Flag It Up! How accountants can protect themselves from money launderers

As part of the government’s Flag It Up! campaign, Henry Cooper, former president of the AAT, highlights how accountants can protect themselves and their businesses from money launderers.

Money launderers utilise the expertise and services of accountants to hide the source of their funds. The UK is particularly exposed to this due to the size and complexity of its financial and professional services sectors. It is vital that professionals know what steps to take to avoid becoming unwittingly involved in money laundering schemes.

We cannot underestimate the social harm caused by money laundering, which contributes to organised crime, such as drug, weapon and even human trafficking, and funds terrorist activity. Serious and organised crime costs the UK economy an estimated £24bn a year, and criminals rely on the skills and reputations of accountants to legitimise their profits to fund their lifestyle and commit further crimes.

Following a risk-based due diligence process, whether dealing with new or existing clients, can help accountants protect themselves from the serious consequences of involvement. These can include severe fines, the loss of professional licences, and even criminal sanctions such as a prison sentence. On top of this, there is the threat of lasting reputational damage for both the individual and their business.

How money launderers can make use of professionals

1. Financial and tax advice – criminals with a large amount of money to invest may pose as individuals hoping to minimise their tax liabilities or desiring to place assets out of reach in order to avoid future liabilities.
2. Creation of corporate vehicles or other complex legal arrangements, such as trusts for instance. Such structures may serve to confuse or disguise links to the criminal. Front companies that are incorporated in jurisdictions where it is difficult to identify the beneficial owner, or where the client doesn’t have a good understanding of the business should be cause for suspicion.
3. Buying or selling of property and assets can be a cover for transfers of illegal funds (layering stage) or the final investment after their having passed through the laundering process (integration stage).
4. Performing financial transactions – accountants may carry out various financial operations on behalf of the client, for example, cash deposits or withdrawals on accounts, retail foreign exchange operations, issuing and cashing cheques, purchase and sale of stock, sending and receiving sending and receiving international funds transfers. This enables them to gain entry to financial institutions.

This is why it’s important to always undertake risk-based due diligence checks, both in the initial stages of a relationship and on an ongoing basis in order to understand the changing nature of the client and their business. Specific client needs continuously change, but an existing relationship does not mean that these clients are exempt from any wrongdoing in the future.

Understanding and remaining vigilant to the red flags of money laundering can help you take action to protect yourself from unwitting involvement.  You should consider whether there are any immediate reasons not to trust a client. Take a close look at any inconsistencies in the information they provide, such as unusual amounts or sources of funds, or discrepancies in their transactions.

Querying your clients

Research your client’s field of business to understand the level of risk. For instance, if you are a sole practitioner specialising in taxes, and are approached for your services in a large property deal, ask why they have selected your firm for this particular piece of work.

Asking the client direct questions can help to resolve concerning red flags, such as inconsistent or unusual transactions, as their response can often be telling; if they appear evasive, or give an incomplete answer, then your suspicions should be raised. It’s often the case that probing the client with a few additional questions can sometimes uncover what is really going on.

Acting on a Red Flag

If your suspicions are raised, you should report the matter to your money laundering reporting officer (MLRO), or submit a Suspicious Activity Report (SAR). You are legally obliged to do this and they are essential to helping law enforcement take action. Your SAR can help complete the picture in a wider criminal investigation, so it’s important to include as much detail as possible.

SARs are confidential, and submitting one does not necessarily signal the end of a client relationship. If your client has committed no crime, then there is no reason why the supplier-client relationship should suffer.

However, it’s important to be aware that under the Proceeds of Crime Act, it is a criminal offence for an accountant to “tip off” their client that he/she is submitting a report of suspected money laundering, or that there is a criminal investigation underway.

Final thoughts

In conclusion, money laundering poses a serious threat to the accounting profession. Don’t get caught out by money launderers. Do your due diligence and protect yourself and the reputation of your business and profession by flagging up suspicious activity.

Henry Cooper is a former president of the Association of Accounting Technicians, and runs his own accounting business, BirchCooper Accounting Services.

For more information about tackling money laundering, please visit: www.accountancysupervisors.co.

For guidance on completing a SAR, please visit: http://www.nationalcrimeagency.gov.uk/about-us/what-we-do/economic-crime/ukfiu/how-to-report-sars.