Accountants in practice are often in a position to identify indicators of potential money laundering, terrorist financing, fraud, tax evasion, or other financial crime through their knowledge of a client’s business activities, transactions and ownership structures.

While the presence of a single indicator does not automatically imply criminal activity, multiple red flags, unusual patterns, or transactions lacking a clear commercial rationale should prompt enhanced professional scepticism and, where appropriate, further enquiries in line with anti-money laundering (AML) obligations and the firm’s risk-based procedures.

Common red flags include:

• Clients or transactions connected to high-risk jurisdictions, non-resident customers, opaque offshore structures, nominee shareholders, shell companies, trusts or unnecessarily complex ownership arrangements designed to obscure beneficial ownership.
• Cash-intensive businesses, unexplained wealth, unusually large or inconsistent transactions, payments from unrelated third parties, the use of virtual assets, unusual payment methods, or transactions that do not align with the accountant’s understanding of the client’s business activities or economic profile.
• Businesses operating in higher-risk sectors such as money service businesses, virtual asset providers, casinos, betting operators, dealers in precious metals or jewellery, and certain charitable or non-profit organisations with unusual transaction patterns.
• Clients who avoid face-to-face meetings, are reluctant to provide information, frequently change advisers, impose unreasonable deadlines, or appear to act on behalf of undisclosed third parties.
• Transactions involving over or under invoicing, multiple invoicing, rapid transfers of high-value assets, repeated inter-company transfers, false descriptions of goods or services, or arrangements lacking an obvious commercial purpose.
• Situations where staffing levels, payroll costs, or operational structures appear inconsistent with the scale of the business, industry norms or reported profitability.

Below are five case studies that provide practical examples of how these red flags may arise in practice and some of the matters accountants should consider when assessing potential AML, fraud, and reporting obligations.

Case study 1: convenience store
The business is a small convenience store operating in a suburban area and employs three full-time staff members. In addition to selling groceries, tobacco products, and household goods, the outlet also offers international money transfer services and mobile top-up vouchers.

The 2025 figures show turnover of £48k and an overall profit of £1.5k. Takings for the last three months were £4,200, £4,100, and £4,300 respectively. The owner advises that many customers are migrant workers sending money abroad. Unless the customer asks, no receipts are provided.  This is a sole trade engagement, and income tax returns are to be prepared for the proprietor. The accounting practice has acted for the client for less than six months.

Red flags

• Turnover appears low relative to the range of services provided and the staffing levels employed.
• Profit margins are unusually poor.
• Takings are consistent and rounded, which may indicate manipulation of records.
• The business is heavily cash intensive.
• Money transfer services may be used to facilitate layering or movement of illicit funds.
• Lack of receipts for some transactions could indicate suppression of sales.
• Sock purchases do not appear consistent with declared sales levels.

Requirement to investigate further
Given the significant cash activity and additional financial services provided, the AML risk profile should be classified as high. Enhanced Due Diligence (EDD) procedures should therefore be applied. The practice should:

• Request detailed cash reconciliations and till reports
• Review bank deposits against recorded sales
• Obtain documentation supporting money transfer transactions
• Carry out a physical visit to the premises to assess trading activity
• Review supplier invoices and compare stock purchases to declared turnover, check the profit margin and compare with the average profit margin in the same sector
• Hold a robust commercial discussion with the proprietor regarding inconsistencies identified in the records and the potential exposure to HMRC investigation.

Where explanations provided are incomplete, inconsistent or implausible, no further probing should occur beyond what is necessary, as excessive questioning may amount to tipping off. Based on the available indicators, a suspicion of tax evasion and potential money laundering may arise.

Practice action
The practice has formed a suspicion that income may be deliberately understated for tax purposes. There may also be concerns regarding the legitimacy of funds passing through the money transfer service.

A suspicious activity report (SAR) should therefore be submitted to the National Crime Agency (NCA) in respect of suspected tax evasion and any suspected money laundering activity.

