5 money laundering warning signs to check for

A joint initiative led by the accountancy sector and the Government is helping accountants recognise the warning signs of money laundering in the UK.

Unintentionally facilitating money laundering is a risk for every accountant. Government, law enforcement and professional bodies are joining forces to highlight the issue and its impact on the economy and the reputation of the sector.

“For economic criminals to succeed they must be able to conceal the origins of their ill-gotten gains,” Anthony Harbinson, chairman of the CCAB (Consultative Committee of Accountancy Bodies) anti-money-laundering task force has said. “Professionally qualified accountants have a key role to play in combating economic crime.”

Spotting “red flags” of dubious bookkeeping or unusual transactions, and making suspicious activity reports (SARs) to the National Crime Agency (NCA), are vital ways to combat serious and organised crime and its impact on the UK economy, currently estimated at more than £24bn.

Noticing that something is amiss with a client is a matter of carrying out appropriate due diligence both at the time of initial engagement and subsequently. Vigilance and normal professional scepticism are required, particularly where long-term accountancy clients grow, change personnel or otherwise alter their business.

Trust is not enough

A recent study from consultants at PwC suggested that UK economic crime was increasingly being committed by older, respected business people at the very highest level, making it harder than ever to spot.

“Knowing your customer today means going beyond identifying and verifying the information they provide. It must be a dynamic act, not a static one. It is essential to keep monitoring for red flags and suspicious activity on a regular basis,” PwC said in its most recent economic crime report.

There are some particular client behaviours that accountants should consider to be “red flags”, meaning that further investigation is warranted.

If you are an accountant, here are some of the ones to be alert about.

1. Evasiveness or reluctance to provide information

Are there reasons not to take on trust information provided by a client or to query their behaviour, such as a reluctance to provide detailed information about the business?

According to the Financial Action Task Force (FATF), an international body set up to combat money laundering of which the UK is a member, secrecy and evasiveness are a major red flag when taking on a client. This could include reluctance to disclose who the client is, who the beneficial owner is, or to provide any information, data or documents usually required to enable the transaction’s execution.

2. Incomplete or inconsistent information

According to Lowers Risk Group, accountants should be on the lookout for documents that cannot be verified, multiple tax IDs, and clients who try to shield the identity of beneficial business partners or owners, as well as a reluctance to provide business information. The FATF adds that incomplete or false documentation is another red flag.

3. Unusual money transfers or transactions

Money changing hands in unusual ways should raise the concerns of accountants working with a client. The CCAB advises accountants to be aware of funds transferred to or from “locations of concern” as a possible red flag. “Keep an eye on the HM Treasury list for high-risk jurisdictions,” the group advises. (The FATF has a list of “high-risk and non-co-operative jurisdictions” on its website.)

Identifying transfers of money or assets where there is no apparent business relationship between the parties to the transfer, or loan transactions between entities that do not match normal commercial arrangements, should also be seen as reasons to investigate further. Unusually high turnover/cost of sales numbers for cash-based businesses that are out of line with other similar-sized enterprises in the same sector may also require further explanation.

4. Complex group structures without obvious explanation

The CCAB warns that criminal schemes are often very sophisticated, with “complicated structures designed to disguise the true source and ownership of money and other assets even from expert eyes”.

As a result, if the group structure is set up in an odd way, and there is no proper explanation for this, it should warrant further investigation.

“Unnecessarily complex group structures and investments in areas with no obvious geographical connection can both be indications of money laundering,” the CCAB says. “The absence of any obvious explanation for the structure of these transactions could be a sign that they are being deliberately set up to confuse and obscure.

“The use of complex financial instruments by a business with no obvious reason to do so can be a sign of the layering and integration stages of money laundering.”

5. Negative information available about the client or company

A simple internet search may reveal information about a client or company that could point to unusual business activity. While adverse media reports in themselves are not evidence that the client is laundering money, any curiosity piqued during due diligence should be pursued.

By accepting a client, an accountancy firm provides a level legitimacy to that client by virtue of its own reputation.  Accordingly, carrying out appropriate due diligence, following up red flags until resolved or reporting to the NCA where they cannot be resolved will protect both the reputation of the firm and also the UK economy.

Know the risks from money launderers

The UK’s professional services companies are being targeted by money launderers, who use legitimate firms to bring the proceeds of serious and organised crime into the economy, investing it further into criminality and undermining the integrity of UK financial institutions and markets.

The Home Office is working with professional services firms through its Flag It Up! campaign to help honest enterprises avoid becoming enablers of crime.

Visit tgr.ph/homeoffice for more information about the dangers of money laundering and the steps being taken to combat it.

You can find further information on how to submit a suspicious activity report on the NCA website, and regulatory guidance is signposted through the Accountancy Affinity Group’s supervisory pages.

This article first appeared in the Telegraph. AAT has worked in partnership with the Accountancy Affinity Group, Home Office and NCA to develop the campaign Flat It Up!

Rosie Murray-West has written for the Telegraph.

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