← Back to blog

Anti-Money Laundering and Financial Crime for SQE1

Part of our SQE1 Legal Services guide → View the full SQE1 Legal Services guide

14 Apr 2026

Legal Services – Anti-Money Laundering and Financial Crime...

Anti-Money Laundering and Financial Crime

Legal Services > Anti-Money Laundering and Financial Crime

Anti-money laundering (AML) obligations are among the most practically important duties a solicitor faces and among the most heavily tested in SQE1. You must understand the statutory framework, the reporting obligations, and critically, the interaction between AML duties and client confidentiality. This topic has teeth—understanding it can be the difference between passing and failing.

What Is Anti-Money Laundering in SQE1?

Candidates often lose marks on SQE1 by confusing the duty to report suspicious activity with the tipping-off offence — making a report is mandatory, but warning the client is a criminal offence. Money laundering is the process of concealing the origins of criminally obtained money so that it appears to come from a legitimate source. Solicitors are regulated as part of the 'supervised sector' because legal services can be used to facilitate money laundering—for example, through property transactions, trust structures, or the movement of funds through client accounts. The key legislation is the Proceeds of Crime Act 2002 (POCA), the Terrorism Act 2000, and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).

Understanding AML is essential because it overrides confidentiality in certain circumstances and interacts with Confidentiality and Legal Professional Privilege in complex ways. It is also a practical topic that directly affects how solicitors conduct transactions.

This topic is closely linked to confidentiality and legal professional privilege and forms a key part of the Legal Services syllabus for SQE1.

Key Principles for SQE1

  • Three Principal Money Laundering Offences: Under POCA 2002: concealing criminal property (section 327), arranging the acquisition, retention, use, or control of criminal property (section 328), and acquiring, using, or possessing criminal property (section 329).

  • Failure to Disclose: Section 330 of POCA creates a statutory duty: a person in the regulated sector commits an offence if they know, suspect, or have reasonable grounds for knowing or suspecting that another person is engaged in money laundering and they fail to make a disclosure to the National Crime Agency (NCA) via a Suspicious Activity Report (SAR).

  • Tipping Off Offence: Section 333A of POCA makes it an offence for a person in the regulated sector to disclose to another person that a SAR has been made, or that an investigation is being contemplated or carried out, if that disclosure is likely to prejudice the investigation.

  • Customer Due Diligence (CDD): Under MLR 2017, firms must verify the identity of clients before establishing a business relationship or carrying out an occasional transaction. Enhanced due diligence (EDD) is required for higher-risk situations, such as politically exposed persons (PEPs).

  • Risk-Based Approach: Firms must carry out a firm-wide risk assessment and apply CDD measures proportionate to the risk presented by each client and transaction. This is not one-size-fits-all.

  • Money Laundering Reporting Officer (MLRO): Every firm in the regulated sector must appoint an MLRO to receive internal reports of suspicion and decide whether to submit SARs to the NCA.

  • Consent Regime: Where a solicitor suspects money laundering and is asked to proceed with a transaction, they must seek 'appropriate consent' from the NCA before proceeding. Acting without consent is an offence.

Exam tip

The AML trap: confusing the duty to report with the duty to disclose to the client. You must file the SAR. You must not tip off the client about the SAR. Confidentiality does not override the statutory reporting duty to the NCA. The test is reasonable grounds for suspicion—not proof—so low-level red flags can trigger a reporting obligation.

How This Appears in SQE1 Questions

SQE1 questions on AML are some of the most scenario-heavy in the paper. Examiners test whether you can identify when a SAR must be made, whether tipping off would occur, and how AML duties interact with confidentiality and legal professional privilege. The classic trap is suggesting that confidentiality prevents a solicitor from filing a SAR—it does not; the statutory reporting duty overrides confidentiality. Another common trap is failing to seek consent from the NCA before proceeding with a suspicious transaction.

A solicitor is acting for a client in a property purchase. The client provides cash funds of £500,000 and cannot satisfactorily explain where the money came from. The solicitor suspects the funds may be the proceeds of crime.

This is a classic SQE1 trap.

Common Mistakes Students Make

  • Believing that client confidentiality prevents filing a SAR—it does not; the statutory duty overrides confidentiality.
  • Confusing the 'tipping off' offence with the legitimate obligation to file a SAR—filing the SAR is required; telling the client about it is the offence.
  • Forgetting to seek appropriate consent from the NCA before proceeding with a suspicious transaction.
  • Overlooking the requirement for customer due diligence at the outset of the retainer—CDD must be completed before establishing the business relationship.