The practice should also consider whether continuing to act for the client could expose the firm to the risk of assisting in the preparation of misleading financial information or false tax returns. Filing tax returns known or suspected to contain materially false information may constitute an offence.

Although concerns may exist regarding possible breaches of employment law or regulatory requirements surrounding money transfers, speculation alone does not meet the threshold for reporting unless sufficient grounds for suspicion exist.

Preparing the tax return for a business suspected of laundering criminal proceeds could amount to assisting money laundering activity if the accountant knowingly facilitates the continuation of the conduct.

Case study 2: unusual overseas supplier transactions
A senior accountant within an accounting practice is preparing the year-end accounts for a long-standing client, a UK-based wholesale furniture supplier operating as a limited company. The business primarily sources goods from domestic manufacturers and occasional EU suppliers. Annual turnover is approximately £420,000.

During the review of bank statements, the employee identifies an unusual pattern: a single large receipt of £48,000 from an account in the United Arab Emirates, recorded as ‘director’s loan account’, alongside a series of smaller monthly payments ranging between £2,000-£3,500 from the same overseas account. These receipts have been posted to ‘director’s loan’.

There is no prior history of the business dealing with suppliers or customers in that region, and no supporting documentation has been provided to explain the nature of these transactions. When queried, the client is reluctant to provide further detail and instructs the associate to ‘leave the entries as they are’, stating only that the payments relate to a ‘private arrangement’ and are not relevant to the business.

Red flags

• transactions involving a jurisdiction that is not part of the client’s normal trading activity
• a large, one-off receipt with no clear commercial rationale
• ongoing receipts from the same overseas account without supporting contracts or invoices
• client unwillingness to provide an explanation or documentation
• potential misclassification of transactions within the accounts.

Requirement to investigate further
The employee should not attempt to aggressively pursue the client where resistance is encountered, as this may risk tipping off. However, they should ensure that all reasonable and proportionate enquiries have been made and that the lack of commercial explanation is clearly documented. The inconsistencies between the nature of the business and the transactions should be recognised as a potential indicator of suspicious activity. Given the unexplained overseas transactions and the client’s unwillingness to engage, the employee should submit an internal suspicious activity report (SAR) to the practice anti-money laundering reporting officer (AMLRO). Once the report is submitted, the employee’s responsibility ends, aside from maintaining confidentiality and not disclosing the report to the client.

The AMLRO conducts further internal enquiries and consults previous engagement records. It is identified that the company director recently sold a personal investment property located overseas, with proceeds temporarily routed through the business account, as the business was struggling with the cashflow. The receipts relate to a formal repayment agreement with a family member who is based in the UAE who negotiated the sales and receipts.

The AMLRO documents the findings, including the rationale and supporting evidence obtained, and concludes that while the transactions were unusual, there is a legitimate explanation. The case is recorded and retained securely, and no external report is required.

Case study 3: barber shop and grooming lounge
A barber shop operating in a busy town centre provides haircuts, beard grooming and cosmetic treatments. The business only accepts cash payments, with the owner stating that card machines are ‘too expensive’ and that cash is ‘easier for the business’. The shop has been trading since 2022.

Financial records show that average annual profits between 2022 and 2024 were approximately £45k. Following a change in ownership in 2025, annual profits increased significantly to £180k despite no major refurbishment, expansion or increase in pricing. Staff costs recorded for 2025 were £38k.

The premises operate from 8am until 10pm Monday to Saturday and 10am until 6pm on Sundays. The business reports having only two full-time barbers and one part-time employee.

Red flags

• barber shops are recognised as potentially higher-risk sectors for cash-based tax evasion and labour exploitation
• the business is entirely cash intensive with limited transactional audit trail
• significant increase in profits without a clear commercial explanation
• staff costs appear disproportionately low relative to trading hours and profitability
• number of employees does not appear sufficient to cover opening hours legitimately
• possible underpayment of wages or use of undocumented workers
• potential suppression or inflation of sales figures to facilitate money laundering.

