When did you last update your firm’s AML risk assessment? Can you explain the three stages of money laundering to a new team member? Do you know which client activities require a Suspicious Activity Report?
These questions matter because the penalties for getting them wrong are severe. NatWest’s £264.8 million fine, Metro Bank’s £17 million penalty, and Starling Bank’s £29 million settlement weren’t punishment for criminal behaviour. They were consequences of inadequate AML procedures and missed red flags.
But don’t worry.
This guide covers the definition and process of money laundering, real UK examples, your obligations under the Money Laundering Regulations 2017, warning signs to recognise during client work, and prevention strategies that satisfy regulators while protecting your firm.
Sounds good! Let’s dive in.
KEY TAKEAWAYS
- Money laundering conceals criminal proceeds through three stages: Placement (introducing funds), layering (obscuring origins), and integration (legitimising proceeds)
- UK accountants face direct obligations under MLR 2017, including client due diligence, risk assessments, ongoing monitoring, and suspicious activity reporting
- £100 billion is laundered through UK financial systems annually, with accountants regularly exploited as unwitting facilitators
- Non-compliance carries severe consequences: up to 14 years imprisonment, unlimited fines, and professional practice closure
- The cost of compliance is minimal compared to the cost of failure: reputation, practice, professional registration, and personal freedom
What Is Money Laundering?
What Is Money Laundering?
Money laundering is the process criminals use to disguise the origin of illegally obtained funds, making “dirty money” appear legitimate.
Money Laundering as per The Proceeds of Crime Act 2002
The process by which the proceeds of crime are converted into assets which appear to have a legitimate origin, so that they can be retained permanently or recycled into further criminal enterprises.
Money Laundering matters for UK accountants for three critical reasons.
- First, professional services firms are primary targets. Criminals need legitimate businesses to process funds, and your professional credibility makes you valuable
- Second, MLR 2017 places direct obligations on HMRC-supervised practices: client due diligence, risk assessments, ongoing monitoring, and suspicious activity reporting
- Third, the penalties for failures are catastrophic: criminal prosecution, unlimited fines, and practice closure
The scale is staggering. The National Crime Agency estimates £100 billion is laundered through UK systems annually. Over 460,000 Suspicious Activity Reports are filed each year. The Metropolitan Police’s Proceeds of Crime unit alone seizes £180 million in criminal assets annually.
How Money Laundering Works: 3 Key Stages Explained
Money laundering follows a predictable pattern. Three stages. Each is designed to distance criminal proceeds from their illegal source.
Stage 1: Placement (Introducing Dirty Money)
What Is Placement in Money laundering?
Placement is when criminals first introduce illicit funds into the legitimate financial system. This is the most vulnerable stage because large cash amounts or suspicious transfers attract attention.
Common placement methods include:
- Structuring (Smurfing) – Criminals divide large sums into smaller deposits below £10,000 reporting thresholds, spreading transactions across multiple accounts and time periods.
- Cash-Intensive Businesses – Car washes, restaurants, and retail shops mix illegal cash with legitimate daily takings.
- High-Value Goods – Converting cash into portable assets like luxury watches, jewellery, or vehicles.
- Business Account Deposits – Using apparently legitimate company accounts to disguise illegal fund origins.
UK accountants encounter Placement through unexplained cash deposits on client bank statements, cash-heavy businesses with revenue inconsistent with their premises or staffing, or vague source of funds explanations during client onboarding.
Here's a practical example of Placement in Money laundering.
A restaurant owner takes £2,000 in legitimate daily sales, adds £2,000 of drug proceeds, and deposits £4,000. The bank sees normal business activity. HMRC sees declared income. The criminal has placed dirty money into the banking system.
Stage 2: Layering (Obscuring the Trail)
What Is Layering in Money Laundering?
Layering creates distance between funds and their criminal source through complex transactions. Multiple transfers, currency conversions, asset purchases, and investment movements make tracing progressively harder. By the time investigators work backwards, the trail has gone cold across jurisdictions and transaction types.
Common layering techniques include:
- International Wire Transfers – Moving funds through multiple countries, particularly those with weak AML enforcement.
- Shell Company Transactions – Transferring funds between entities with no genuine business purpose, creating paperwork that appears to justify movements.
- Trade-Based Laundering – Using falsified invoices to move money. Over-invoicing exports sends extra funds abroad. Under-invoicing imports brings money back.
- Real Estate Transactions – Converting cash into property, then property back into clean sale proceeds.
- Cryptocurrency Conversions – Exploiting digital asset anonymity through mixing services and chain-hopping.
