Analysis – Financial war: accountants face call-up.

The City might seem an unlikely conscript in the war on terror.[QQ] But even while bombs rained down on Afghanistan this week, government ministers continued to insist financial force is as important as military muscle in what is expected to be a long campaign.

So far the draft to this financial army has centered on banks. But accountants – and other professionals – should expect a call-up of their own. And soon.

Announcing the freezing of $88.4m (#60m) of bank funds believed to be connected with terrorist financing, Gordon Brown told last week’s Labour party conference: ‘No institution, no bank, no finance house anywhere in the world should be harbouring or processing funds for terrorists.’

Just 48 hours later home secretary David Blunkett announced further details of the anti-terrorism measures being worked on by the Home Office. And by the time MPs had been recalled to the Commons at the end of the week, defence secretary Geoff Hoon was saying existing restraints on the Inland Revenue and Customs & Excise exchanging any ‘relevant information’ with the security services and law enforcement agencies would be lifted.

The City is well aware of its role in the battle. Ask officials at the British Bankers Association what is preoccupying them right now and you only get one answer: ‘money laundering, money laundering and money laundering.’ At the Bank of England, spitting distance from the BBA’s Old Broad Street offices, the answer is scarcely different. Meanwhile the Financial Services Authority, which sets priorities according to perceived risk, is preparing to place greater emphasis on money laundering as part of its monitoring role.

‘In the heated atmosphere post 11 September there will definitely be more attention devoted to this area,’ a spokesman says.

But no accountant – or lawyer – should think all this procedural tightening applies only to banks and bureaux de change. The economic intelligence unit of the National Criminal Intelligence Service has long argued that accountants are among the financial institutions that are not doing enough to report cases of money laundering. And it wants to see the profession do more.

Reporting a record 27% rise in disclosures of suspicious financial transactions to NCIS’ Economic Crime Unit last year, the body was swift to condemn accountants and solicitors for reporting very few of those transactions.

Today it hasn’t changed its view. ‘Lawyers and accountants report less than 5% of suspicious financial transactions,’ says an official. ‘But our internal feedback suggests 50% of money laundering cases require the assistance of a lawyer or accountant.’

But PricewaterhouseCoopers’ head of anti-money laundering services Andrew Clark takes issue with the NCIS version of events. ‘If you talk about the level of transactions financial institutions process on a given day, there are billions,’ he says. ‘If you look at professional services providers, what they are involved with is microscopic compared with that.’

Nevertheless accountants – and lawyers – are likely to be asked to do more. The government is hastily drafting an Emergency Terrorism Bill, expected within three to five weeks, and there are other long-planned measures whose implementation could now be accelerated. Among these is the implementation of a new European Union money laundering directive requiring similar levels of disclosure from accountants and solicitors to those already required by banks. And Felicity Banks, secretary of the ICAEW’s business law committee, adds: ‘We have still been in discussions over the Proceeds of Crime Bill.’

Warnings on money laundering have been a long time coming. The Paris-based money laundering watchdog the Financial Action Task Force has for years viewed the UK as an obvious target for launderers, given its position as one of the world’s most important and sophisticated financial centres.

Despite praising the UK’s anti-money laundering provisions as a potential model for others, in 1997 FATF warned regulatory bodies – including Customs, the Treasury, NCIS and the FSA – to do more to apply ‘basic customer identification and record keeping requirements to bureaux de change, which are increasingly being used for money laundering purposes but are not currently subject to regulation’.

And it suggested the UK ‘consider extending the scope of the money laundering offence to cover the proceeds of all serious crimes’. It is only today – four years on – that many of these measures are being implemented.

FATF is currently canvassing its 31 member countries on the steps it should take. It is to hold an extraordinary meeting in Washington DC at the end of the month to discuss ways to ensure terrorists ‘and those who channel funds to them’ cannot misuse the international financial system.

Executive secretary Patrick Moulette says it is too early to say what form these measures might take.

Measuring the value of money laundered globally is an imprecise science.

The International Monetary Fund’s best guestimate is that the aggregate size of money laundering in the world could be between 2% and 5% of the world’s gross domestic product.

Using 1996 statistics, these percentages would indicate that money laundering ranged between $590bn and $1,500bn. Even the lower figure is roughly equivalent to the value of the total output of an economy the size of Spain.

The steps the government will take still have to be defined. Hoon told MPs last week of ‘tougher obligations on banks and financial institutions’ and ‘supervision of the implementation of the money laundering regulations by bureaux de change.

That goes further than current anti money laundering provisions. And it will mean that not only is there a duty to report obvious facts but a duty to look and report suspicions – which may have to be accompanied by ‘reasonable person’ provisions to make them workable, although these have yet to be spelled out.

FATF doesn’t mince its words about links between accountants and money launderers – deliberate or otherwise. ‘The frequently reported use of professionals such as lawyers and accountants can be understood by a criminal desire for funds to be associated with well-respected businesses,’ it says.

FATF expects money launderers to turn increasingly to accountants and lawyers rather than banks. ‘The need for criminals to attempt to launder funds using innocent firms may be expected to increase over time as mai stream financial institutions across the world become increasingly unwilling to accept personal funds without question,’ it says. The fact that, unlike organised crime groups involved in illegal activity, terrorists often raise funds legitimately will only accelerate the trend.

Individual accountants must stay vigilant and be more willing to report suspicious transactions. At an institute level, meanwhile, making sure the wider world is aware that procedures are as tight as they can be is crucial to the profession’s reputation.

Financial Action Task Force website is at

Terror war to target launderers


In the initial or placement stage of money laundering, the launderer introduces his illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (cheques, money orders, etc.) that are then collected and deposited into accounts at another location.

After the funds have entered the financial system, the second – or layering – stage takes place. The launderer engages in a series of conversions or movements of the funds to distance them from their source. They might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. This use of widely scattered accounts for laundering is especially prevalent in those jurisdictions that do not co-operate in anti-money laundering investigations. In some cases, the launderer might disguise the transfers as payments for goods or services, giving them a legitimate appearance.

The launderer then moves them to the third stage – integration – in which the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets or business ventures.

Source: Financial Action Task Force Send suspicious transaction disclosures to The Economic Crime Unit, National Criminal Intelligence Service, PO Box 8000, London, SE11 5EN.

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