Mike Ward, executive chairman of financial information provider Armalytix, explains how the legal sector has recently taken major strides in combatting financial crime in the property industry, and discusses how the lessons learned can be applied in other areas

In recent months, the legal industry, particularly the SRA, has faced some scrutiny, with complaints involving the regulatory body surging by 29 per cent. This scrutiny is leading to greater focus and efforts to address the important issues.

However, in light of this, another side to the work of the industry and regulator deserves recognition - the significant efforts of the SRA and the broader legal community in combating financial crime within the property sector.

The SRA and legal professionals are doing crucial work in preventing dirty money from tainting the property industry. In many ways, they are a leading example in the UK of where industries can get it right. Let’s look at how the legal sector has done this in the property market and how these strategies can be expanded to other potentially high-risk disciplines and industries.

Property - a historical hotbed for dirty money

The UK property market, particularly in London, has historically been highly vulnerable to money laundering. Transparency International's 2023 Through the Keyhole report revealed that nearly 52,000 UK properties were still owned anonymously, despite new transparency laws meant to expose the true owners.

With high asset values, opaque ownership structures, and large financial transactions, the property market has become an attractive target for criminals to legitimise dirty money.

Weaknesses in legislation and enforcement further facilitate this, undermining economic stability and distorting market dynamics.

In response, the government and the National Crime Agency (NCA) have made legislative efforts to curb dirty money. Measures include reforms to the Suspicious Activity Report (SARs) regime, a comprehensive review of the UK’s Money Laundering Regulations (MLRs), and an update to the Economic Crime Plan, which aims to reduce money laundering, recover more criminal assets, combat kleptocracy, drive down sanctions evasion and cut fraud.

We have seen success with these initial measures, and more anti-money laundering (AML) procedures must be introduced and enforced across the board from regulators to realtors to maintain the momentum.

Credit where credit’s due

With work ongoing, it is important to acknowledge the achievements made so far. The legal industry has implemented stricter client due diligence, including identity verification, source of funds checks and beneficial ownership identification. In addition, staff training on detecting suspicious transactions has improved, and a greater focus has been placed on high-value property deals and complex ownership structures.

Further, technology is being used to enhance AML efforts, including advanced verification systems and data analysis tools.

These efforts have already shown success. For instance, recently a Bitcoin criminal could not purchase a property in London due to failing money laundering checks.

By establishing the source of funds, legal professionals have effectively curtailed dubious transactions— stopping criminals not just through ID checks but by delving deeper into the origins of their money.

Lessons for other industries

The progress made in the property sector can be replicated in other potentially risky areas including commercial property, corporate law, accountancy and gambling. Criminals continue to evolve their methods, as demonstrated by the recent conviction of a Chinese gang for operating a £55 million money laundering ring targeting international students. However, detection methods are improving too.

With new regulations, particularly those requiring overseas entities to register with Companies House, more suspicious activities are coming to light.

Compliance officers must prepare for an uptick in cases, not because financial crime is necessarily increasing, but because enhanced regulations are bringing previously concealed transactions to the surface.

To stay ahead, industries and legal professionals are continuing to invest in technology, such as Open Banking and machine learning analytics to help trace suspicious activity. Thoroughly verifying the source of funds, especially in transactions involving overseas clients or partners, remains critical.

Regular training empowers staff to recognise and report red flags, fostering a proactive compliance culture.

The fight against financial crime in the property market provides a blueprint for other sectors. By prioritising transparency, leveraging technology, and maintaining strict compliance, industries can stay one step ahead of criminals. As the legal property sector has shown, to succeed, the fight against financial crime must be proactive, not reactive.

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