- Investment Purchases – Creating legitimate-looking portfolio statements through stocks, bonds, or collective funds.
This stage matters for accountants because you’re reviewing exactly these transactions: supplier payments, international transfers, related-party arrangements, and investment purchases. Your transactional review either detects layering or allows it to continue.
Here's a practical example of Layering in Money Laundering.
A UK company pays £150,000 to a Hong Kong supplier for components worth £50,000. The inflated invoice disguises £100,000 of laundered funds as legitimate trade. Professional invoices, shipping documents, and correspondent bank transfers make it appear routine.
Stage 3: Integration (Legitimising Criminal Proceeds)
What Is Integration in Money Laundering?
Integration is the final stage where laundered funds re-enter the legitimate economy. Criminals can now use the money freely without triggering suspicion. The funds appear to come from legitimate sources: property sales, investment returns, or business profits.
Common integration methods include:
- High-Value Property Purchases – UK real estate, particularly in London, where large transactions are common, and prices provide cover for substantial fund movements.
- Business Acquisitions – Creating operational companies that generate legitimate income and provide ongoing integration opportunities.
- Luxury Asset Purchases – Art, vehicles, and jewellery bought with clean funds, then sold through legitimate channels.
- Loan Repayments – Extracting funds from companies as debt repayment rather than taxable income.
- Dividend Distributions – Paying shareholders from apparently profitable legitimate businesses.
Your role as an accountant includes reviewing source of funds declarations for business purchases, preparing accounts showing loan repayments or dividend distributions, and advising on tax treatment of property sales. Without recognising integration patterns, you risk facilitating the final stage of money laundering.
Here's a practical example of integration in Money Laundering.
A criminal purchases a £2 million London flat using funds layered through offshore companies. Two years later, they sell for £2.3 million through a legitimate estate agent. The proceeds appear to be property investment returns. The buyer conducted due diligence. The solicitor handled conveyancing. Everyone involved saw a standard high-value transaction. The criminal now has £2.3 million of completely clean funds.
Money Laundering Examples: UK & Global Case Studies
Money laundering isn’t abstract regulatory theory. It happens in ordinary businesses with professional advisers who missed the warning signs.
Here are three UK cases that demonstrate what money laundering looks like in practice.
The common pattern is clear: inadequate due diligence, failure to question inconsistent information, reluctance to submit Suspicious Activity Reports, and reliance on client explanations without independent verification.
Common Money Laundering Methods: Red Flags for Accountants
UK accountants are targeted because professional credibility grants access to financial systems, client trust enables transaction facilitation, and regulated status provides apparent legitimacy to suspicious activities.
UK Money Laundering Regulations: What Accountants Need
UK accountants face direct obligations under the Money Laundering Regulations 2017. HMRC supervises most accounting practices, while ICAEW, ACCA, and ICAS supervise their members.
The Money Laundering Regulations 2017
MLR 2017 requires accountants to:
- Conduct firm-wide risk assessments annually, identifying money laundering and terrorist financing risks in your client base, services, and operations
- Apply customer due diligence to all clients: verify identity using reliable sources, understand business nature and ownership structure, and determine beneficial owners controlling more than 25%
- Enhanced due diligence for politically exposed persons, high-risk third countries, complex ownership structures, or higher-risk situations
- Submit Suspicious Activity Reports (SARs) to the National Crime Agency when you know or suspect money laundering
- Maintain records for a minimum of five years: due diligence documents, transaction records, and internal reports
- Provide regular AML training to all relevant staff covering legislation, red flags, and procedures
- Appoint a nominated officer responsible for receiving internal reports and submitting SARs
Proceeds of Crime Act 2002
POCA creates three principal offences:
- Concealing criminal property; concealing, disguising, converting, transferring, or removing criminal property.
- Arranging; becoming concerned in an arrangement facilitating acquisition, retention, use, or control of criminal property.
- Acquisition, use, possession; acquiring, using, or possessing criminal property.
Your defence is authorised disclosure to the NCA before acting. This SAR submission protects you from prosecution. Tipping off after submitting a SAR is a separate criminal offence.
Penalties reach 14 years imprisonment and unlimited fines for individuals. For practices: unlimited financial penalties, supervisory sanctions, and potential closure.
Suspicious Activity Report Requirements
Submit a SAR when you have reasonable grounds for suspicion based on available facts. Not proof. Not certainty. Reasonable suspicion.
The NCA portal (ukciu.gov.uk) processes submissions 24/7. The consent regime applies when you need to proceed with a suspicious transaction: submit a SAR requesting consent, and the NCA has seven working days to respond. Proceeding without consent is a criminal offence.
