Consistency is crucial in tackling the money laundering threat, writes Angela Foyle, partner (Financial Services) at BDO
IT is no secret that criminals often use the services of accountants to launder illicit funds. But it can be easy to underestimate the true extent of the threat to us individually, our companies, and the accountancy profession as a whole.
The most sophisticated wrongdoers will have developed businesses that seem wholly legitimate at first glance. It is essential that robust due diligence is in place, and that every member of the firm can recognise the red flags of money laundering.
Spotting the red flags
In order to help combat money laundering, accountants should be alert to the red flags of money laundering. These can include:
- Inconsistencies in information provided
- Evasiveness from clients, or unwillingness to provide comprehensive answers to basic questions
- Requests that do not make sense in the context of the client’s profile
- Complex group structures that are not properly explained, or where justifications are “tax reasons” or “privacy funds”
The consequences of becoming involved in money laundering, whether wittingly or not, are severe with penalties ranging all the way from loss of license, to significant fines, or even a prison sentence.
As trained accountants, we are duty-bound to be thorough and diligent, and are committed to doing a good job. However, despite the profession recognising that money laundering is a serious issue, the fact that many accountants don’t feel personally at risk may cause due diligence dedication to waver, particularly when we think we know a client well.
A recent case study highlighted by the ICAEW’s training provider, SWAT, demonstrates how just one chink in the due diligence armour can lead to illegal activity going undetected. An accountant had been auditing a company based in a country on HM Treasury’s list of high-risk jurisdictions. The accountant had documented very little on AML checks as he’d been auditing the client for years and felt he knew him. When he finally updated his customer due diligence and performed a sanctions check, the latter came back with a positive hit. This instance only serves to reinforce the fact that familiarity with a client and their business can count for very little if the necessary due diligence is not performed frequently and thoroughly.
Serious and organised crime costs the UK at least £24bn each year. We know that criminals are using increasingly sophisticated ways of transforming the proceeds of crime into superficially legitimate money or other assets, so it requires a consistently keen eye for detail to disrupt the significant threat that it poses to the accountancy profession. That is why all accountants should regularly review the anti-money laundering guidance provided by their professional body.
It is also important that accountants know how and when to take action. Ultimately, if due diligence checks call the credibility of a client into question, you should ask yourself if this amounts to suspicious activity. If it does, accountants have a legal obligation to submit a Suspicious Activity Report (SAR) in line with internal procedures, and ultimately with the Proceeds of Crime Act 2002.
Submitting a SAR can be seen as a drastic move. If you’re uncertain about what to do, remember that your MLRO will be able to provide guidance, and best practice materials are available from your regulators. Ultimately, a SAR can provide that final piece of the jigsaw puzzle in an ongoing investigation that enables law enforcement to intervene to disrupt criminal activity. We should bear in mind that submitting a SAR is a key step towards securing the integrity of the industry as a whole.
Whether a possible offender is a potential new client or an established client, remain vigilant in the fight against money laundering, to protect yourself, and the accountancy profession.
Angela Foyle, partner (Financial Services) at BDO
Do you have an investigation looming large over you? Kingsley Napley's Julie Matheson goes through the best strategies to manage the process
Making Tax Digital will impose significant additional tax compliance costs on small businesses for little or no medium term benefit, tax and small business experts told MPs
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Three former Tesco executives, including the former finance director of Tesco UK, have denied charges of fraud and false accounting in relation to a £326m accounting scandal at the supermarket