Beyond the Checklist: Identifying Red Flags in Practice
In the past few years, we have seen a flurry of activity in the Anti-Money Laundering scene.
Kicking off the season in April 2023 was the Legal Profession (Prevention of Money Laundering and Financing of Terrorism) (Amendment) Rules 20231https://sso.agc.gov.sg/SL/LPA1966-S307-2015?DocDate=20170914&ProvIds=P11-. The Law Society quickly kicked into gear and updated Practice Direction 3.2.1 on the Prevention of Money Laundering (Including Proliferation Financing) and Financing of Terrorism.
2023 was also the year where the Singapore authorities conducted an operation which saw one of the biggest money-laundering cases in the world with S$3 billion in assets seized. Not only were 10 foreign nationals convicted and deported, this case also saw fines of S$27.45 million imposed on various financial institutions and individuals2https://www.mas.gov.sg/regulation/enforcement/enforcement-actions/2025/mas-takes-regulatory-actions-against-9-financial-institutions-for-aml-related-breaches, and enforcement action taken by the Director of Legal Services (“DLS”) against 6 law practices.3https://www.mlaw.gov.sg/update-on-enforcement-actions-in-the-legal-sector-arising-from-the-2023-case/
Regulatory Changes in AML & the FATF Report
Then in 2024, Singapore passed sweeping enhancements to its anti-money laundering regime. Amongst the slew of changes, we saw the launch of COSMIC4https://www.mas.gov.sg/news/media-releases/2024/mas-launches-cosmic-platform, followed by the release of the National Strategy for Countering the Financing of Terrorism (CFT)5https://www.mas.gov.sg/news/media-releases/2024/singapore-refreshes-the-tf-nra-and-national-strategy-for-cft, updated Terrorist Financing (TF) National Risk Assessment (NRA)6https://www.mas.gov.sg/publications/monographs-or-information-paper/2024/terrorism-financing-national-risk-assessment-2024, Money Laundering (ML) National Risk Assessment (NRA)7https://www.mas.gov.sg/publications/monographs-or-information-paper/2024/money-laundering-national-risk-assessment, Money Laundering (ML) and Terrorism Financing (TF) Risk Assessment for Legal Persons (LP RA)8https://www.mas.gov.sg/publications/monographs-or-information-paper/2024/money-laundering-and-terrorism-financing-risk-assessment-of-legal-persons, Inter-Ministerial Committee (IMC) Report9https://www.mas.gov.sg/news/media-releases/2024/imc-report, National Anti‑Money Laundering Strategy10https://www.mas.gov.sg/news/media-releases/2024/singapore-publishes-national-anti-money-laundering-strategy and the passing of the Anti‑Money Laundering and Other Matters Act 202411https://lawgazette.com.sg/feature/singapore-steps-up-its-fight-against-money-laundering-with-new-legislation/, Corporate Service Providers Act 202412https://sso.agc.gov.sg/Act/CSPA2024 and Companies and Limited Liability Partnerships (Miscellaneous Amendments) Act 202413https://www.acra.gov.sg/regulations/legislation/amendment-acts/cllpma-act/. A long laundry list, and this list is just a sampler.
The momentum carried into 2025 which saw the on-site Mutual Evaluation by the Financial Action Task Force14https://www.fatf-gafi.org/content/fatf-gafi/en/publications/Mutualevaluations/mer-singapore-2026.html.
Sector focused changes came swiftly. There was the introduction of the Anti-Money Laundering and Other Matters (Estate Agents and Developers) Act 202515https://sso.agc.gov.sg/Acts-Supp/15-2025/Published/20250415?DocDate=20250415 which amended the Estate Agents Act 2010, the Housing Developers (Control and Licensing) Act 1965, and the Sale of Commercial Properties Act 1979. The Urban Redevelopment Authority also issued detailed circulars16https://www.ura.gov.sg/guidelines/circulars/coh25-01/ and guidelines17https://go.gov.sg/guidelines-for-developers-amlcft-rules for developers and solicitors.
