Trust Accounts and the Hidden AML Risk in Everyday Legal Practice

Author, Amy Bell, CEO and Founder of AML Sorted

Trust accounts sit at the heart of legal practice. They are a practical necessity, a regulatory obligation and a symbol of professional integrity. Yet from an anti-money laundering perspective, they are also one of the most underestimated risk areas within a law firm.

Consider a familiar scenario. A client transfers funds into your trust account in anticipation of a transaction. The deal does not proceed. The client requests the return of the funds. On its face, this appears entirely routine. However, if those funds represent criminal property, returning them may amount to participation in money laundering. 

This is why trust accounts must never operate as informal banking facilities. Criminals are drawn to professional trust accounts because they carry legitimacy. The involvement of a solicitor provides reassurance to counterparties and institutions. Once funds have passed through a regulated client account, their origin can appear less questionable. The professional layer creates distance from the initial source. 

Common trust account AML risk scenarios include overpayments, unexpected third-party transfers, surplus funds returned after billing, and late-stage changes to funding structures. Bridging finance introduced shortly before settlement is a recurring typology in property matters. A transaction that begins straightforwardly can quickly become more complex, with new lenders, urgent documentation and compressed timeframes. 

Effective AML controls must operate before funds are accepted and before they are transferred. Waiting until money sits in the trust account is already reactive. By that point, the firm is actively involved in the movement of assets. 

It is also important to recognise that holding or controlling client money is often classified as a designated service under AML legislation. This extends AML obligations beyond conveyancing or transactional work. Even where the legal advice itself falls outside scope, the handling of funds can trigger compliance requirements. 

Clear internal policies should prohibit the use of trust accounts for convenience transactions unrelated to genuine legal services. Staff training must reinforce the principle that “temporarily holding funds” is not a neutral act. It carries regulatory and criminal risk if the source of funds is not properly understood. 

Trust account compliance is not merely an accounting discipline. It is a frontline AML control. Every transfer should make commercial sense. Every source of funds should be capable of explanation. Every unusual instruction should prompt inquiry rather than assumption. 

Law firms are entrusted with significant financial responsibility. Protecting that trust requires rigorous oversight and consistent application of AML principles. 

Thanks for reading. If you’d like to learn more about how AML Sorted can support you and your firm with Tranche 2 preparation, feel free to get in touch, we’re always happy to talk.

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