Sectoral Risk Assessment

Technology

The Financial Action Task Force (FATF) has identified AI-enabled fraud as an emerging threat. Technologies such as deepfakes may increase the risk of identity fraud, impersonation and the circumvention of customer due diligence processes, particularly where firms rely on remote onboarding. The report provides case studies of how this has happened and how firms can protect themselves.

 AI-enabled impersonation techniques, including deepfakes, may increase the risk of identity fraud and misrepresentation during client onboarding and throughout the life of a matter. The risk may be greater where firms rely on remote verification methods or digital onboarding processes. The assurance provided by digital identification services may therefore be a relevant consideration when assessing these risks. HM Government maintains a Digital Identity and Attributes Trust Framework register DVS Register, which provides information on providers participating in the framework.

As FATF sets out in a separate paper, cyber-enabled fraud is a key money laundering risk. Cyber fraud intersects with other areas of organised crime, such as human trafficking, drug trafficking, and human rights abuses. Firms are at risk of being a conduit for criminal funds or being attacked directly.  

The Five Eyes Cyber Security Agencies have produced an alert which sets out practical steps to assist in combating the risk from AI-enabled cybercrime.

Passporting and reliance on existing due diligence

Passporting is the practice of moving clients from a firm's office in one jurisdiction to its office in another. This can pose an inherent risk of money laundering if proper controls are not applied. Risks may arise where firms rely on due diligence undertaken by another office, jurisdiction or business unit without adequately considering whether it remains appropriate for the instruction being undertaken.

More broadly, the same issues can apply to movements within a firm in the UK, with firms relying on a prior instruction on a matter out of scope of the Regulations. Firms must ensure that when working on a matter within scope of the Regulations, they apply a level of due diligence appropriate to the risk assessment.

Cash-intensive businesses and high street crime

Cash-intensive businesses and nominee arrangements are commonly associated with heightened money laundering risk because beneficial ownership, control and source of funds may be more difficult to establish.

Law enforcement reporting continues to identify some cash-intensive businesses as being vulnerable to exploitation by organised criminal groups, including for money laundering and other criminal purposes such as modern slavery. News reports also suggest that these businesses use ‘ghost directors' who act as nominees for the parties who exercise genuine control over the business. These are unrelated to, and may be unaware of, the company and its operation but are willing for their name to appear on company documentation for a fee.

These risk factors may be encountered in a range of legal services, including:

• commercial property work involving cash-intensive businesses
• company matters involving nominee or otherwise unconnected directors
• transactions funded by businesses whose turnover, profitability or activities appear inconsistent with their size, age or apparent operations.

Global instability and uncertainty

Geopolitical instability may increase corruption, sanctions evasion and illicit movement of assets. Clients, transactions and funding connected to jurisdictions experiencing political instability, conflict, significant governance change, or elevated corruption risk may present increased exposure to money laundering, sanctions evasion and proliferation financing risk. Relevant risk indicators may include:

• connections to politically exposed persons (PEPs), their family members or known close associates
• source of funds or source of wealth information that is difficult to verify or appears inconsistent with the nature or value of the transaction
• transactions involving complex ownership structures, intermediaries or opaque funding arrangements
• links to jurisdictions, sectors or activities associated with heightened proliferation financing risk, particularly where goods, technology or financing may ultimately support nuclear, chemical, radiological or biological weapons programmes. Further information is available in LSAG sections 5.3.1, 5.4.1 and 18.10.

The use of offshore companies, accounts or other legal structures may increase risk where they obscure beneficial ownership, control or the origin of funds. Such arrangements are not inherently high risk but may reduce transparency and make it more difficult to establish the rationale for a transaction or the parties involved.

Company registration

The Third Progress Report on the Economic Crime and Corporate Transparency Act 2023 sets out progress on Companies House reform. This includes purging the Companies House register of misleading information and improper company listings. In the past year, 920 companies entered expedited strike-off, the mechanism Companies House uses to dissolve companies giving false information.

Criminals using such companies may still possess their existing Companies House documentation and try to use it to prove their credentials. Conduct checks when acting for companies to make sure they are properly and currently listed.

The legal sector's inherent money laundering risk varies by the services provided and the combinations in which those services are offered. Some services carry a higher risk profile because they involve higher-value transactions, access to client funds, legal structures that can obscure ownership or control, or transactions where source of funds and source of wealth are less transparent.

