The battle to stamp out money laundering.
In this, my latest article for Praxity Global Alliance, I look at the role of accountants in the war on dirty money.
Accountants are in the front line when it comes to exposing money laundering. Is enough being done to fight it at domestic and global level?
One of the biggest challenges facing the accounting profession is to identify and call out incidents of money laundering – the concealment of illegally obtained money so that it appears legitimate.
Across the globe, the problem accountants have is that money laundering is an increasingly sophisticated global activity and the criminals involved tend to be very good at making ‘dirty’ money appear ‘clean’.
If intelligence is outdated, there is a danger that suspicious activity could be missed, especially if the client is already well known and the accountant doesn’t want to risk damaging a good relationship.
Every accountant has a duty to act with integrity and uphold the law but even the most professional accountants can find themselves unwittingly caught up in money laundering practices. This has led to criticism from some quarters that the profession is actually enabling rather than combating money laundering.
Are accountants enablers?
In Are Accountants Enabling Money Laundering? on the Association of Accounting Technicians’ website, Jeffrey Davidson Managing Director of Honeycomb Forensic Accounting says: “It’s virtually impossible to launder money without banks, lawyers and accountants involved. Because we manage people’s money through client accounts or through doing their books, people are able to use accountants unwittingly.”
This is particularly relevant in the UK, where money laundering is rife. London is widely regarded as the money laundering capital of the world, with hundreds of billions of pounds of international criminal money laundered through UK banks, including their subsidiaries, each year, according to the UK National Crime Agency.
A National Risk Assessment (NRA) conducted by the UK government on the key risks around the accountancy sector identifies several major areas of concern:
• complicit accountancy professionals facilitating money laundering
• collusion with other parts of the regulated sector
• coerced professionals targeted by criminals
• creation of structures and vehicles that enable money laundering
• provision of false accounts
• failure to identify suspicion and submit Suspicious Activity Reports (SARs)
• mixed standards of regulatory compliance with relatively low barriers to entry for some parts of the sector.
The NRA says accountancy services remain attractive to criminals because they can gain legitimacy, create corporate structures or transfer value. “Some of those accountants involved in money laundering cases are assessed to be complicit or wilfully blind to money laundering risks, though the majority of these cases are likely to involve criminal exploitation of negligent or unwitting professionals.”
This demonstrates the scale of the challenge facing the accountancy profession in the UK, and indeed worldwide, not just in spotting and exposing money laundering, but also in convincing those outside the profession that enough is being done to avoid accusations of negligence or being seen to be ‘complicit’ or ‘wilfully blind’ to criminal activity.
So, what should accountancy firms and their employees do to combat money laundering? Compliance with regulations in each country where a firm operates is an absolute must. It is important to be aware of, and follow, the guidance of accounting bodies and those organisations promoting anti-money laundering (AML) regulations. On an individual level, it is important to be aware of the warning signs and to act on them effectively.
In terms of compliance, if we look at the UK, the Consultative Committee of Accounting Bodies (CCAB) has published new guidance on preventing money laundering and countering terrorist financing. CCAB Chairman Andrew Burns says: “As key gatekeepers for the financial system, accountants have a vital role to play in preventing their services from being used for criminal purposes including the funding of terrorism. The guidance is an important framework to ensure accountants remain vigilant, work with integrity, and uphold the law.”
To comply with UK legislation, the CCAB says accountancy firms must have appropriate policies and procedures in place for assessing and managing the risks associated with money laundering and terrorist financing (MLTF). It says firms must also consider customer due diligence, record keeping, internal control, ongoing monitoring, reporting, compliance management and communication.
AML regulation is growing worldwide, with New Zealand among the latest countries to introduce new laws to combat the threat. The professional body Chartered Accountants for Australia and New Zealand says NZ$1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses. It warns accountants undertaking activities subject to the new anti-money laundering laws in New Zealand should be ready to comply from 1 October 2018. This means taking various actions including appointing an AML compliance officer, producing a written risk assessment and establishing an AML programme with procedures, policies and controls to address identified risks.
Regulatory compliance is only one aspect of the battle against money laundering. Transparency International, the global coalition fighting corruption, says “the global AML agenda is increasingly shifting from a debate about technical compliance towards whether the measures being taken by governments and businesses are effective”.
Some of these measures don’t appear to be effective at all based on evidence from the Financial Action Task Force (FATF), an inter-governmental body which sets standards and promotes effective implementation of measures to combat money laundering. The FATF recently started assessing the practical effectiveness of anti-money laundering frameworks in 44 countries, and whether legal, regulatory and institutional AML measures are in place.
According to Transparency International, the results of the FATF investigation shows private sector implementation of AML measures is among the areas with lowest effectiveness, with “major improvements needed in virtually all countries”.
On the plus side, there is a growing awareness of the value of sharing AML experiences, insights and recommendations across borders and between different groups from the private, public, and civil society sectors.
This is where accounting firms belonging to Praxity Global Alliance can play a key role in fighting money laundering worldwide. Praxity is the world’s largest alliance of independent accounting and consulting firms. By sharing knowledge and expertise across international borders, Praxity participant firms help each other with compliance issues and take action to reduce the chances of being caught up in money laundering activity. They also raise the alarm if suspicious activity is identified.
Vigilance can protect individual accountants from the threat of money laundering and the NRA has launched a campaign to help. Flag It Up encourages accountants to look out for ‘red flags’ when dealing with clients, funds and transactions.
Accountants can find themselves looking out for anything unusual in the amount or source of funds, discrepancies in transactions or unusual business activity, and whether clients have good reasons for using multiple bank accounts or foreign accounts, which may also be in high-risk countries. Suspicions can be raised by clients who are overly secretive or evasive, or who provide incomplete or inconsistent information and documents.
Accounting firms also look at their own culture and business practice, ensuring clients are rotated between accountants on a regular basis, for example, to avoid too close a relationship with a client leading to discrepancies being missed.
Whatever the regulations, guidance and good practices, it goes without saying that it’s the people that make the most difference. Employees need to be competent and confident in what they are doing, with appropriate training, regular assessments and appraisals.
As ever, accountants need to be seen to be accountable, especially when the stakes of fighting money laundering at domestic and international level are so very high.