Hidden Red Flags in Real Estate Work: AML Risks Law Firms Can’t Afford to Miss

Property: A Money Launderer's Favourite Investment

If you’re in legal practice, chances are you work on property deals. Whether residential, commercial, or both, real estate remains one of the most exploited sectors for money laundering — and law firms play a key role in those transactions.

But many red flags in property work aren’t obvious — especially when clients appear legitimate on the surface.

To protect your firm and stay compliant with Australia’s AML regime, it’s critical to know what to look for.

Why Criminals Love Property

Property allows large sums of money to move quickly, under the cover of legitimate transactions. Criminals use real estate to:

• Disguise the source of illicit funds

• Invest dirty money into a stable asset

• “Flip” property for rapid integration of laundered cash

• Generate ongoing income that appears clean (e.g. rent)

Involving a lawyer in the process adds credibility — making it less likely that others will question the transaction.

AML Risks - Red Flags You Might Miss

These red flags are drawn directly from AUSTRAC’s National Risk Assessment and FATF guidance — and they’re all relevant to everyday legal practice:

Unusual Ownership Structures

• Complex company or trust arrangements with no clear rationale

• Use of offshore entities with little commercial connection

Rapid Resale (Property Flipping)

• Properties bought and resold within a short timeframe

• Significant increase in sale price without visible upgrades

Undervaluation or Overvaluation

• Valuations that don’t reflect the market rate

• Discrepancies between the sale price and funding source

Renovation Laundering

• Large sums spent on property improvement with unclear funding

• Clients unable to explain the source of funds for renovation work

False Rental Activity

• Rental income used to “justify” deposits — but no evidence the property is actually let

• Fake tenancy agreements or self-pay arrangements

Urgency and Secrecy

• Client pushes for quick settlement without explanation

• Hesitation to disclose source of funds or beneficial ownership

Commercial Property Is Not Exempt

Historically, focus has been on residential transactions. But commercial property carries just as much risk — sometimes more. Criminals may:

• Purchase office buildings, retail spaces, or land through layered entities

• Launder funds through business tenancies with inflated rental payments

• Use legitimate commercial property deals as a front for criminal activity

In short: if you’re involved in any real estate transaction, your AML radar needs to be on.

What Law Firms Should Do

Law firms should:

• Integrate red flag indicators into your client matter risk assessment

• Ensure fee earners and support staff are trained to spot suspicious patterns

• Avoid treating regular property clients as automatically low-risk

• Document your concerns — and your decisions

• Escalate when something doesn’t feel right

Final Thoughts

The biggest risk in property work is not knowing what to look for. You don’t need to become a detective — but you do need systems that prompt the right questions, and a team that knows when to ask them.

Want help building risk indicators into your property workflows?

AML Sorted supports law firms with practical tools to detect and respond to real estate-related AML risks. Get in touch.