The £264.8 Million Lesson
Automated Systems mean nothing without human judgment and appropriate action. Red flags without response equal regulatory catastrophe.
NatWest's record fine resulted from processing £264 million for a single Bradford jewellery business. The business deposited £365 million total, including £264 million in cash. Red flags were everywhere: cash deposits inconsistent with jewellery retail, structured amounts, and deposits across multiple branches. NatWest's systems flagged concerns 2,175 times. Staff raised alerts. The bank proceeded anyway without adequate investigation or SAR submission.
Money Laundering Warning Signs for Accountants
MLR 2017 requires you to recognise and respond to suspicious activity. These red flags demand enhanced scrutiny.
Red Flag Response Protocol
When suspicious activity appears:
- Document your concerns internally with specific facts and dates
- Escalate to your nominated officer immediately
- Conduct enhanced due diligence before proceeding
- Consider whether a SAR submission to the NCA is required
- Maintain detailed records of your entire decision-making process
How Accountants Can Prevent Money Laundering in UK
Effective AML prevention requires systematic implementation across your practice. These measures satisfy regulatory obligations while protecting your firm from professional and criminal liability.
The combination of systematic procedures, trained staff, and appropriate technology creates defensible compliance that satisfies regulators while protecting your practice from money laundering risks.
Resources to Enhance Your Money Laundering Knowledge
- National Crime Agency SAR Submission Portal: SAR Portal | Landing page
- Role of Money Laundering Reporting Officer: Money Laundering Reporting Officer: Role & Responsibilities | FigsFlow
- Anti-Money Laundering Regulations Around the World: Anti-Money Laundering Regulations Worldwide | FigsFlow
- A Complete Guide to AML Risk for Accountants & UK Firms: Complete Guide to AML Risk for Accountants | FigsFlow
- AML Meaning- A Simple Explanation for Accountants: AML Meaning: Explanation for Accountants| FigsFlow
Conclusion
Understanding money laundering protects three critical assets: your clients, your practice, and your professional registration.
The £264.8 million NatWest fine demonstrates what happens when red flags are ignored. The Greater Manchester restaurant chain case shows how accountants become unwitting facilitators. The London law firm example proves that professional services don’t provide immunity from regulatory consequences.
Your next steps are straightforward.
- Update your firm-wide risk assessment
- Review client due diligence procedures against MLR 2017 standards
- Train staff on the three-stage laundering process and warning signs
- Empower your nominated officer with adequate authority and resources
- Implement technology that enhances rather than replaces professional judgement
The regulatory framework exists to protect you, not burden you. Use it.
Frequently Asked Questions
Money laundering disguises illegally obtained funds as legitimate income. A common example is a criminal purchasing a cash-intensive business like a restaurant, mixing illegal proceeds with genuine daily sales, and depositing the combined amount as business revenue. The illegal funds now appear to be legitimate business income that can be used freely.
The three stages are Placement, layering, and integration. Placement introduces illegal cash into the financial system through deposits or purchases. Layering obscures the criminal origins through complex transactions across multiple accounts and jurisdictions. Integration returns the cleaned funds to criminals through apparently legitimate sources like property sales or business profits.
A criminal purchases property using offshore companies funded with illegal proceeds. Several years later, they sell the property through a legitimate estate agent at a profit. The sale proceeds appear to be standard investment returns. All parties involved see routine transactions, and the criminal now has completely clean funds.
Key warning signs include unusual client secrecy about operations or funding sources, complex offshore company structures without a clear business purpose, transactions inconsistent with the client’s known business type, reluctance to provide standard documentation, and unnecessarily complicated arrangements lacking commercial logic.
The four risk management approaches are Tolerate (accept low risks with standard monitoring), Treat (implement enhanced controls for medium risks), Transfer (share risk through insurance or outsourcing), and Terminate (exit high-risk relationships). Your approach depends on risk assessment and regulatory obligations.
Legitimisation. It’s the process of transforming illegally obtained funds into apparently legitimate assets through the financial system.
Look for transactions disproportionate to known income, unexplained cash deposits, complex payment structures, recently formed companies conducting immediate high-value transactions, beneficial ownership concealed through offshore entities, and reluctance to provide documentation. Professional judgement combines multiple red flags into reasonable suspicion requiring enhanced scrutiny or SAR submission.
Money laundering is the process of concealing, disguising, or converting criminal proceeds to make them appear legitimate. Under UK law, it includes any activity that facilitates the acquisition, retention, use, or control of assets derived from criminal conduct while obscuring their illegal origins.
