With AML/CTF Tranche 2 regulations set to roll out this July, legal practitioners need to strengthen their ability to spot suspicious clients. Understanding what to look for and why it matters is a critical first step in building compliance confidence. Here are practical tips to help you stay ahead and protect your firm.
1. Understanding which customers present higher risk
The property market attracts a broad mix of clients, from experienced investors to customers you may only deal with once. This diversity means professionals can be exposed to illicit activity, making it extra important to assess customer risk.
When assessing customer risk, it is important to consider a range of factors, particularly when working with:
- Customers operating cash-intensive businesses, where illegal funds can be mixed with legitimate income.
- Individuals buying or selling on behalf of others, which can obscure the true buyer.
- Remote buyers who have not inspected the property
- Politically exposed persons (PEPs), due to heightened exposure to corruption and bribery.
- Customers using business or trust structures that make it difficult to identify beneficial ownership.
2. Indicating suspicious customers through their profile
Risk can emerge when a customer’s profile does not align with their activity. Examples include customers who:
- Use large amounts of cash for the purchase and cannot explain its source
- Have lifestyle or transactions that do not match known income or business profiles.
- Use shell entities or dormant businesses to purchase residential property.
- Own a business with little to no trading
- Linked to sanctioned individuals, high-risk jurisdictions, or industries associated with serious financial crime.
3. Behavioural red flags to watch for
Suspicious activity also often shows up in behaviour before it appears in documents. Indicators that should prompt closer examination include customers who:
- Avoid face-to-face meetings
- Appear defensive or secretive in their dealings with you
- Resist to prove their identity or provide vague information during KYC processes
- Request a sudden change of ownership without clear reasons
- Ask for shortcuts and rapid transactions to close the deal quickly
- Willing to pay more for services, such as brokerage fees and higher commissions
- Display unusually detailed knowledge of AML/CTF requirements
On their own, these behaviours may be explainable. However, when they appear repeatedly or in combination, the risk is far more likely to be significant.
4. Companies, trusts and other legal entities
Some property transactions involve companies, trusts or layered legal structures. While often legitimate, these arrangements can increase risk where beneficial ownership is difficult to identify and must be confirmed through detailed documentation, such as trust deeds. Such structures may be used to conceal true ownership, rely on stolen or misused identities, or make asset recovery more challenging when property is held in a company name.
Prepare your firm now
Understanding suspicious customer indicators is one part of the picture. Just as important is ensuring your onboarding, verification, risk assessment and record keeping workflows are structured and easy for your team to follow. With Tranche 2 approaching, firms that prepare early will be better positioned to meet their obligations with control and certainty.
Source: AUSTRAC