The services set out below are generally regarded as presenting the highest inherent risk

Conveyancing

Residential conveyancing remains one of the highest-risk areas of legal practice. Property is an attractive asset for money laundering because it can accommodate substantial sums in a single transaction, may generate income or capital appreciation, and can be used to convert criminal proceeds into assets that appear legitimate. The pace and commercial pressure associated with property transactions can also reduce visibility over risk indicators.

Client accounts

Client accounts remain a significant money laundering risk because they can be used to transfer funds through a regulated legal services provider, potentially obscuring the origin, destination or purpose of those funds. The involvement of a client account may lend an appearance of legitimacy where the underlying transaction is unclear or lacks a genuine legal purpose.

Risk may be elevated where funds pass through a client account without a clear connection to the legal services being provided, particularly where arrangements reduce transparency over the parties involved or the purpose of the transaction.

Risk indicators may include:

• funds received from, or transferred to, unrelated third parties without a clear rationale
• client money being held for longer than appears necessary for the underlying matter
• discrepancies between the stated purpose of funds and transaction records
• requests to hold, transfer or return funds where the legal or commercial rationale is unclear.

Third-party managed accounts

The use of a third-party managed account, may alter, rather than remove, money laundering and financial crime risks. As funds are held and administered by a third-party provider, firms may have less direct visibility over the movement of client money and the controls applied to it. Risks may also arise where providers have weaknesses in their financial crime, cyber security or operational resilience arrangements.

Creating or managing trusts and companies

Trusts and corporate structures may increase money laundering risk where they obscure the ownership, control, source or destination of funds and assets. The use of complex or opaque legal structures is a recurring feature in money laundering typologies, particularly where beneficial ownership is difficult to identify or verify.

• Risk indicators may include:
• the use of bearer shares
• rapid repayment of loans between related entities
• entity types or jurisdictions that facilitate anonymity or limit transparency
• the involvement of jurisdictions with no clear connection to the matter
• nominee trustees or shareholders
• the use of pre-existing entities, including shelf or shell companies
• arrangements that obscure ownership or control through personal, family or other non-commercial relationships.

The 2025 National Risk Assessment increased the terrorist financing risk rating of trust and company services from low to medium. Legal services overall continue to be assessed as presenting a low terrorist financing risk, although trust and company services may present a higher exposure than other areas of legal practice.

Tax Advice

Certain forms of tax advice and related services may present an elevated money laundering risk where the matter concerns the proceeds of crime or arrangements intended to conceal the true nature, source or ownership of funds.

Risk may arise where advice, assistance or other support is connected to tax evasion or other criminal conduct. While tax avoidance is distinct from tax evasion, some forms of tax avoidance may give rise to regulatory concerns. Further information is available in our guidance on tax avoidance.

Family Offices

Family offices typically provide a combination of legal, wealth management, property and other services for high net worth individuals and their families. Their involvement can introduce additional layers between a firm and the underlying client, potentially reducing transparency over ownership, control, source of funds and the purpose of a transaction. As with other intermediary arrangements, risk may be elevated where the identity of the ultimate client or the authority of those acting on their behalf is not clear.

Client risk varies according to the identity of the client, the beneficial owner (where relevant), the nature of the instruction and the broader context in which services are provided. Risk may be elevated where the client profile, ownership structure, source of wealth or intended purpose of the matter is not readily apparent. Effective CDD and ongoing monitoring is the best control against these risks.

Politically exposed persons (PEPs)

PEPs, whether domestic or overseas, present an elevated money laundering risk because of access to public influence, public funds or both. The risk may extend to family members and known close associates and may change over time if a client's circumstances alter.

Domestic PEPs are generally treated as lower risk than overseas PEPs but still present a higher-risk profile than ordinary clients and must be subject to enhanced due diligence.

Higher risk sectors or businesses

A client's sector or business activity may increase risk where it is associated with corruption, higher levels of cash use, or a greater likelihood of being used to facilitate money laundering. Sectors commonly associated with higher risk include oil, arms, precious metals, tobacco products, cultural artefacts, ivory and other items of archaeological, historical, cultural, religious or rare scientific significance.

