Business must get tough on dirty dealing.

The Association of British Insurers puts the figure higher, in its 1999 estimate, at £16bn per annum. And a recent PriceWaterhouseCoopers survey found that 70% of major companies had been victims of economic crime.

No company can sit back and assume they are not at risk. The first stage in tackling this risk is to identify the areas of the business that are vulnerable and the types of fraud that may occur. Creating a risk matrix can help to direct discussions. You should consider all of the possible fraud risks and include them in the matrix according to their degree of risk and potential value.

This often proves to be a difficult exercise, as it requires you to be pessimistic and think of everything that could go wrong. Once you have identified the risks you should prioritise and consider how you are going to address each risk individually.

Internal control should play an important part in building your defences; estimates drawn up by Graham Dowling, of the Metropolitan Police, show that up to 63% of frauds could have been prevented by appropriate internal controls.

It is here that directors need to be aware of their responsibilities in fighting fraud. All directors, both executive and non-executive have a responsibility to safeguard the assets of the company, and therefore to prevent and detect fraud.

Clues that may indicate fraud are many and varied but might include:

  • Variances between actual and budget;
  • The company doing well when rivals are struggling;
  • A lack of understanding among directors as to how the company makes a profit;
  • Staff not taking holidays;
  • Managers doing work that should be given to junior staff;
  • Staff living beyond their apparent means; and

Contracts or agreements being made with little known third parties.

An adequate, well-thought out fraud plan could save your company millions.

A fraud policy will help to clarify the responsibilities that directors and staff have with respect to fraud.

It should include a statement that fraud will not be tolerated; that all suspected frauds will be reported to the police for further investigation – at present many fraudsters are quietly removed, making it an easy crime to get away with; whistle-blowing procedures and the responsibility of all managers to look for and report suspected frauds.

It is extremely important that quick action is taken if a fraud is suspected.

A response plan should be drawn up which should include:

  • Details of specialists, such as lawyers and forensic accountants;
  • Who to contact;
  • How to gather evidence correctly;
  • When to involve the police; and
  • How to deal with the press;

Changes to legislation are making the detection and prevention of fraud and money laundering even more pertinent to the accountancy industry.

With the new Proceeds of Crime Act, effective from the end of 2002, certain professions, especially accountants, will have to reconsider their procedures.

Importantly for money laundering, there are different rules for different people and businesses.

The current primary legislation applies to everyone and contains a number of offences. Accountants are most likely to be at risk of not reporting suspicions of money laundering involving drugs trafficking or terrorism – a crime that carries a prison sentence of up to five years.

Secondary legislation applies only to those in the regulated sector including banks, building societies, financial services businesses and similar organisations.

Accountants are currently only covered by the regulations insofar as they carry out activities such as giving investment advice. Regulated businesses must comply with the laws on staff training, knowledge of clients, record keeping and money laundering reporting procedures.

So how will the Proceeds of Crime Act 2002 and a forthcoming European directive affect accountants?

The European directive was approved in November 2001 and is due for implementation next year.

It will extend the regulated sector to include accountants and other organisations likely to be used by money launderers.

This will have a major impact on accountants who will then be required to comply with all the above regulations.

In addition to this widening of the regulated sector the new POCA extends its requirements to the proceeds of any crime, rather than just serious crime (with which the current regulations deal).

That means offences such as tax evasion could require disclosure to the authorities because an accountant’s help in negotiating with the Revenue could be construed as facilitating money laundering.

Another change in the POCA is that an offence is committed in the regulated sector if there is no disclosure to the authorities when there were reasonable grounds for suspicion, as well as actual suspicion.

The result is that you may feel happy that your clients are not money laundering, but if there were signs that you missed, you could still be guilty of a criminal offence and end up in jail. It is vital therefore that your training covers the signs of money laundering and all members of staff take this seriously.

It is expected the provisions of the new Act will come into effect later this year.

Be careful to prepare for the new law and the effect of the EU directive that will follow – otherwise you could find yourself joining solicitor Jonathan Duff, who was recently jailed for not complying with the current money laundering regulations.

  • Further information can be found at:,,,, and
  • Julia Penny is director of training at Chantrey Vellacott DFK and author of Corporate Fraud: Prevention and Detection published by Tolley’s.ACCOUNTANTS URGED TO JOIN WAR AGAINST MONEY LAUNDERING

Law enforcement will never completely plug the myriad of money laundering opportunities. What is needed is a sea-change in culture which rejects money laundering and regards it as unacceptable to accept money from dubious sources.

Professionals must be prepared to look long and hard at dubious transactions before accepting money – no matter how attractive the business looks.

To help criminals must be regarded as unacceptable and those who are known to facilitate it should become pariahs within the financial services sector.

They should know that they will be reported to the authorities and dealt with under truly deterrent laws.

There is another, more subtle influence we can bring to bear here. The very public nature of many of our prosecutions and the press attention paid to them can provoke fundamental changes in attitudes and practices amongst businessmen and their advisers. The mere fact that a solicitor or accountant has been investigated or charged with a criminal offence (whether or not he is ultimately convicted) can send shock waves through the profession and result in more care and thought being devoted to the propriety of some clients’ instructions.

The watchwords must be vigilance and scepticism. These will not stifle commercial enterprise nor drive away clients. A professional adviser or lender who takes a close interest in his clients business will be welcomed by the honest! If the client is reluctant to explain what his intentions are – beware!

  • This is an edited extract from a speech by Rosalind Wright, director of the Serious Fraud Office last month.

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