Behind Closed Books: Money Laundering in UK Insolvency Proceedings

Background

This policy paper examines the money laundering risks and anti‑money laundering (AML) challenges arising within UK insolvency proceedings. The central problem addressed is the increasing vulnerability of insolvency processes to criminal misuse, particularly where regulatory, supervisory, and professional safeguards prove insufficient.

This matters because the misuse of insolvency facilitates the concealment of illicit funds and undermines the integrity of the insolvency system, distorts market functioning, and weakens public confidence in the broader financial and regulatory environment.

According to the National Crime Agency (NCA), an estimated £100 billion is laundered through the UK economy each year, underscoring the scale of the challenge posed by insolvency‑related risks. Drawing on evidence presented at the international conference Behind Closed Books: Money Laundering in UK Insolvency Proceedings (University of Leeds, July 2025), supervisory reports, academic research, and stakeholder consultation, the paper identifies several structural vulnerabilities that make insolvency processes susceptible to abuse. Criminals may exploit insolvency through methods such as shell companies, phoenixing, and fabricated debt structures. These schemes can remain undetected where practitioners, supervisors, and enforcement bodies face constraints in information‑sharing, resources, and coordinated intervention. While recent reforms, including the Insolvency Service’s expanded AML mandate and the introduction of the Economic Crime Levy, represent steps forward, persistent gaps in compliance, oversight, training, and inter‑agency data sharing continue to limit the effectiveness of the AML regime.

Key findings

The paper identifies recurring weaknesses across the insolvency sector. For Insolvency Practitioners (IPs), customer due diligence (CDD) remains an area of concern: the Insolvency Service reported that five out of eight AML‑related disciplinary actions in 2024 involved failures in CDD; while the Insolvency Practitioners Association (IPA) found that seven out of twelve real‑life money laundering cases analysed involved CDD breaches.

Policymakers and supervisors face significant information‑sharing challenges that affect the coherence and effectiveness of the AML regime. Horizontally, insufficient collaboration among Companies House, The Insolvency Service, HMRC, the FCA, NCA, and PBSs limits the sector’s ability to identify risks and detect red flags. Vertically, information largely flows upwards through Suspicious Activity Reports (SARs), but downward feedback remains inadequate. As a result, IPs receive little insight into the outcomes of their SARs, PBSs cannot meaningfully risk‑profile supervised populations, and practitioners are unable to learn from real cases to strengthen their practices.

A further set of challenges concerns the lack of consistency in the implementation of best practices across supervisory bodies. Despite initiatives led by OPBAS, supervisory approaches continue to vary in the scope of oversight, the quality of advisory notices, and the application of sanctions.

Compounding these issues are resource constraints within both The Insolvency Service and PBSs, which limit their capacity to undertake detailed investigations or pursue robust enforcement. Finally, concerns remain regarding sanctions and transparency, as penalties are not always proportionate or sufficiently publicised to deter misconduct. In many cases, sanctions issued by PBSs are not widely communicated, reducing their deterrent and educational effect.

Recommendations

For IPs, the paper calls for stronger risk‑based CDD practices, closer engagement with AML training and outreach initiatives, and improved use of available intelligence tools. For supervisors, it proposes harmonising supervisory approaches across the sector, strengthening information‑sharing frameworks, enhancing follow‑up on SARs, and applying enforcement measures more consistently. For policymakers and MPs, the paper recommends reinforcing the AML regulatory framework, ensuring adequate funding for investigative and supervisory functions, granting greater supervisory powers where appropriate, and increasing parliamentary attention to the AML risks inherent to insolvency.