Familiar clients

Long-standing relationships and trusted referrals may reduce the degree of challenge applied during client onboarding or on an ongoing basis. Familiarity does not remove risk, and it can create a vulnerability where controls are applied inconsistently or where assumptions are made about the legitimacy of the client or the instruction.

Anonymity/cannot prove ID

Requests for anonymity, evasiveness around identity evidence or unusual control over how a service is provided may increase money laundering risk, particularly where they limit transparency over identity, ownership or control. In some circumstances there may be legitimate reasons why standard identity evidence is difficult to obtain, but these scenarios still present a need for additional scrutiny because they can reduce visibility over the true parties to the matter.

Intermediaries or agents

The use of intermediaries or agents can be legitimate, but it may also reduce transparency over the underlying client and the authority of the person instructing the firm. Risk may arise where the relationship between the intermediary and the ultimate client is not clear, or where ownership, control and authority are difficult to establish.

Transaction risk arises where the nature, structure, timing or funding of a transaction is unusual, inconsistent with the client profile, or difficult to explain in commercial terms. Source of funds and source of wealth remain central considerations in understanding whether a transaction presents elevated risk. Transfer through a UK bank account does not by itself indicate that funds are legitimate.

Size and value of the transaction

Large or unusually high-value transactions can increase exposure because they provide a greater opportunity to place or layer criminal funds in a single matter. Linked transactions or activity that appears disproportionate to the client profile may also indicate increased risk.

Vendor fraud

Vendor impersonation fraud remains a relevant risk in property and other asset transactions. Such frauds can create both fraud and money laundering exposure, particularly where criminal proceeds pass through client accounts in a way that gives them an appearance of legitimacy. Weaknesses in verification processes increase the likelihood of this type of activity.

Cryptocurrency and crypto assets (crypto)

Cryptoassets, including digital assets such as non-fungible tokens, may present an elevated risk where their legitimacy, ownership, or provenance cannot be established to a satisfactory standard. Their cross-border nature, speed of movement and varying levels of transparency can make source of funds analysis more complex. Stablecoins in particular are frequently identified in money laundering typologies.

Physical cash

Physical cash can facilitate anonymity and may therefore increase money laundering risk. Legitimate reasons for cash-based funding may exist, but the source and rationale for cash should remain capable of explanation. A bank deposit does not itself remove the need to understand the underlying origin of physical cash.

Cash purchases of real property

Large amounts of cash used to fund property transactions can indicate elevated risk because the source of funds and source of wealth may be harder to verify. Legitimate explanations may exist, but unusual or unexplained cash funding can be a warning sign where it is not consistent with the client's known circumstances.

Transactions that do not fit the norms of the firm or the client's activity

Risk may be elevated where a transaction, product or service is unusual for the firm's practice profile or inconsistent with the client's known business, wealth or instructions. Unexplained departures from normal patterns of activity can make it more difficult to understand the purpose of the matter and the legitimacy of the funds involved.

Transactions or products that facilitate anonymity

Products or transactions that reduce transparency over beneficial ownership may increase money laundering risk, particularly where they allow ownership or control to remain hidden without a clear commercial reason. This risk may arise beyond money or real property transactions, including in relation to artworks, vessels or aircraft.

New products, delivery mechanisms, or technologies

New business areas, delivery channels or technologies can create risk because they may not yet be fully understood or embedded within the firm's existing risk framework. The absence of historical patterns or comparable transactions may make it more difficult to identify unusual activity or assess whether a matter is consistent with the expected risk profile.

Pooled funds and funding platforms

Transactions funded by multiple contributors may present elevated risk because the origin of individual sums can be difficult to establish, particularly where there are numerous contributors or multiple layers of transfer.

Pooled funding can also involve informal value transfer systems, which may introduce additional transparency and provenance risks even where the underlying funds are legitimate. LSAG has produced guidance on these.

Complex transactions

Criminals can use complexity as a way of obscuring the source of funds or their ownership. Complexity can make it more difficult to understand the purpose, ownership and source of funds associated with a transaction and may therefore increase risk.

Supply chain risk

Where a firm is involved in only part of a wider matter, risk may arise if the broader transaction, end beneficiary or end use of the service is unclear.

