Resources
Understanding AML risks in accounting: Red flags and compliance considerations
17 February, 2025
Criminals often exploit accounting services to create a façade of legitimacy, obscure ownership and move illicit funds through corporate structures.
The accounting profession plays a critical role in detecting and preventing financial crime. Accountants handle financial records, transactions and tax filings, making them key gatekeepers in the fight against money laundering and illicit financial activity.
Whether you work in a large accounting firm, a small practice, or as an independent accountant, failing to recognise and mitigate money laundering risks can expose your business to financial penalties, reputational damage and regulatory enforcement. AML (Anti-Money Laundering) compliance obligations are becoming more stringent globally, and Australia is no exception.
With AML legislation coming into effect in 2026 familiarising yourself now with red flags at both client onboarding and throughout the business relationship is critical. It is not enough to perform due diligence at the start—accountants must continuously monitor client activities and transactions to detect suspicious behaviour over time.
Lessons from Overseas: The Cost of Non-Compliance
Countries where accountants are subject to AML regulations have seen serious penalties for non-compliance:
- United Kingdom: For the 2024 financial year the Financial Conduct Authority (FCA) and HMRC imposed £78,870 in penalties on 21 accountancy firms and a further six tax advisers were also fined £20,000 worth of penalties.
- New Zealand: The Department of Internal Affairs (DIA) enforces strict AML rules for accountants, with penalties reaching up to NZ$5 million for firms and NZ$300,000 for individuals.
- European Union: Non-compliance with AML directives have led to criminal prosecutions, license revocations and reputational damage for accounting firms.
These examples signal what Australian accountants could face when AML obligations under Tranche 2 reforms take effect. The time to prepare is now.
Red Flags in Accounting: Identifying Suspicious Activity
Accountants must identify red flags both at onboarding and throughout the client relationship. A client may initially appear low-risk but later engage in suspicious activities. Equally, you may have serviced a client for years, but having never completed CDD, you don't know if they have been money laundering or not.
Ongoing monitoring ensures that changes in financial behaviour, ownership structures, or transaction patterns do not go unnoticed.
Note that there are common red flags across all industries, but these ones are particular to the accounting industry.
Transaction/Service Red Flags
General Red Flags
- The company consistently reports sales below cost, leading to sustained losses without a reasonable explanation for continued operations.
- A previously dormant company suddenly shows large financial activity without a clear economic rationale.
- Transactions appear circular, with similar incoming and outgoing payments involving the same parties, potentially indicating layering of funds.
- The company makes payments to related entities with similar or identical directors, shareholders, or beneficial owners without a clear commercial reason.
- The client engages in transactions using unusual means of payment, such as precious metals, cryptocurrencies, or bearer instruments.
- Client frequently adjusts financial statements to reduce tax obligations or obscure financial health.
- Unjustified write-offs of assets or bad debts that lack a business rationale.
- Intercompany loans without formal agreements, repayment terms, or interest rates, making the flow of funds difficult to trace.
- Large cash deposits or withdrawals in a business that does not typically handle cash.
Payments for services or assets significantly above or below market value without reasonable justification. - Frequent late or amended tax filings, particularly in response to audits or regulatory scrutiny.
- Transactions involve last-minute changes to payment methods or sources of funds without logical reasoning.
- Company acquires businesses in liquidation with no clear legal, tax, or economic benefit.
- Funds received into a trust account are unexpected or exceed expected amounts, followed by instructions directing their use or payment.
- Use of trust account for transactions that should be conducted directly from the customer’s bank account.
- Request to hold funds unrelated to any particular service provided by the accountant.
Red Flags When Managing Client Funds, Accounts, Securities, or Other Assets
- Aborted activities or transactions after receipt of funds, followed by a request for a refund or an unexplained request to send funds to a third party.
- Customer directing transfers of funds with no reasonable economic benefit.
- Customer terminates the relationship quickly and unexpectedly after transactions have been initiated.
- Payments from unrelated or unknown third parties without a legitimate explanation.
- Payments received in cash where cash payments are not typical for the business.
- Transaction involves a disproportionate amount of private funding or cash inconsistent with the client’s financial profile.
Red Flags When Providing Trust and Company Services
- Creation of complicated ownership structures, including cross-border structures, without a legitimate economic reason.
- Frequent changes in legal structures or company directors without a clear purpose.
- Requests to form or act for a legal person or arrangement without seeking legal or tax advice.
- Use of an intermediary without good reason.
Country/Geographic Red Flags
- The client transacts frequently with high-risk jurisdictions known for weak AML regulations, tax havens, or high levels of corruption.
- Company is registered in an offshore jurisdiction with no apparent business rationale.
- Funds are regularly transferred to or from countries under financial sanctions or those identified as high-risk by global regulators.
- The client operates multiple bank accounts across different countries without a clear business purpose.
- The company is invoiced by organisations based in offshore secrecy jurisdictions, often with little to no transparency in ownership.
- Funds received from or sent to a country where the client has no apparent connection.
- Funds received from or sent to high-risk countries.
Customer Risk Red Flags
- Businesses that are not normally cash-intensive but appear to have substantial cash reserves.
- Funds paid into a trust account by a third party on behalf of the customer without a clear reason.
Conclusion
Accounting services remain a high-risk target for money laundering, and Australian accountants must be prepared for increased regulatory scrutiny. Identifying AML risks is not a one-time exercise—red flags can emerge at onboarding and throughout the client relationship.
By implementing strong due diligence, transaction monitoring, and ongoing training, accountants can stay ahead of AML reforms, safeguard their businesses and contribute to a more transparent financial system.
About First AML
This article is not only written from the perspective of a technology provider, but also from the lens of compliance professionals. Prior to releasing Source, First AML’s orchestration platform, we processed over 2,000,000 AML cases ourselves. Understanding the acute problem that faces firms these days as they try to scale their own AML, is in our DNA.
That's why Source now powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Source stands out as a leading solution for organisations with complex or international onboarding needs. It provides streamlined collaboration and ensures uniformity in all AML practices.
Keen to find out more? Book a demo today!