Money laundering: do you fully understand the risks?

Money laundering: do you fully understand the risks?

Accountancy firms should be more vigilant than ever of money laundering strategies, says the Institute of Financial Accountants

Money laundering strategies are constantly evolving, with The National Risk Assessment (NRA) of Money Laundering and Terrorist Financing warning that the risk that accountancy service providers could be used to facilitate money laundering is considered high. The Institute of Financial Accountants (IFA) is urging accounting firms to employ vigilance now more than ever as it encourages regular review of their client and firm-wide risk assessments.

Money laundering underpins and enables most forms of organised crime, allowing crime groups to further their operations and conceal their assets. The latest risk outlook has just been published by the Accountancy AML Supervisors’ Group (AASG) and covers key money laundering risk areas as well as terrorist financing risk areas threatening the sector. The IFA is emphasising to accountants the importance of being aware of any clients that may be ‘high risk’ as this form of criminal activity grows and shows little sign of abating in the near future.

Multi-billion pound problem

The National Crime Agency (NCA) believe it is likely that money laundering is in the hundreds of billions of pounds every year, with the expanding threat brought by global underground banking only compounding the problem.

Furlough fraud is another emerging risk factor, exacerbated by the pandemic. The coronavirus outbreak has also led to an increase in the delivery of services via remote methods (e.g. cloud accounting platforms), potentially placing practices at higher risk.

Risky business

Accountancy services remain an attractive target for criminals, used to help their funds gain legitimacy and respectability, as implied by accountants’ professionally qualified status. Some services provided by accountants are at higher risk than others. The NRA states that the risk is highest when accountants do not fully understand the money laundering threats and do not implement appropriate risk-based controls, particularly where accountants fail to register with a supervisor. The AASG risk outlook provides further guidance and red flag indicators on each of these risk areas it considers are relevant to the accountancy sector.

Services that are identified as higher risk in the AASG risk outlook include company formation and termination, mainstream accounting, and payroll. International money laundering risks should also be considered by accountants as part of their firm-wide risk assessment, and enhanced due diligence procedures are needed for clients that are established in high-risk countries to mitigate the risks to the firm.

Essential due diligence

Accountants play an essential role in preventing money laundering by understanding risks, meeting regulatory obligations and encouraging compliance and good practices to mitigate these risks. Reviewing firm-wide risk assessments of money laundering threats on a regular basis is imperative for accountancy firms to make sure they have identified all the areas relevant to their own business – particularly as the risk may evolve because of changes to the firm’s client base, geography and services provided.

The AASG risk outlook provides a helpful reference for firms to use in undertaking their firm-wide risk assessments, highlighting key risks and red flag indicators identified in the UK’s National Risk Assessment and other sources of emerging threats and trends.

Higher risk services

Services that are identified as higher risk in the AASG risk outlook are:

  • Trust and company formation services (TCSP)

This can be used to enable the laundering of millions of pounds, conceal the ownership of criminal assets and facilitate the movement of money to secrecy jurisdictions. The risk is highest when coupled with other high-risk services or factors, such as a client in a high-risk country.

  • Accountancy and bookkeeping services

Criminals will falsify underlying books and records to hide criminal activity and engage a professional accountant to prepare the financial statements to legitimise them and benefit from the veneer of respectability provided by the professional adviser. Another way in which the criminal can mask the true nature of the transactions is with ‘incomplete records’ engagements where the accountancy firm or bookkeeper is asked to use bank statements to prepare the accounts and not the underlying books and records.

  • Payroll services

This may include the handling of clients’ funds and so the accountant may provide services that legitimise the proceeds of a crime e.g. ghost employees or individuals recorded as an employee who aren’t performing tasks or modern slavery. The NCA has published indicators of modern slavery and human trafficking in the accountancy sector, providing red flag indicators to be aware of during payroll engagements. The risk is highest where staff have not received AML training tailored to payroll services, staff are not client-facing, or there is poor quality information provided by the client.

  • Tax advice

Although there are many circumstances where providing tax advice to reduce a tax liability is legal, there is a risk that an accountant or tax adviser may provide tax advice that assists the client in masking their true income, or structuring their income and wealth to gain an illegal tax advantage.


For further information on anti-money laundering and the AASG risk outlook, please visit: www.ifa.org.uk/technical-resources/aml.

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