The legal sector also saw a wave of updates. There was the Ministry of Law’s comprehensive Guidance on Analysis of Client Risk, Identification of Material Red Flags, Source of Wealth (SOW) Establishment, Ongoing Monitoring of Clients and their Transactions and Suspicious Transaction Report (STR) Filing Timeline18https://www.mlaw.gov.sg/files/Guidance_on_Analysis_of_Client_Risk__Material_Red_Flags__SOW__Ongoing_Monitoring_and_STR_Filing_Timeline.pdf, followed by the amendments to the Legal Profession (Prevention of Money Laundering, Financing of Terrorism and Proliferation Financing) Rules 2015 (“AML Rules”)19https://sso.agc.gov.sg/SL-Supp/S473-2025/Published/20250630?DocDate=20250630&WholeDoc=1.
To support members in meeting the heightened regulatory expectations and developments since 2023, the Law Society undertook a significant revision of Practice Direction 3.2.1. The revision not only clarified the updated AML Rules but also updated the supporting documentation to streamline implementation with refreshed samples of the Client Due Diligence Template, Ongoing CDD Checklist Template and Firm Wide Risk Assessment Template in October 2025.
What next for 2026 and beyond?
The first half of 2026 appeared to be quiet in comparison with the preceding years but just as the industry took stock of the changes and looked at internal improvements, the FATF published its report card on Singapore’s efforts following the on-site evaluation in May 2026. How did we fare? To quote the FATF:
“The assessment found that Singapore’s financial crime challenges are being met by a competent and coordinated regime that is willing to try new solutions to meet illicit finance challenges of today. There have been some successes in Singapore’s fight against financial crime, but their AML/CFT/CPF system must be sharper in producing demonstrable and consistent risk-based results.”
In short, we have done well, but there is still room to do better.
And this is where the real work begins. Regardless of concerns about the practical implications and obligations of compliance, regulation and supervision, the fact remains that the policy changes at the national level requires all legal practitioners and law practices to adapt and accept the changes as part of the operating environment. This will be the new normal going forward.
Looking out for Red Flags
One of the key obligations which the Ministry of Law has highlighted is “performing an adequate analysis of the risks of money laundering in relation to each client”20Ongoing Enforcement Actions in the Legal Sector Arising from the 2023 Major Money Laundering Case. This mirrors the AML Rules.
In order to discharge this obligation, you must be able to identify red flags where risks are revealed. AML obligations under the AML Rules do not just apply when you are acting on a “relevant matter” — broadly, real estate transactions, management of client money, creation or management of companies or trusts, and corporate or financial structuring. There is also a catch-all covering matters that are unusual given their complexity, value, purpose or client profile21https://sso.agc.gov.sg/Act/LPA1966?ProvIds=P15A-#pr70A-Legal Profession Act 1966 Section 70(2)(e). For instance, litigation is not automatically exempt where those features are present.
Practice Direction 3.2.1 sets out non-exhaustive red flag indicators across five risk dimensions: customer risk, country risk, funding risk, channel risk, and transaction risk. A red flag is “material” if a person exercising sound professional judgment would regard it as warranting further inquiry, having regard to the client’s profile and the nature of the matter.⁹
What does this mean in practice?
Some red flags are obvious. If your client refuses to identify the ultimate beneficial owner, cannot produce documentation consistent with their stated source of wealth, or expresses no apparent interest in the outcome of a transaction they are funding – that should prompt immediate concern. So should instructions to create multi-layered corporate structures with no evident commercial rationale — ownership chains where each layer reveals another entity rather than an identifiable individual.
Others are subtler. They emerge gradually, as seemingly minor risk indicators begin to add up. A matter that appears low risk at the outset may warrant a very different assessment as it progresses. Take, for example, a routine corporate transaction for a client which your firm has acted for within the past year on a deal , and which appears to be commercially sensible. As the matter unfolds, new entities start appearing in the structure, instructions shift and the client begins to press for an urgent completion when asked to explain the source of funds. None of these factors, on its own, may be particularly concerning. Clients change structures mid-transaction. Urgency is common in corporate work. But when several of these things appear on the same file, in the same short window, the picture that begins to form looks quite different from the one you started with.
Policies and guidance provide the framework, but professional judgment determines the outcome.
Red Flags & STRs
Another key obligation which the Ministry of Law has highlighted is “filing a Suspicious Transaction Report with the police if the law practice or lawyer has reasonable grounds to suspect that the client may be engaged in money laundering”22Ongoing Enforcement Actions in the Legal Sector Arising from the 2023 Major Money Laundering Case.
