Money laundering helps illicit organizations by lowering their cost of capital, giving them a competitive advantage over legitimate businesses. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention. Money laundering is not only a crime itself, but also a key enabler of other serious crimes such as modern slavery, drugs trafficking, fraud, corruption, and even terrorism.
Neither government officials nor the business community alone has the resources to counter international money laundering by drug cartels and other organized criminal groups.
Accountancy services remain an attractive target for criminals, used to help their funds gain legitimacy and respectability, hence Accountancy firms should be more vigilant than ever of money laundering strategies. Accountants’ professional can hinder money laundering and in identifying warning signs of possible illegal activity and creating controls that are effective in fighting the growth in money laundering.
ANTI-MONEY LAUNDERING OBLIGATIONS FOR ACCOUNTANTS
Accountants are key gatekeepers for the financial system, facilitating vital transactions that underpin the economy. As such, they have a significant role to play in ensuring their services are not used to further a criminal purpose. As professionals, accountants must act with integrity and uphold the law, and they must not engage in criminal activity.
Accountants must have in place systems and controls (including training) capable of:
- Assessing risk
- Performing client due diligence
- Monitoring existing clients
- Keeping appropriate records
- Reporting suspicious activities
SPOTTING THE MONEY LAUNDERING RED FLAGS
In order to help combat money laundering, accountants should be alert to the red flags of money laundering. These can include:
- Inconsistencies in information provided
- Evasiveness from clients, or unwillingness to provide comprehensive answers to basic questions
- Requests that do not make sense in the context of the client’s profile
- Complex group structures that are not properly explained, or where justifications are “tax reasons” or “privacy funds”
MONEY LAUNDERING- UNDERSTAND THE RISKS
Some services provided by accountants are at higher risk than others. The risk is highest when accountants do not fully understand the money laundering threats and do not implement appropriate risk-based controls.
Some services provided by accountants are at higher risk than others. Those most at risk are:
Trust and company formation services (TCSP)
This can be used to enable the laundering of millions, 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.
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.
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.
Clients who are regarded as higher risk include:
- Clients seeking anonymity or undue secrecy
- Clients with a history of criminal activity
- New clients outside of your normal client base
- New clients – professional advisors
- Politically exposed persons
- Cash-based businesses
- Other sectors e.g. arms dealers, property transactions with unclear source of funds, transport/logistics businesses, legal services, art market participants and financial services
- Clients with a changing business, or involved in emerging sectors
- High net worth individuals
International money laundering risks must also be taken into account as part of the firm risk assessment:
- Countries that do not have effective anti-money laundering regimes
- Countries with significant levels of corruption
- Countries with organizations subject to sanctions
THE LAW OF THE LAND
To fully understand their part in the fight against money laundering, accountants and their employers must be aware of the latest legislation relating to anti-money laundering and ensure that all their staff, both full and part-time, and working practices are in a position to comply with regulations.
Navigate The Red Flags with the help of Ahmad Alagbari Chartered Accountants
Ahmad Alagbari Chartered Accountants experts can help you by providing following services
- AML Health Check
- AML Business Risk Assessments
- Develop AML Policy & Procedures
- Develop Compliance Mechanism- Customer Due Diligence & Ongoing Monitoring.
- Train employees on countering money laundering and combating terrorism financing
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)Associate Partner
Ahmad Alagbari Chartered Accountants