Quick Summary

  • Solicitors must make Suspicious Activity Reports (SARs) to the NCA under section 330 POCA when they know, suspect or have reasonable grounds for suspicion of money laundering.
  • The statutory duty to report SARs overrides client confidentiality but not legal professional privilege.
  • Tipping off (section 333A, POCA)—disclosing a SAR or investigation to the client or third party is an offence.
  • Solicitors cannot proceed with transactions involving suspected money laundering without obtaining appropriate consent from the NCA (the consent regime).
  • Failure to seek consent or to file a required SAR are serious criminal offences.
  • Customer due diligence (CDD) must be completed before establishing a business relationship; enhanced due diligence for higher-risk clients like PEPs.

Want to test this now? Try a few SQE1-style questions below before moving on.

Test Yourself

Test yourself

Quick check questions based on this article.

Question 1

Scenario

A solicitor is instructed by a corporate client to act in the acquisition of a chain of restaurants. The client is a company incorporated in England and Wales. The solicitor commences customer due diligence by verifying the identity of the company and its directors. During the CDD process, the solicitor discovers that one of the company's directors is a politically exposed person who previously held a senior government position in an EU member state. The director resigned from the government position three years ago. The solicitor is aware that the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 impose enhanced due diligence requirements in respect of politically exposed persons. The solicitor is unsure whether the enhanced due diligence obligations continue to apply to a person who is no longer politically exposed, or whether the standard due diligence requirements are sufficient. The solicitor's firm has a compliance manual that states enhanced due diligence should be applied to all current PEPs but does not address former PEPs. The director has provided standard identification documents and a letter confirming the resignation from public office. The firm's money laundering reporting officer has not been consulted on this specific point.

Which of the following best describes the solicitor's due diligence obligations in relation to the former politically exposed person?

Question 2

Scenario

A solicitor acts for a client in a commercial property transaction. The client is purchasing a warehouse for £1.2 million. The solicitor conducts customer due diligence at the outset and is satisfied with the client's identity and source of funds. The purchase proceeds without incident and the transaction completes. Six months after completion, a law enforcement agency contacts the solicitor and informs the solicitor that the client is under investigation for tax evasion. The agency states that the funds used for the warehouse purchase may represent the proceeds of criminal conduct. The solicitor had no knowledge or suspicion of any criminal activity at the time of the transaction. The solicitor is now concerned about potential liability under section 328 of the Proceeds of Crime Act 2002 for having entered into an arrangement that facilitated the acquisition of criminal property. The solicitor seeks advice on whether the adequate consideration defence under section 329(2)(c) might apply to the transaction. The solicitor provided legal services in connection with the purchase and charged standard conveyancing fees. The solicitor did not receive any payment beyond the agreed fees and did not acquire any interest in the property.

Which of the following best describes the availability of the adequate consideration defence to the solicitor?

Question 3

Scenario

A solicitor acts for a foreign national who wishes to purchase a residential property in London for £3.5 million. The client is a citizen of a country that is not subject to any international sanctions but has been identified by Transparency International as having a high corruption perception index. The client states that the funds come from legitimate business activities in the client's home country. The solicitor conducts customer due diligence and verifies the client's identity using a valid passport and a certified bank reference from the client's bank in the home country. The solicitor requests evidence of the source of funds, and the client provides bank statements showing the funds held in an account in the client's name. The statements show a single large deposit six months ago with no other significant transactions. The solicitor is aware that the Money Laundering Regulations 2017 require enhanced due diligence in certain circumstances involving customers from high-risk countries. The solicitor's firm has a risk-based approach to anti-money laundering compliance. The solicitor is uncertain whether the level of due diligence conducted is sufficient or whether further steps are required. The client is pressing for urgency because the seller has received another offer. The solicitor has not yet consulted the firm's money laundering reporting officer about the transaction.

Which of the following best describes the solicitor's due diligence obligations in these circumstances?

Practice with full exam-style questions

Try DemoView Pricing

Related Topics

Practise Anti-Money Laundering and Financial Crime Questions for SQE1

Want to solidify your knowledge? ActusPrep provides realistic SQE1 questions tailored to this topic.

👉 Try our free demo: https://actusprep.com/demo 👉 View plans and pricing: https://actusprep.com/pricing