Supply chain complexity can reduce visibility over who ultimately benefits from the service and can therefore make it harder to assess associated money laundering or sanctions risk. This may be particularly relevant where overseas professionals or other intermediaries are also involved.

The way in which a service is delivered can affect the firm's exposure to money laundering risk. Remote client relationships, the combination of multiple services, third-party payments and irregular transfer methods can all reduce transparency and create opportunities for misuse.

Remote clients

Remote onboarding and non-face-to-face interaction can increase exposure to impersonation, synthetic identity and deepfake-enabled fraud, particularly where verification relies heavily on digital information or video-based interaction.

Combining services

Risk may increase where services that are individually low or moderate risk are combined in a way that creates a higher-risk overall profile. The use of multiple offices, practices or service lines may also reduce visibility over the full nature of the relationship or transaction.

Payments to or from third parties

Payments to or from third parties can obscure the source or destination of funds and may be used to disguise the beneficial owner or the true nature of a transaction. The risk is elevated where such payments are unexpected, lack a clear explanation, or are inconsistent with the client's profile or the purpose of the matter.

Irregular methods of transfer

Unusual payment patterns, including tranches, staged transfers or requests to move funds in a way that does not fit the underlying transaction, can indicate elevated risk. Such patterns may be consistent with attempts to layer funds, obscure the origin of assets or avoid scrutiny.

Geographic risk should be assessed by reference to the jurisdiction in which services are delivered, the location of the client and beneficial owners, and the source and destination of funds. Higher-risk jurisdictions may be associated with corruption, terrorism, organised crime, sanctions exposure or weaker AML controls.

Countries that do not have equivalent AML standards to the UK

A jurisdiction's presence on FATF lists of countries subject to increased monitoring or a Call for Action is a relevant factor in assessing geographical risk.

Note, though, that the FATF lists are not exhaustive and do not capture all higher-risk countries.

Other external indicators, including corruption transparency measures, may also be relevant.

Information available to the firm

Risk assessments may be informed by information available to the firm through its own market knowledge, sector experience or local intelligence. Risk can vary between client types, business lines and office locations, and those differences may be relevant when assessing jurisdictional exposure.

Countries with significant levels of corruption

Jurisdictions with significant corruption or other criminal activity can present heightened money laundering risk because they may be associated with bribery, state capture, organised crime or weak enforcement environments. Corruption risk is therefore a relevant factor when considering the geographic profile of a matter.

Transparency International also produces a corruption perceptions index.

The UK sanctions regime has expanded significantly since 2022 and remains an important financial crime risk for legal services providers. Although sanctions and anti-money laundering obligations are distinct regimes, they share a number of common risk indicators, including higher-risk jurisdictions, politically exposed persons (PEPs), complex ownership structures, and the use of intermediaries.

Sanctions can create incentives for designated persons and their associates to conceal the ownership, control, origin or destination of funds and assets. As a result, sanctions risk is often linked to issues that also arise in money laundering typologies, such as opaque corporate structures, nominee arrangements, offshore entities, and the involvement of multiple jurisdictions.

A particular feature of the UK sanctions regime is the importance of ownership and control. Risk may arise where ownership structures are complex, control is exercised through informal or indirect arrangements, or the identities of those ultimately benefiting from a transaction are not readily apparent. Similar vulnerabilities may arise where agents, intermediaries, family offices or other third parties are involved.

Sanctions risk may also be elevated where matters involve licensing requirements, international trade, shipping, aviation, or transactions with links to jurisdictions subject to sanctions measures. The use of intermediary jurisdictions, layered ownership arrangements and extensive use of agents or corporate service providers continues to feature in sanctions evasion typologies and can reduce transparency over the parties involved.

Common sanctions vulnerabilities include weaknesses in sanctions screening processes, inadequate understanding of ownership and control arrangements, over-reliance on automated screening tools, and governance arrangements that do not provide sufficient oversight of sanctions-related risks.

The sanctions regime applies broadly across legal services and is not limited to work within scope of the Money Laundering Regulations. Matters involving designated persons, entities owned or controlled by designated persons, or assets connected to sanctioned jurisdictions may present heightened risk, particularly where ownership, control or the purpose of a transaction is difficult to establish.

Read OFSI guidance on ownership and control.

OFSI lists key lessons from their sanctions enforcement cases here: Enforcement – Office of Financial Sanctions Implementation.

