Money laundering is legally defined as the process by which the true ownership of the proceeds of crime are changed so that they appear to come from a legitimate source.

There are three phases to money laundering. The first is ‘placement’, where cash generated from crime is placed in the financial system.

The second is called ‘layering’, which takes place once the proceeds of crime are in the financial system. Layering obscures the origin. The third is ‘integration’. Once the origin has been obscured, the criminal is able to make the funds reappear as legitimate funds.

The criminal invests the funds in legitimate firms, acquires a property or even to uses them to settle litigation. Integration is often the most difficult stage to detect.

Money laundering is the process through which ‘dirty money’ is ‘cleaned’.

Dirty money? It is financial gain through criminal activity. Being ‘cleaned’ means making it look as though it has come from a legitimate source.

Property is often the number one target for criminals seeking to invest proceeds of crime. As a result, the buying of properties (conveyancing) has become a major risk area for solicitors. It is estimated that criminals launder £15bn in the UK each year and commit £700m of mortgage fraud.

Solicitors dealing with property matters face pressures from clients, mortgage brokers, estate agents.

Despite these pressures, solicitors need to be careful to apply due diligence.

Both the identity of the client and source of the funds must be risk assessed. If this is not done, the solicitor is liable to prosecution.

Anything unusual should raise suspicion. This could be where the client is unknown to a firm or does not attend the office in person.

Other warning signs might include purchasing a property for either less or above the market value; a request to forward the proceeds of sale to a third party; an instruction to complete the transaction particularly quickly. Any solicitor who suspects that a client might be trying to launder money has a legal obligation to report the client to the National Criminal Intelligence Service.

The solicitor must do this without telling the client.

Last year a solicitor was jailed for six months for unwittingly helping someone to launder drug money by accepting a deposit of £70,000. He failed to be satisfied that the money was from an honest source. The lawyer was not dishonest but the penalty was severe.

Every client involved in the sale or purchase of a property must undergo checks. They must provide proof of identity and address and will also be asked to attend at least one appointment in person.

Solicitors’ firms are targeted for money laundering purposes because solicitors’ firms commonly deal with clients’ money. It is for that reason that solicitors have strict obligations under the UK Anti Money Laundering to ensure their services are not used for criminal purposes.