Introduction
Gatekeepers such as lawyers, accountants, real estate agents, and trust and company service providers (TCSPs) serve critical roles in facilitating legitimate financial and business transactions. However, their services are also exploited by criminals seeking to launder money, evade taxes, or finance illegal activities. Gatekeepers often have direct access to sensitive financial and legal information, making them attractive targets for abuse. This blog explores the common typologies criminals use to exploit gatekeeper services, providing insights into schemes across various professions and highlighting the importance of robust anti-money laundering (AML) and counter-terrorism financing (CTF) measures.
The role of gatekeepers
Gatekeepers act as intermediaries, offering services that include structuring legal entities, managing financial transactions, facilitating property purchases, and ensuring compliance with regulatory requirements. While these roles are essential for supporting economic growth and efficiency, they also inadvertently create opportunities for misuse. Criminals exploit gatekeepers to:
- Obscure the origins of illicit funds
- Create complex structures that hide beneficial ownership
- Facilitate the movement of funds across jurisdictions
- Provide a veneer of legitimacy to illicit activities
Understanding the typologies of criminal exploitation is critical for gatekeepers to identify red flags and strengthen their defences.
Typologies by profession
Lawyers: Facilitating Legal Cover for Illicit Activities
Lawyers play a crucial role in structuring transactions and providing legal advice, which criminals often exploit to create a facade of legitimacy. Common schemes include:
Misuse of Attorney-Client Privilege
Criminals leverage attorney-client privilege to shield illicit activities from scrutiny. By involving lawyers in setting up shell companies or managing funds, they create a barrier to investigations.
Trust and Entity Creation
Lawyers are often involved in creating trusts, foundations, and corporate entities. Criminals exploit this expertise to:
- Create opaque ownership structures
- Use nominee directors or shareholders to hide their identities
Facilitation of Real Estate Transactions
In jurisdictions where lawyers facilitate property transactions, they may unknowingly process illicit funds. Criminals use these transactions to integrate laundered money into legitimate assets.
Accountants: Manipulating Financial Records
Accountants’ access to financial data and their expertise in structuring transactions make them prime targets for criminal exploitation. Common typologies include:
False Invoicing and Trade-Based Money Laundering (TBML)
Accountants may be complicit in or unaware of false invoicing schemes where:
- Goods are over- or under-invoiced to move illicit funds
- Phantom transactions are recorded to create paper trails for non-existent goods or services
Tax Evasion Schemes
Criminals rely on accountants to exploit tax loopholes, create offshore accounts, and avoid detection through:
- Misreporting income or deductions
- Transferring funds to jurisdictions with minimal tax reporting requirements
Auditing Irregularities
Some criminals manipulate accountants during audits to mask embezzlement or misappropriation of funds.
Real Estate Agents: Laundering Funds Through Property
Real estate transactions are highly susceptible to exploitation due to their high value and relatively low regulatory scrutiny. Criminal schemes in real estate include:
Cash Purchases
Criminals often purchase properties with large cash payments to avoid bank scrutiny. Real estate agents may fail to report these transactions, either due to negligence or lack of training.
Over-or Under-Valuation
Properties are intentionally over- or under-valued to obscure illicit financial flows. For instance, selling a property at an inflated price creates an opportunity to “clean” larger sums of money.
Use of Nominee Buyers
Nominee buyers, often family members or associates, are used to disguise the true ownership of properties.
Trust and Company Service Providers (TCSPs): Enabling Complex Structures
TCSPs are critical to the formation and management of companies, trusts, and other legal entities. Criminals exploit these services to:
Establish Shell Companies
Shell companies are used to:
- Funnel illicit funds
- Obscure beneficial ownership
- Transfer money across borders without scrutiny
Concealing Beneficial Ownership
By using nominee directors and shareholders, criminals make it nearly impossible to trace the true owners of an entity.
Use of Offshore Jurisdictions
TCSPs operating in offshore jurisdictions facilitate money laundering by creating entities in countries with lax disclosure requirements.
Common cross-professional typologies
Layering and Integration
Criminals use a combination of professions to create complex money laundering schemes:
- Lawyers create trusts and companies
- Accountants manage financial flows
- Real estate agents integrate illicit funds into assets
Use of Politically Exposed Persons (PEPs)
Gatekeepers often fail to conduct enhanced due diligence (EDD) on PEPs, enabling corruption and the misuse of public funds.
Exploiting Regulatory Arbitrage
Criminals exploit differences in regulatory frameworks across jurisdictions by using gatekeepers in countries with weaker oversight.
Strengthening defences against exploitation
There are a number of things that gatekeepers can do to strengthen their defences against exploitation by organised criminals including:
Enhanced Due Diligence (EDD)
Gatekeepers must:
- Identify and verify the ultimate beneficial owner (UBO)
- Assess clients’ risk levels and apply EDD for high-risk clients
- Monitor ongoing transactions for red flags
Leveraging Technology
Use advanced tools such as:
- Risk assessment software
- Transaction monitoring software
- Blockchain technology to track fund flows
- AI-driven risk assessment tools
Training and Awareness
Regular training ensures gatekeepers understand:
- Their AML/CTF obligations
- Emerging typologies and red flags
- Reporting requirements for suspicious activities.
International Cooperation
Collaboration between jurisdictions can close regulatory gaps. Gatekeepers should:
- Report suspicious activities to Financial Intelligence Units (FIUs)
- Participate in information-sharing initiatives
Conclusion
Criminals continue to exploit gatekeeper professions to facilitate illicit financial activities. Understanding the typologies used across different professions is critical to developing effective countermeasures. By adopting robust compliance measures, leveraging technology, and fostering international collaboration, gatekeepers can strengthen their defences and contribute to global efforts to combat financial crime. Addressing these vulnerabilities requires vigilance, continuous education, and a commitment to ethical practices to uphold the integrity of financial and legal systems.
