Trust Account Transactions: A High-Risk Red Flag
Trust accounts at law firms, conveyancers and real estate agencies are highly attractive to money launderers. Funds passing through a trust account gain an appearance of legitimacy. Under Tranche 2, you must monitor for red flags.
Why trust accounts are targeted
Trust accounts offer criminals several advantages:
- Legitimacy by association: Funds from a law firm trust account appear clean
- Layering opportunity: Funds can be moved through multiple accounts
- Integration: Proceeds can be integrated into property purchases
- Professional shield: Criminals may expect confidentiality protections
Red flags in trust account activity
Deposit red flags
- Cash deposits over $10,000 (or structured below $10,000) - see TTR obligations
- Multiple deposits from different sources for the same matter
- Third-party deposits with no connection to the matter
- Deposits significantly exceeding the estimated transaction costs
- International transfers from high-risk jurisdictions
- Cryptocurrency conversions into trust deposits
Withdrawal red flags
- Refunds to parties different from the depositor
- Requests for cash withdrawals
- Rapid in-and-out transactions (quick deposits followed by withdrawals)
- Transfers to accounts in high-risk jurisdictions
- Requests to transfer funds unrelated to the legal matter
Behavioural red flags
- Client is unconcerned about transaction costs or delays
- Client is overly interested in how trust accounts work
- Transaction is abandoned after deposit (possible layering attempt)
- Client provides evasive answers about source of funds
- Matter appears to have no legitimate commercial purpose
Your obligations
When you identify trust account red flags:
- Apply enhanced scrutiny to the transaction
- Document your concerns in the client file
- Consider the overall picture - one red flag may not be suspicious, multiple may be
- File an SMR if you form a suspicion on reasonable grounds
- Do not tip off the client about your concerns
Cash threshold reporting
Remember: if you receive $10,000 or more in cash (physical currency), you must file a Threshold Transaction Report (TTR) within 10 business days. This is separate from SMR obligations.
Key Takeaway
Trust accounts are high-risk for money laundering. Monitor for deposit, withdrawal and behavioural red flags. Document your concerns, apply enhanced scrutiny, and file an SMR if you form a suspicion. Never tip off the client.
Read our complete Tranche 2 Guide
Key dates, affected sectors, obligations and how to prepare
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