It is important to distinguish between a red flag and the threshold for filing an STR. Identifying a single red flag does not automatically mean filing an STR. Rather, it should prompt further enquiry and a careful assessment of whether the circumstances give rise to reasonable grounds for suspicion. Even if an STR is filed, the obligations which stem from identifying the red flag do not end as there must be continued monitoring. If you file an STR and conclude that you can nonetheless continue acting, you must document why and be prepared to explain your reasoning.
The 2023 case illustrates both aspects: red flags were missed where transactions were funded by seemingly unrelated third parties, clients’ explanations were neither corroborated nor challenged, and risks that were apparent were not subject to appropriate scrutiny. Equally, where STRs were filed, the follow-up action was inadequate.
An STR should not be viewed as the final administrative step in an AML/CFT/PF process. Rather, it is a document that should accurately capture the lawyer’s assessment of the facts, the basis for the suspicion, and the enquiries undertaken. In the same 2023 case, a firm continued to retain and continued to act on transactions despite filing STRs against the client but did not substantiate or document its reasons for why it had considered appropriate to do so.
The Suspicious Transaction Reporting Office’s analysis of STRs submitted by the legal sector between 2020 to 202223https://www.lawsociety.org.sg/wp-content/uploads/2024/04/Guidelines-%E2%80%93-Legal-Practitioners-and-Law-Practices-2020-%E2%80%93-2022-from-the-Suspicious-Transaction-Reporting-Office.pdf found that only around 4.8% of Singapore’s law practices filed at least one report over the three-year period, with some reports containing blank or inadequate “reasons for suspicion” fields. While the statistics are not intended to measure compliance by the volume of STRs filed, they underscore the importance of submitting reports that clearly articulate the factual basis for the suspicion. The STRO also observed that of the STRs filed by the legal sector, around 80% related to real estate matters. While this reflects a heightened awareness of risks in that area, there are also other legal services identified by the FATF – such as managing of client money, securities or other assets; management of bank, savings or securities accounts; organisation of contributions for the creation, operation or management of companies; and creating, operating or management of legal persons or arrangements and buying and selling of business entities – which lawyers should remain vigilant when advising on such matters.
The New Normal
The immediate challenge for all law practices and legal practitioners is to ensure that identifying and responding to red flags becomes embedded in our day-to-day work. It is not an afterthought or a box-ticking exercise undertaken only because the Rules require it. Rather, it should form part of the way we approach every matter from inception to completion.
Identifying a red flag should not be viewed as a sign that something is necessarily wrong, and it should not push you toward suspicion of every client or transaction. Instead, ask the right questions, make informed enquiries, exercise sound professional judgment and, where appropriate, document the reasons for the decisions you reach.
The legal profession occupies a unique position in Singapore’s financial ecosystem. Lawyers facilitate transactions that underpin commerce, investment and wealth creation, but that same role can be exploited by those seeking to legitimise the proceeds of crime. This goes beyond meeting regulatory expectations. It is about safeguarding the integrity of our profession and ensuring that legal services are not misused to facilitate illicit activity.
The pace of regulatory change over the past three years has been relentless, and as Singapore continues to strengthen its AML/CFT/PF framework following the FATF Mutual Evaluation, expectations on the legal profession will continue to evolve. The firms that are best placed to meet those expectations will not necessarily be those with the longest checklists, but those that foster a culture where lawyers are encouraged to exercise professional judgment, challenge inconsistencies, escalate concerns early and view AML/CFT/PF as an integral part of delivering legal services.
Ultimately, the strength of Singapore’s AML regime will not be measured solely by the quality of its laws, but by the quality of the professional judgment exercised by those entrusted to apply them.
Further Resources
To support lawyers and firms, the Law Society has compiled a comprehensive suite of resources on their webpage. It provides information, precedents and guidance to lawyers and law practices on their Anti Money Laundering, Countering the Financing of Terrorism and Proliferation Financing obligations.
It will also be hosting a webinar on 19 August 2026 on Money Laundering, Terrorist and Proliferation Financing in Practice: Managing Client Risk, Red Flags and Reporting Obligations in Today’s Legal Landscape. For more information, please refer to https://www.lawsociety.org.sg/wp-content/uploads/2026/07/19-Aug_AML_Portal.pdf
Endnotes