Emerging risks

A failure to comply with the licensing regime creates vulnerabilities in the UK's overall sanctions framework. Some weaknesses previously identified include:

• failure to meet reporting obligations by the deadline
• exceeding the costs cap under the legal services general licence by a small amount
• acting after a licence had expired but prior to a new one coming into force.

Russian sanctions regime

The Russian invasion of Ukraine reached its fourth anniversary this year. The array of global sanctions against Russia has led to various techniques to circumvent them. OFSI and OTSI have produced guidance on how to spot attempts to circumvent this sanctions regime.  The guidance lists a number of third-country jurisdictions which may be used to facilitate sanctions circumvention. Firms should refer to the latest government guidance.

Likewise, OFSI and OTSI indicate that Russia is seeking to procure goods from UK companies to support its war effort, often using third countries. This can include some goods which appear unrelated to military applications, such as:

• printing inks
• oil lubricants
• paints, varnishes, enamels, and lacquers
• industrial heat exchange units.

Other sanctions regimes

Sanctions risk is not limited to a small number of jurisdictions or governments. Designations may apply to individuals, entities and organisations located outside the primary target jurisdiction where they support sanctioned persons, entities or activities. Sanctions measures may also be imposed in connection with cyber activity, terrorism, human rights abuses, corruption and threats to national security.

As a result, sanctions risk may arise in a wider range of matters than might be expected based solely on a client's nationality, location or place of incorporation. Ownership structures, commercial relationships and business activities may all be relevant in understanding sanctions exposure.

Designated persons and entities may not always be readily identifiable, particularly where ownership and control arrangements are complex or involve intermediaries operating across multiple jurisdictions. Sanctions regimes may also apply to domestic organisations, third-country entities and individuals whose connection to a sanctioned jurisdiction is not immediately apparent.

Established risks

Client risk

Sanctions risk may arise where a client is a designated person or entity, or where ownership or control arrangements connect the client to a designated person.

The ownership and control regime is a key feature of sanctions risk. It is wider than the concept of beneficial ownership used in the Money Laundering Regulations.

Complex, opaque or unusual control arrangements may make it more difficult to identify the involvement of designated persons.

Some designated persons may also be politically exposed persons (PEPs), although the two concepts are distinct and may present different risk considerations.

Geographic risk

Geographic sanctions risk may arise where clients, beneficial owners, counterparties, assets or transactions are connected to jurisdictions subject to UK sanctions measures.

Risk may be elevated where ownership structures, funding arrangements or transaction chains pass through jurisdictions that feature prominently in sanctions evasion typologies.

The use of intermediary jurisdictions, agents and other third parties can reduce transparency over ownership and control and make it more difficult to identify designated persons.

Products and services risk

Sanctions risk is not confined to services within scope of the Money Laundering Regulations.

Designated persons may seek access to a broad range of legal services, including areas of practice outside the AML regime.

Certain sanctions regimes also place restrictions on the provision of specified services to particular persons, entities or jurisdictions, meaning sanctions risk may vary across different areas of legal practice.

Transaction risk

As with money laundering risk, sanctions exposure may be elevated where transactions are large, complex, involve multiple jurisdictions, rely on opaque ownership structures, or involve uncertain sources of funds.

Public sector reporting on sanctions evasion continues to identify typologies involving commodities, luxury assets, intermediary jurisdictions, complex ownership arrangements and concealed beneficial ownership.

Transactions involving unrelated third parties, unusual funding arrangements or multiple layers of intermediaries may further reduce transparency over the origin, destination or control of assets and funds.

Delivery channel risk

Designated persons may seek to conceal their involvement in transactions through intermediaries, family offices, agents, corporate structures or other third-party arrangements. These arrangements can reduce transparency over identity, ownership and control, particularly where there is limited visibility of the ultimate client or beneficiary.

Risk may be elevated where instructions are received indirectly, authority to act is unclear, or ownership and control arrangements are difficult to establish.

Further information on sanctions compliance, ownership and control, and financial crime risks is available from OFSI, OTSI, and the National Crime Agency.  The SRA has also published more information on preventing money laundering and terrorist financing. Relevant public reporting on sanctions evasion typologies may provide additional context on emerging risks and methods used to conceal ownership, control or the movement of assets.