Risk insights and indicators of suspicious activity for legal professionals

Client behaviour indicators

It could be a red flag if your client: 

• avoids face-to-face meetings
• is obstructive or secretive in their dealings with you
• appears nervous or defensive when questioned
• doesn’t seem to understand the business sector they’re operating in
• tries to avoid know your customer (KYC) processes
• has an unusual level of knowledge about AML/CTF requirements
• provides identity documents with inconsistencies or different details such as their name, address, date of birth or phone number
• is reluctant to prove their identity or provides vague information during KYC processes
• has documents in an unexpected format or seem forged or altered
• ends the relationship after you ask for more information
• appears to be following instructions of third parties. 

Client profile indicators

The client profile could raise red flags when they: 

• have been subject to negative media reports or other adverse information from a reliable source, connecting them to profit-generating criminal activity
• have a lifestyle or transactions inconsistent with what you know about their business and personal information
• have changed professional advisers often without legitimate reasons, or was refused service by others
• are a politically-exposed person (PEP) or closely linked to one. You must always treat foreign PEPs as high-risk clients
• are on Australian or United Nations Security Council targeted financial sanctions lists or are close associates of entities on these lists
• ask for many high-risk services. 

Another red flag is if the client is from, or present in, a high-risk country due to associations with: 

• money laundering, including organised crime
• terrorist acts or terrorism financing, including providing money or support for terrorist activities
• proliferation of weapons of mass destruction
• corruption
• serious fraud.

A client operating as a business could raise red flags if it: 

• is engaged in a business or industry known to have higher ML/TF risks, including but not limited to those identified in Australia’s national risk assessments
• engages in a service unrelated to their profile with no economic reason
• sells an interest in a new company to someone with no clear association
• transfers an interest in a company without compensation to someone with no clear association or no economic reason
• says they control a business entity without any, or enough, knowledge about their business, its operations or sector
• gives multiple addresses for the same business or changes their registered address or principal place of business address with no reason
• gives a residential address as their business address where the circumstances don’t make sense for the business to be run from a person’s home.

Kinds of services

Legal professionals provide services criminals can exploit. This includes setting up trusts and companies. Criminals may seek this service to hide assets through complex arrangements. 

These legal structures are attractive to criminals because:

• they make it difficult to identify the true beneficial owners
• companies usually have larger and more frequent transactions, providing opportunities to hide suspicious transactions among legitimate transfers
• complex structures or entities with connections to foreign jurisdictions – including those with weak AML/CTF laws – make it difficult for authorities to track beneficial owners or suspicious transactions
• criminal groups can force, or pay, people on temporary visas to set up companies in Australia. These companies are then used to launder money
• it can be harder for authorities to confiscate assets and crime proceeds from criminals when they are held in a company name. Criminals will conceal ownership and control through layers of companies to distance themselves from illicit activities
• criminals may appoint a family member, associate, or professional as a nominee director or shareholder. They’ll hide ownership and control of a company, helping distance themselves from illicit activities while effectively remaining in control of the company.
• criminals can use stolen identities to start a company they’ll use to launder money.

Complex legal structures often include: 

• multiple layers of related companies
• trusts that have intricate structures and corporate beneficiaries.

These structures offer benefits like limited liability and flexibility but come with increased complexity and legal obligations. Additionally, details about the beneficial owners of trusts are rarely publicly available and may be difficult to obtain and understand.

Indicators of suspicious client activities

Red-flag indicators can help you identify suspicious client activities in relation to the services you provide.

Source of funds or wealth

It could be a red flag if your client: 

• has high-value assets with no clear funding source
• has funds or transaction activity that doesn’t match their financial standing, usual activities or employment status.
• won’t identify the source of their wealth or provides false, misleading or wrong information
• sets up companies with an unknown equity source or an equity source that’s difficult to value
• requests contracts for private loan agreements outside the financial system, with an unclear source of funds or wealth
• is involved in business agreements or payments where the asset value is hidden or hard to determine.

Unusual transactions and requests

It could be a red flag if your client: 

• makes unusual requests with no clear economic reason
• changes instructions multiple times or in a short period of time without good reason
• asks for nominee shareholder service with no obvious reason
• asks to buy aged shelf companies, rather than set up new ones
• buys companies in liquidation with no economic reason
• requests the creation of a trust where is it unlikely to be appropriate or necessary
• makes unusual changes to their company’s ownership and legal structure. This includes changing directors, shareholdings or company location
• conducts back-to-back property transactions with rapidly increasing values or purchase prices
• pays you by a method not in line with their profile
• offers to pay higher fees for services
• asks for quick transactions for no reason.

Requests for complex arrangements

It could be a red flag if your client: 

• asks for assistance in transferring personal assets into a complex business structure
• wants you to perform a series of complicated transfers through your trust account on their behalf which may hide the true funding source from the person receiving those funds
• asks for complex business structures to hide beneficial ownership
• asks for a large volume of companies to be created
• asks for a large volume of company or trust creations at one time (wholesale sales)
• wants to create or use shell or shelf companies, to distance themselves from funds.

Delivery channel risk

Delivery channel risk is how you onboard and provide services to clients. The risks are higher when you provide services remotely or through intermediaries. Personal contact can help you spot red flags, while online interactions may increase your risks. 

Delivery channel suspicious indicators 

Red-flag indicators can help you to identify suspicious circumstances relevant to client interactions. These include, if the client:

• avoids direct contact, like face-to-face meetings
• asks for unreasonable anonymity
• engages you through a third party with no clear reason.

Foreign jurisdiction risk

You may deal with clients, transactions and activities with links to foreign jurisdictions. Exposure to foreign jurisdictions creates ML/TF risks. It provides opportunities: 

• for illicit funds to move overseas that are proceeds from crimes committed in Australia
• to fund terrorist activity or proliferation of weapons of mass destruction
• for the proceeds of foreign money laundering to be brought into Australia. 

International transactions can also: 

• add complexity
• hide beneficial ownership and the true customer’s identity
• increase the risk of tax evasion
• make it harder for authorities to investigate or prosecute alleged criminal activity.

Factors that increase ML/TF risks include links to a country:

• with weak governance or AML/CTF regulations, or that is a tax haven or secrecy jurisdiction
• with high rates of corruption, tax evasion or other serious crime
• subject to Australian sanction laws or similar restrictive measures. This includes countries believed to be high-risk or non-cooperative by the Financial Action Task Force (FATF)
• financing or supporting terrorist acts, or associated with a terrorist organisation
• engaged in proliferation of weapons of mass destruction, or a country used for diverting funds for proliferation financing
• in a conflict zone
• known for people trafficking. 

Foreign jurisdiction suspicious indicators 

Red-flag indicators for clients with international connections could include when the client:

• is in a high-risk jurisdiction, asking for business representation in Australia
• has a business owned or controlled by a parent company from a high-risk jurisdiction
• transfers money or virtual assets to or from a country they have no connection with
• transfers money or virtual assets to or from entities in high-risk countries
• uses multiple foreign bank accounts for no apparent reason
• transacts with jurisdictions known to produce or move drugs, or precursor chemicals, without an economic reason
• pays unusual consultancy fees to offshore businesses
• deposits or receives money in several accounts, then consolidates and transfers it overseas
• uses complicated ownership structures with no legitimate or economic reason
• makes frequent overseas transfers inconsistent with their financial profile.

Related pages

• Conducting your own risk assessments
• Suspicious matter reports
• Customer identification and verification
• Preventing financial crime using a risk-based approach