The world’s premier anti-money laundering operation has released a detailed report, describing how corrupt accountants are increasingly using their expertise to help criminals clean dirty money.
The Financial Action Task Force (FATF) of the Organisation for Economic Cooperation and Development (OECD) says that accountants are not only advising criminals on money laundering, but arranging paperwork and even conducting illicit transactions themselves. And although the FATF says that the number of accountants involved is still ‘rather small’, it is growing, with criminals keen to secure services offering ‘the appearance of additional legitimacy to their financial operations’.
In its recent report on money laundering ‘typologies’, the Paris-based FATF reveals a number of illuminating case studies on accountants and lawyers, which its experts call ‘gatekeepers’ for money launderers, although it has shied away from identifying the countries and practices involved for legal reasons.
One study shows how an accountant was used by an illegal drug syndicate to open bank accounts and register companies, to launder more than $2m (£1.08m) generated by the importation of 24kg of heroin.
This money was being transferred in small amounts and by different individuals to avoid suspicious transaction controls, with bank drafts purchased in the drug-producing country used to buy property in the importing country.
The accountant also gave investment advice to the cartel. This kind of help is increasingly valuable to crime groups, says FATF, who note another case where an accountant became ‘the actual financial mind’ of an illicit drug network. His task ‘was to analyse the technical and legal aspects of the investments planned by the organisation, and identify the most appropriate financial techniques to make these investments appear licit’.
He was, says FATF, an ‘expert in banking procedures and the most sophisticated international financial instruments’. These include sub-dividing the financial transactions along different geographical areas, performing triangle transactions among companies and foreign credit institutions, and using electronic transfers and stand-by credit letters as a warrant for commercial contracts, which are later invested in other commercial activities.
A particular problem noted by the taskforce is the abuse of trust accounts, where financial investigators have detected a rapid series of cash deposits and withdrawals, flows in and out of accounts from unknown sources that ‘appear to have no explainable relation, and transactions in amounts that appear incompatible with its stated economic purpose’.
The rewards accountants and lawyers can gain from managing such systems are so attractive that it is leading to the development of independent networks of corrupt professionals.
This is a great boon for criminals wishing to hide their laundering from increasingly sensitive law enforcement authorities, with ‘one or more corrupt gatekeepers channelling funds through structures set up by another layer of gatekeepers’.
This secondary group of professionals ‘does not need to be as fully implicated in the scheme, and the risk to the organised crime group is further reduced by additional separation from the money laundering process.’
That organised crime is able to exploit accountants has long been recognised by FATF, and last year it amended its 40 recommendations, calling for member countries to expand extra due diligence for countries with a poor money-laundering record to local financial professionals.
This need has been underlined in the report, not just by the case studies featured, but by figures showing that, even where there are legal obligations for accountants to report suspicious financial transactions, ‘the number of reports is often low’.
While this is partly because these rules are new, a general ‘lack of awareness’, and ‘traditions of professional client secrecy’ are also to blame. The report calls for improved ‘awareness-raising’ as a result, as ‘gatekeepers have information that could be critical in understanding complex money-laundering schemes’.
These involve professionals other than accountants. The report mentions abuses by lawyers, often working with accountants. For instance, the heroin smuggling ring used lawyers to process bank drafts through practice trust accounts. Another case involved a lawyer creating non-trading real estate companies for an embezzling industrialist.
Furthermore, FATF highlights growing concern over crimes committed by the insurance sector, where the use of brokers can provide criminals with extra cover.
Other growing areas of illegal activity include the abuse of electronic bank transfers by terrorists, and their manipulation of non-profit organisations to conceal fund transfers.
Given such a dynamic picture, it is important, the report concludes, that ‘accounting professionals have a clear legal framework within which to report suspicious transactions’.
Go to www.fatf-gafi.org/TY2004_en.pdf to read the full report.