Requirement to investigate further
Due to the cash-intensive nature of the business, the AML risk profile should be categorised as high. The accounting practice should apply Enhanced Due Diligence (EDD) procedures and ensure that client verification records are updated.

Further enquiries should include:

• requesting explanations and supporting evidence for the substantial increase in profitability
• reviewing payroll records, timesheets and PAYE submissions for inconsistencies
• comparing staffing levels against opening hours and expected operational capacity
• conducting a physical visit to the premises to assess the number of workstations and actual business activity
• reviewing bank lodgements and cash reconciliations
• undertaking open-source checks, including online reviews and social media activity, to assess whether trading levels appear consistent with declared income.

A professional discussion may be held with the client highlighting that the financial profile of the business could attract scrutiny from HMRC and other regulatory authorities. The client should be encouraged to regularise any inaccuracies voluntarily.

Where explanations are incomplete or implausible, no excessive further questioning should occur as this could constitute tipping off. Based on the information available, a suspicion of tax evasion, payroll irregularities and potential breaches of employment law may arise. Professional scepticism may also extend to concerns regarding undocumented labour or worker exploitation.

Practice action
The practice has grounds to suspect the understatement or manipulation of taxable income, non-payment or underpayment of PAYE and employment taxes and wage irregularities and possible breaches of minimum wage legislation.

A SAR should therefore be submitted to the National Crime Agency in relation to suspected tax evasion and payroll irregularities.

Concerns regarding undocumented labour or labour exploitation may remain at the level of professional scepticism unless sufficient evidence exists to satisfy the threshold for suspicion. However, if there is suspicion that the proceeds of such criminal conduct are being laundered through the business, an AML reporting obligation may also arise in respect of those matters.

The practice should carefully consider whether continuing to prepare financial statements or tax returns could amount to assisting in the submission of false information or facilitating money laundering activity. Tax returns should not be filed where there is a suspicion that the information contained within them is materially incorrect. The practice should consider resigning from the engagement; however, careful consideration must be given to ensure that the resignation does not constitute or give rise to a tipping-off offence.

Case study 4: international licensing arrangements
A senior accountant within the practice identified a series of unusual transactions while preparing management accounts for a long-standing software development company. The company had recently begun invoicing a company registered in the British Virgin Islands for substantial ‘software licensing fees’. At the same time, the company was paying similarly valued ‘technology support fees’ to a Singapore based entity.

All invoices were settled quickly through international wire transfers. Company searches indicated that both overseas entities were controlled by individuals connected to the beneficial owners of the UK company, although the businesses were not formally part of the same corporate group. Historically, the company had operated solely within the UK and Ireland and had no previous international licensing activity. This is a non-audit client, and the practice has acted for the company for over eight years.

Red flags

• Transactions involve high-risk offshore jurisdictions with limited commercial transparency.
• Payments and receipts are circular in nature and lack a clear economic purpose.
• The arrangement appears designed to move funds through the UK to disguise their origin or destination.
• The transactions are inconsistent with the company’s normal business activities.
• Related-party connections exist between the overseas entities and the UK company owners.
• The consulting and licensing descriptions are vague and difficult to substantiate.
• Significant international fund flows commenced suddenly without an identifiable commercial expansion.

Requirement to investigate further
Given the offshore structures and international fund movements, the client’s AML risk profile should be categorised as high. Enhanced Customer Due Diligence procedures should be undertaken immediately, including updating beneficial ownership records and identification documentation.

Practice action
The practice should request supporting agreements relating to the licensing and support arrangements. Seek clarification from management regarding the commercial rationale for the transactions. Review whether the pricing and services provided appear commercially reasonable. Examine whether intellectual property actually exists and is being legitimately exploited. Consider whether transfer pricing or tax avoidance concerns arise.

If explanations are vague, contradictory or unsupported by documentation, a suspicion may arise that the UK company is being used as part of a layering process intended to obscure the origin or movement of criminal proceeds.

