.”
The 2020 version identified sham litigations as an emerging area of risk but with one only prosecution related to this since then, “it is not currently assessed to be a widespread or common issue”.
“Client accounts continue to be assessed as high risk as they can be misused by criminals to both move illicit funds and to provide a veil of legitimacy to the proceeds of crime,” the NRA said.
The emergence of TPMAs as an alternative to client accounts “may, in time, reduce the client account risk”, it said.
But it went on: “A larger evidence base is required before an assessment of any displacement of risk, and the longer term impact of the move towards third party managed accounts can be made.”
The National Crime Agency estimated “there is a realistic possibility up to £10bn could be laundered through the UK property market annually”, the NRA noted, with conveyancing an “inherently” high-risk activity.
“Conveyancers who deal with prime or super-prime property purchases are more likely to be exposed to higher risk persons such as PEPs [politically exposed persons], and overseas buyers where it may be more difficult to assess source of wealth.
“However, there remains a risk that smaller scale criminals will look to purchase properties with more modest values. This risk can be increased if insufficient controls are put in place.”
The NRA acknowledged that the majority of law firms “invest in ensuring their services are not used for criminal purposes”.
“In 2023/24 only 16% of firms reviewed were deemed noncompliant. However, where legal professionals are complacent, take a ‘tick box’ approach to compliance, or lack sector specific knowledge and/or training on the money laundering threat, the risk of the services provided being exploited increases.”
Weaknesses in supervision could increase these vulnerabilities and the NRA pointed to the most recent report of the Office of Professional Body Anti-money laundering Supervision (OPBAS), which found the effectiveness of legal regulators [2] in this regard to be “inconsistent”.
But the outcome of the Treasury’s consultation on reforming AML supervision – with both the Legal Services Board and Solicitors Regulation Authority having put themselves forward to lead on it for the legal sector – is still unknown.
Law Society president Richard Atkinson commented that it was “disappointing to see that the legal sector continues to be categorised as high risk, when there have been very few, if any, prosecutions or convictions related to money laundering within the legal sector”.
He added: “The absence of direct evidence raises questions about the proportionality of this risk classification and fails to recognise the significant strides made in recent years to improve compliance, awareness and reporting mechanisms.
“While we acknowledge that any sector can be targeted by criminals, the government must adopt a more balanced and evidence-led risk-based approach that recognises diversity within legal services and the proportionate risks associated with different areas of practice.”