Anti-Money Laundering: Key Issues for Local Government Legal and Governance Teams

Money laundering risk is often seen as a problem for banks, lawyers and accountants. But local authorities are far from immune.

In a recent webinar hosted by Sharpe Pritchard, Corporate Partner Pete Collins explored how anti-money laundering (AML) laws apply to local authorities, where the risks typically arise in council transactions, and what governance teams should have in place to manage those risks effectively.

Pete leads Sharpe Pritchard’s Corporate and Funding team and also acts as the firm’s Money Laundering Reporting Officer, giving him day-to-day responsibility for ensuring the firm complies with AML rules. His session focused on the practical implications of the AML framework for local government teams involved in property, regeneration and funding transactions.

As he explained early in the session, AML is not just a regulatory issue for the private sector.

“Local authorities are generally outside the regulated sector for money laundering purposes. But the criminal offences under the Proceeds of Crime Act apply to everybody, including public bodies.”

Contents

1. Why AML still matters for local authorities
2. The UK anti-money laundering framework
3. Where AML risks arise in council activity
4. The key offences under the Proceeds of Crime Act
5. Politically exposed persons and sanctions risk
6. Common red flags in property and funding transactions
7. Practical governance steps for councils
8. Key takeaways for local government teams

Why AML still matters for local authorities

Although councils are not usually considered part of the “regulated sector” under the Money Laundering Regulations 2017, they still operate in environments where large financial transactions take place.

These include:

• land disposals
• regeneration schemes
• joint ventures with private developers
• grant funding to businesses and organisations

Each of these transactions can potentially involve external counterparties bringing significant funding into projects.

The key legal point is that the Proceeds of Crime Act 2002 (POCA) applies universally.

As Pete put it:

“The Proceeds of Crime Act applies across the board. It doesn’t matter what organisation you are, those offences still apply.”

That means local authorities must remain alert to the possibility that criminal property could enter transactions involving public assets or funding.

The UK anti-money laundering framework

Pete began by outlining the three core legislative pillars that underpin the UK’s AML regime:

1. Proceeds of Crime Act 2002

This creates the core criminal offences relating to money laundering and establishes the suspicious activity reporting regime.

2. Money Laundering Regulations 2017

These regulations impose detailed compliance obligations on organisations in the regulated sector, such as law firms, banks and accountants.

3. Economic Crime and Corporate Transparency Act 2023

This newer legislation strengthens corporate transparency and introduces enhanced identity requirements for company directors and beneficial owners.

Even where local authorities sit outside the regulated sector, understanding how these frameworks interact helps governance teams identify where risk may arise.

Where AML risks arise in council activity

According to Pete, the most common exposure point for local authorities is property transactions.

Land disposals, regeneration schemes and development partnerships often involve significant private sector investment. These are exactly the types of transactions where criminal proceeds might be integrated into the legitimate economy.

“Integration is often the stage where local authorities are more likely to encounter criminal proceeds, particularly where funds are invested into regeneration or development schemes.”

While most councils work with well-known developers and reputable organisations, risks may arise where:

• new or unfamiliar development companies are involved
• complex overseas ownership structures exist
• funding sources are unclear

Grant funding programmes can also present risk, particularly where public funds are diverted or misused after they are distributed.

The key offences under the Proceeds of Crime Act

The Proceeds of Crime Act creates three principal money laundering offences:

1. Concealing, disguising or transferring criminal property
2. Entering into arrangements involving criminal property
3. Acquiring, using or possessing criminal property

For local authorities, the second offence can be particularly relevant. This involves entering into arrangements that facilitate the use of criminal property.

The consequences are serious. The maximum penalty is up to 14 years’ imprisonment.

Even though such scenarios are rare, governance teams need to understand the legal framework and the importance of escalating concerns when they arise.

Politically exposed persons and sanctions risk

Another area Pete highlighted was the concept of politically exposed persons (PEPs).

PEPs include individuals who hold prominent public positions, such as senior politicians, government officials, judges or military officers.

Where a PEP is connected to a transaction, enhanced due diligence is usually required.

For example, a council disposing of land to a company ultimately owned by an overseas political figure may need to undertake deeper checks on:

• the source of investment funds
• the beneficial ownership structure
• potential sanctions exposure

This is particularly important given the overlap between AML compliance, sanctions regimes and wider national security considerations.

Common red flags in property and funding transactions

During the webinar Pete highlighted several warning signs that may warrant further scrutiny, including:

• opaque corporate ownership structures
• funding routed through unexpected accounts
• reluctance to provide information about beneficial owners
• pressure to complete transactions unusually quickly
• involvement of high-risk jurisdictions

None of these factors automatically indicate wrongdoing. However, they may justify additional due diligence or internal escalation.

Practical governance steps for councils

The good news is that councils do not need to replicate the full regulatory regime imposed on law firms or banks.

Instead, the focus should be on proportionate governance measures, including:

• a clear anti-money laundering policy
• a nominated officer responsible for AML reporting
• internal escalation procedures
• staff awareness and training
• good record keeping of due diligence and decisions

Pete emphasised that AML compliance is fundamentally risk based, rather than a rigid tick-box exercise.

“The money laundering regime is not a black and white regime. It’s risk based. Every situation is different and you need to look at the risk in the round.”

Key takeaways for local government teams

Pete closed the session with several practical reminders for local authority lawyers and governance teams:

• The Proceeds of Crime Act applies to everyone, including public bodies.
• AML risk most commonly arises in property transactions and regeneration projects.
• Identifying red flags early is key to managing potential risks.
• Councils should adopt clear policies, training and reporting procedures as part of good governance.

Ultimately, the goal is not to turn local authorities into regulated financial institutions, but to ensure the right processes are in place so that risks can be identified and escalated appropriately.

If you’d like to discuss this matter with Pete or one of his team, please do get in touch.

Pete Collins is a Partner at Sharpe Pritchard LLP.

---

For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.

 

 

Visit Sharpe Pritchard's new Building Safety Hub, focusing on The Building Safety Act 2022 and its wide-ranging impact.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it..