Money Laundering and How It Relates to Dispute Resolution

I never expected to so finely hone my anti-money laundering “spidey senses” in my career: those little alarm bells that go off when something doesn’t feel right.

The intersection of dispute resolution and financial crime presents a critical risk area that we as commercial mediators must understand and navigate. The confidentiality and flexibility that mediation offers to parties who are in genuine dispute create vulnerabilities that sophisticated money laundering operations can exploit, and there has been little discussion of it so far…

I had spent a lot of time preparing for a particular mediation. It wasn’t court-ordered (it was pre-Churchill) but it was certainly judge-prescribed. It was a classic matter for ADR, and the court had given the parties the option of a stay in proceedings for attempts at resolution, which they had eagerly accepted.

Even so, each party had treated me with suspicion and I had been in several lengthy phone calls winning the trust of both sides. An enormous printed (not electronic) bundle had arrived, weighing down my desk and taking a lot of reading! For a simple dispute there seemed to be a lot of material.

The claimant proposed the mediation venue, and the defendant was at pains to tell me how much money they were losing by attending. In their normal course of affairs the parties continued to encounter one another daily, but they each refused to attend mediation at all if we were to hold a joint session. In fact, the venue conveniently had two entrances accessed from two separate sections of the car park so that, despite making identical journeys from the same postcode to the mediation site, they wouldn’t actually see each other at all during the course of our negotiations, not even as they arrived and departed. And I would never see them interact with one another. So far, so typical?

Then came the moment that gave me real pause: about twenty minutes in I had heard quite a lot of angst (and not much that was constructive) from the defendant before I walked into the claimant’s room. I was expecting to hear the other side of this tortuous story, but instead I was greeted with “I just want to settle it, I’ll pay them whatever it takes to make it go away”.

Really? And from the claimant?

Here I was, maintaining my neutrality, but wondering what the motives were behind this moment and, at worst, whether I was being used to facilitate a money laundering scheme?

The voluntary nature of mediation and the control placed in the hands of the parties don’t absolve us as mediators of responsibility: quite the opposite. Because we operate in that regulatory gap that leaves pure litigation untouched by the anti-money laundering requirements of the Money Laundering Regulations 2017 (MLR), we need to be even more alive to unexpected warning signs.

When I was training as a solicitor before the MLR were in place, there was a very simple mechanism that had just been shut down. In it, money would be transferred into a conveyancer’s client account for a property transaction which would then “fail” (with some emotional and personal histrionics) and return of the cash would be required, amidst a plausible explanation for why it could not go back to the original bank account. Boom. Squeaky clean cash from a reputable law firm, untraceable back to the dodgy deal it came from.

As mainstream loopholes close, money launderers look for increasingly niche industries in which money routinely changes hands outside strict regulation, and ideally where strict confidentiality can be justified for legitimate reasons. If intense emotions can be utilised to muddle the professionals who should be looking out for dubious transactions, all the better.

Emotions have two huge advantages when you’re trying to do something under the radar: they can justify otherwise illogical, inexplicable or irrational behaviour; and expressing them makes other people uncomfortable.

Within my work running a social enterprise I discovered that charity fundraising is vulnerable to this very phenomenon. Let’s say you have a large amount of cash that you made trafficking something or someone illicit, and so isn’t as clean as you would like it to be. You find a high value product that is often paid for by crowdfunding. You hold a charity fundraising day, shaking a lot of buckets into which you also put your dirty cash. Wearing matching t-shirts emblazoned with the face of a disabled child, your crew goes to the bank, sweaty, tired and exuberant. The cashiers help you count it. “How much?” you say and you use your best incredulous and delighted face. Step one complete: unlikely quantities of cash successfully banked without awkward questions. Then, as used to happen in the yacht industry some time ago (before that scam, too, was clamped down), you pay your “crowdfunded” money over to a company to secure an order for a high-value item which is to be a gift to a worthy beneficiary (who may or may not even exist). And then you cancel and request a refund.

The reason all these examples are effective for money launderers is that unfamiliar or heightened emotions cloud our judgment. And while empathy is our tool of choice as mediators, it is also our weapon against this tactic. Deep, bold empathy will help you get to an understanding of whether what you have in front of you is genuine.

Under the Proceeds of Crime Act 2002 anyone, whether further regulated or not, must report suspicious activity they come across through their trade, business or profession, and you do this via a Suspicious Activity Report to the National Crime Agency.

If your matter turns out to be a crime and you had suspicions, or you ought to have put two and two together, you can yourself be prosecuted. Having reported it is your defence. Of course, you must also be very clear about when that report is justifiable within your duty of confidentiality under your mediation agreement. Ideally, your mediation agreement should set out the mechanism by which you would report.

So what should we be looking for?:

The Speed Demons: Genuine commercial disputes involve people who care about the details. They argue over contract terms, they want to understand liability, they ask questions about implementation. When parties are suspiciously eager to settle quickly without much discussion of the underlying issues, that’s a red flag. Supposedly complex construction dispute where everyone agrees on exactly what the building project was, and both parties agreed to a £200,000 settlement within the first hour? Hmmmm.

The Vague Storytellers: Real business disputes generate real frustration. People have opinions, they remember specific incidents, they can explain their commercial relationships. When parties can’t articulate clear, specific problems or when their narratives sound oddly rehearsed, I pay attention. Legitimate disputants usually disagree on facts: if everyone’s telling the same story in the same way, either it’s an unnecessary mediation or something might not be as it appears.

The Round Number Obsession: This one surprised me initially. Criminals can prefer settlement figures that bear no relationship to actual damages. A dispute over late delivery penalties that settles for exactly £50,000 when the claimed losses were £47,231.18 – worth questioning. Conversely, where parties insist on bizarre precision: settling for £49,994.23 instead of £50,000: that can indicate that appearance matters more than the substance.

The Acceptable Loss: Money launderers consider a 40% hit a reasonable price for laundering services. If parties demonstrate unusual willingness to accept disproportionately low financial settlements, even dressing it up with complex non-monetary terms that feel superficial, you might want to look closely for their true intentions.

We all know to expect the unexpected in dispute resolution, but we also know where the boundaries are for what is expectable.

The key lies in understanding that preventing money laundering protects both the integrity of individual mediation processes and the reputation of alternative dispute resolution generally. If we as mediators implement robust risk assessment and mitigation procedures, we can continue serving legitimate commercial interests while still avoiding inadvertent participation in criminal schemes.

Regular professional development, clear internal procedures, and coordination with regulatory authorities provide the foundation for ethical practice in this complex environment. The goal is not to transform mediators into financial crime investigators, but to ensure we can recognise and appropriately respond to potential criminal exploitation of our services.

And how did I handle my claimant who wanted to settle? With questions, lots and lots of questions. By using the time that I had been booked for to exercise curiosity, I actually achieved a better outcome for the parties than was originally on the table (yes, even better for the defendant too!) and in doing so I satisfied myself that I was dealing with a legitimate dispute where emotions really had caused it to get out of hand.

* Facts and circumstances altered and amalgamated to protect confidentiality