The intersection between insolvency law and anti-money laundering (AML) regulation occupies an uneasy position within UK economic governance. Insolvency proceedings are intended to impose order, transparency, and fairness on the disorder of business failure. Yet, as the policy paper Behind Closed Books: Money Laundering in UK Insolvency Proceedings demonstrates, those same proceedings remain vulnerable to criminal abuse. The paper offers the most detailed recent account of how insolvency practitioners (IPs), supervisors, and policymakers struggle to detect and disrupt illicit financial flows once a company is insolvent.
Its central message is that the AML framework, as applied to insolvency, presents limitations in preventing money laundering at the end of a business’s lifecycle. Failures in information sharing, uneven supervision, and weak feedback loops undermine the preventive ambitions of AML regulation and risk-reducing compliance to a procedural exercise rather than a substantive safeguard.
The UK’s ease of company formation, combined with high volumes of liquidations, creates conditions in which shell companies, phoenixing, and fabricated debt structures can be normalised and disguised as ordinary market failures. Once a company enters insolvency, scrutiny of pre-insolvency conduct is often impeded by urgency, depleted asset pools, and uncooperative directors. In this context, insolvency can operate as a final stage of laundering, giving legitimacy to illicit funds through the cleansing effect of liquidation.
The UK AML Regime relies heavily on professional gatekeeping. IPs are classified as ‘obliged entities’ under the 2017 Money Laundering Regulations and are expected to identify suspicious activity through customer due diligence (CDD) checks, ongoing monitoring, and reporting. The policy paper, however, notes that failures in both initial and ongoing CDD are the most common AML breaches among IPs, despite repeated regulatory warnings and sector risk assessments.
These deficiencies reflect structural constraints inherent to the IP role. Insolvency work is time-sensitive, resource-intensive, and frequently unfunded, particularly where estates are asset-poor. IPs may face a conflicting choice between bearing irrecoverable AML compliance costs or maximising returns to creditors. In smaller firms and sole practices, limited access to training and investigative tools exacerbates the issue. Against this backdrop, the expectation that IPs will function as effective AML gatekeepers appears aspirational rather than realistic.
Furthermore, existing AML tools are not designed with insolvency in mind. For instance, Suspicious Activity Reports (SARs) are designed for banks and other financial institutions, and they have been subsequently imposed on non-financial actors. IPs report frustration with reporting mechanisms that fail to reflect the lived realities of insolvency cases, combined with a lack of feedback following submission. Without insight into outcomes, SAR reporting risks becoming a tick-box-exercise rather than instrumental.
If IPs compliance is one pillar of AML governance, supervision is another. Here, too, significant weaknesses are identified. AML supervision of insolvency is fragmented across several membership-based professional body supervisors (PBSs), overseen by OPBAS, alongside the Insolvency Service’s broader regulatory role. This model has struggled to deliver consistent expectations, enforcement, and guidance.
Supervisory approaches vary markedly in intensity, use of sanctions and commitment to training and engagement. While some PBSs invest in meaningful outreach activities and feedback, others rely heavily on assisted compliance and impose sanctions sparingly. The result is a patchwork of standards that undermines deterrence and creates uncertainty for IPs.
Most problematic is the lack of effective information sharing. Intelligence flows predominantly upwards through SARs, with little meaningful information returning to IPs or supervisors. Although mechanisms such as FIN-NET and the Shared Intelligence Service exist, their use is uneven, and OPBAS lacks the statutory powers to compel coordination. This asymmetry inhibits learning, prevents effective risk profiling and limits supervisors’ ability to move from reactive oversight to proactive prevention.
The analysis of sanctions further exposes weaknesses in deterrence. Despite repeated identification of AML deficiencies in insolvency, enforcement outcomes remain limited. Only a small proportion of disciplinary sanctions imposed on IPs relate to AML failings, and fine levels have declined across several professional sectors. This calls into question the credibility of AML enforcement within insolvency practice.
Recommendations point towards a more coordinated model of AML governance, based on improved data sharing, harmonised supervision, and better feedback to practitioners. In particular, it calls for an enhanced role for the Insolvency Service, supported by dedicated funding and strengthened statutory powers, including a targeted use of the Economic Crime Levy.
More broadly, the paper invites reflection on the limits of AML private enforcement. Insolvency illustrates how professional gatekeepers can be overwhelmed where risks are high and incentives misaligned. Without robust public-sector capacity to analyse intelligence, investigate misconduct and support practitioners, AML compliance in insolvency risks remaining formalistic rather than effective.
Ultimately, it is hoped that the contribution will be relevant to the forthcoming review of the UK’s AML/CFT regime by exposing insolvency as a neglected high‑risk sector. Its analysis of supervisory fragmentation, weak information sharing, and limited deterrence provides a basis for reassessing gatekeeper-based models and the need for stronger public coordination.
Oriana Casasola is a Lecturer in Commercial Corporate and Banking Law at the School of Law, University of Leeds
Ilaria Zavoli is a Lecturer in Law at the School of Law, University of Leeds
OBLB types:
Research
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United Kingdom
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