Anti-Money Laundering (AML) in Procurement

Public procurement is a recognised route through which illicit funds can be laundered into the legitimate economy. A company controlled by organised crime can win public contracts, invoice at inflated rates, and use the resulting payments to legitimise money whose original source was criminal. Anti-money laundering controls in procurement address this risk through a combination of criminal law, procurement exclusion grounds, and supplier due diligence requirements.

What is Anti-Money Laundering (AML) in Procurement?

Money laundering is the process of disguising the proceeds of criminal activity to make them appear legitimate. In procurement, it most commonly occurs through: shell companies or nominee directors concealing the true beneficial owner of a contracting entity; inflated invoicing that allows illicit funds to be cycled through a legitimate supplier-buyer relationship; and procurement fraud schemes that generate payments which are then layered through complex corporate structures.

At the EU level, the legal framework for AML in procurement operates through two overlapping bodies of law. The EU Anti-Money Laundering Directives (currently the 6th AML Directive, 2018/1673/EU) harmonise criminal offences and minimum standards for detecting and preventing money laundering across member states. Separately, Directive 2014/24/EU addresses money laundering through the mandatory exclusion ground in Article 57(1), which requires contracting authorities to exclude any economic operator convicted of money laundering or terrorist financing as defined in applicable national law.

Beneficial ownership transparency is a critical AML tool in procurement. The EU's AML Directives require member states to maintain central registers of beneficial owners of companies and other legal entities. These registers, which became publicly accessible (subject to legitimate interest requirements following ECJ case law on data protection), enable contracting authorities and investigators to identify the real persons controlling a tendering company. Many procurement frameworks now require tenderers to disclose their beneficial ownership structure as part of selection questionnaire responses.

The UK's AML framework in procurement is built on the Proceeds of Crime Act 2002, the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (as amended), and the Procurement Act 2023. The UK maintains a Companies House beneficial ownership register, and the Economic Crime and Corporate Transparency Act 2023 significantly strengthened the accuracy and verification requirements for that register.

Why it matters for bidders

For the vast majority of legitimate suppliers, AML requirements in procurement manifest primarily as disclosure obligations: completing beneficial ownership declarations accurately, confirming that the company is not subject to an AML conviction, and demonstrating that subcontractors and consortium partners meet the same requirements.

The compliance burden is proportionate to risk. Suppliers in sectors identified as AML-vulnerable (construction, IT, professional services, defence) may face more detailed due diligence from contracting authorities. Suppliers tendering for high-value contracts, or for contracts funded by EU instruments that attract additional oversight from OLAF or the EPPO, should expect rigorous beneficial ownership checks.

Failures in this area carry serious consequences. An AML conviction triggers mandatory exclusion under Directive 2014/24/EU and under national procurement regulations. An inaccurate beneficial ownership declaration is a ground for discretionary exclusion under Article 57(4)(h) for misrepresentation. And a supplier that unknowingly awards a subcontract to a money-laundering operation may find itself implicated in fraud or regulatory proceedings if due diligence was inadequate.

Example

A large infrastructure company responds to a municipal tender requiring beneficial ownership disclosure. The company identifies that one of its shareholders holding more than 25 percent is a holding company registered in a third country. It provides the contracting authority with a corporate structure diagram showing the beneficial owners behind that holding company (two named individuals and their percentage interests), supported by extract documents from the relevant national company register. The contracting authority's compliance check confirms the disclosure is consistent with available public information and the company proceeds to evaluation.

Frequently Asked Questions

What is a beneficial owner in procurement?

A beneficial owner is the natural person who ultimately owns or controls a legal entity, directly or indirectly. EU AML Directives define this using a 25 percent ownership or voting rights threshold as a starting indicator, but the concept extends to persons who exercise control through other means. In procurement, beneficial ownership disclosure is intended to prevent procurement fraud and money laundering through shell company structures.

What happens if a company cannot identify its beneficial owners?

Under EU AML frameworks, companies must make all reasonable efforts to identify their beneficial owners. If after exhausting all means, no beneficial owner can be identified, the senior management of the entity may be registered as beneficial owner as a fallback. However, a persistent inability to identify beneficial ownership is a significant red flag for contracting authorities and may result in exclusion.

How does AML in procurement relate to corruption?

AML and corruption are closely linked. Corrupt payments to public officials typically need to be laundered: the proceeds of a kickback scheme must be concealed and integrated into legitimate income. This means that AML controls, including beneficial ownership transparency and financial intelligence, are tools for detecting procurement corruption as well as standalone money laundering schemes. Whistleblowing channels provide a route for reporting both simultaneously.