A professional discussion may be held with the client regarding the legal and regulatory risks associated with opaque offshore arrangements. However, the discussion must not stray into disclosure that a money laundering suspicion has arisen or that a report may be made, as this could constitute tipping off.

Where it appears that the transactions are knowingly structured to conceal funds or create false accounting entries, no excessive further investigation should take place due to the risk of tipping off.

The practice has formed a suspicion that the transactions may represent layering of criminal proceeds through the use of offshore entities and artificial intercompany arrangements.

A SAR should therefore be submitted by MLRO to National Crime Agency in relation to suspected money laundering activity. The practice should also consider whether continuing to act could expose it to allegations of facilitating money laundering.

The practice should consider resigning from the engagement; however, careful consideration must be given to ensure that the resignation does not constitute or give rise to a tipping-off offence.

Case study 5: overseas investment in commercial property
A limited company audit client operates a convenience supermarket from leased commercial premises in London. During the audit, management informed the engagement partner that the property had recently been purchased by the managing director’s cousin, who resides in Algeria.

Following the acquisition, the company continued to occupy the premises under substantially the same lease terms and rental payments. The client explained that the cousin has business interests in Cyprus and the United Kingdom. Monthly rent payments are now made to a bank account in Luxembourg held in the name of a foreign investment partnership. The property purchase was completed by an UK solicitor, and management advised that the acquisition funds originated from an overseas bank account in Algeria. The accounting practice does not act for the cousin or the investment partnership and has no direct knowledge of their financial affairs.

Red flags

• Rental payments and funding arrangements involve multiple jurisdictions
• The source of acquisition funds originated from a higher-risk overseas jurisdiction
• Payments are being made to an offshore investment structure with limited ownership transparency
• Foreign investment partnerships can be used to obscure beneficial ownership
• The transaction structure may facilitate layering of criminal proceeds through legitimate rental income
• The arrangement appears unnecessarily complex for a straightforward property investment.

Requirement to investigate further

As the supermarket is a cash-intensive business, it should already be classified as high risk from an AML perspective.

As the cousin is not investing directly into the trading company itself, there is no immediate requirement for the accounting practice to undertake customer due diligence on the cousin personally. Customer due diligence in relation to the property acquisition should ordinarily have been carried out by the solicitor acting in the conveyancing transaction.

However, the client is now making ongoing rental payments to an overseas investment structure funded through several jurisdictions. In the absence of a clear commercial explanation, this is sufficient to raise AML concerns and trigger a red flag.

The circumstances may give rise to a suspicion that the property acquisition and rental arrangement are being used to convert funds of uncertain origin into apparently legitimate rental income streams.

Practice action

The practice should inspect the lease agreement and supporting ownership documentation. Confirm the identity and status of the overseas landlord where possible. Undertake internet and corporate registry searches on the foreign investment partnership. Consider whether the rental terms are commercially reasonable. Document all enquiries and responses received from management.

Where explanations are vague, contradictory or unsupported, care should be taken.

The practice has formed a suspicion that the arrangement may involve the layering or laundering of criminal proceeds through international property ownership structures. Accordingly, a Suspicious Activity Report should be submitted to the National Crime Agency in relation to suspected money laundering activity.

The practice should also consider whether continuing to act for the client could expose it to the risk of facilitating money laundering through the preparation of financial statements or audit services.

Key gatekeepers

Accountants act as key gatekeepers within the financial system and play a critical role in identifying and responding to potential red flags indicative of money laundering, fraud or other financial crime. It is therefore essential that practitioners maintain appropriate professional scepticism, undertake regular AML training, and ensure they are equipped to recognise unusual or suspicious activity.

Firms should also implement robust procedures for customer due diligence, ongoing monitoring, and escalation of concerns, supported by clear documentation of decisions and rationale.

Further resources and detailed guidance on anti-money laundering obligations can be found at ACCA's AML hub