How accountants can prevent criminal activities

Accountants must keep up due diligence and not let standards slip when it comes to preventing money laundering.

Under the Proceeds of Crime Act (POCA) 2002, accountants are legally obliged to know their clients and to submit a suspicious activity report (SAR) to the National Crime Agency if they feel there is any reason to suspect that money laundering or terrorist financing is taking place.

Failure to do so means that as well as facing criminal sanctions, they risk providing a gateway for ill-gotten gains into the legitimate economy.

The challenge facing accountants is that criminals work very hard to appear like every other client on the books.

Keeping in touch with due diligence

A major problem for the industry is outdated intelligence on clients. If a client is already well known, there is a tendency, whether through complacency, a lack of scrutiny or a fear that good relationships could be damaged, that the red flags of suspicious activity are simply missed.

However, that does not make accountants any less culpable for processing ill-gotten funds.

“Just because you’ve been dealing with someone for 30 years, that doesn’t make a difference,” says Angela Foyle, head of financial crime and money-laundering reporting officer at the accountants and business advisers  BDO. “If you think, ‘Oh, that’s odd, I never thought Jim would do that’, that has to be a red flag.”

CIMA (the Chartered Institute of Management Accountants) highlights the need to continually update information on clients so practitioners do not fall foul of criminal intentions. It suggests checking the accuracy of due diligence at least every two years, and states that accountants should include this requirement in engagement letters to avoid questions later.

The consultancy PwC’s most recent report into economic crime echoes that sentiment. It points out that due diligence must be “a dynamic act, not a static one”.

It says: “It is essential to keep monitoring for red flags and suspicious activity on a regular basis. Special attention should be paid to clients’ business relationships and transactions – especially when they conduct business with persons residing in countries with weak or insufficient anti-money-laundering regulations.”

David Stevens, of the Institute of Chartered Accountants in England and Wales (ICAEW), says that it is vital that accountants maintain their objectivity and professional scepticism when dealing with new and existing clients.

“In our code of professional ethics, one of the fundamental principles is objectivity,” he says. “In any relationship there is a risk that objectivity can be compromised. But our code requires this risk to be guarded against.”

Evolving safeguards for evolving threats

The ICAEW suggests that accountants should use trigger events to ensure that they update the due diligence on their existing clients. “Examples of triggers for when you should review the risk of a client are changes in ownership, trade, related parties and location,” it says.

When these events occur, accountants should check whether the changes affect the risk profile of the client. For example, if a client suddenly starts working within a high-risk area, as defined by the intergovernmental Financial Action Task Force (FATF), or the new owner handles the business very differently, an accountancy firm that does not do considerable due diligence into the changes could be vulnerable to penalties for failing to spot evidence should the company be handling the proceeds of crime.

In the same way that complacency can leave accountants vulnerable to criminal activity, they can also be vulnerable if they expand fast themselves.

Case studies by the Consultative Committee of Accountancy Bodies (CCAB) on economic crime include the fictional example (but based on real case studies) of Xavier LLP, an accountancy firm that acquired overseas offices in a fast-paced expansion and refers work to the UK through these international offices via a network of presumed trusted referrers.

Should the UK office take on work referred from a high-risk country but only subject it to minimal scrutiny due to its referral (and a presumption that thorough due diligence has already taken place), suspicious activity could be missed. Accountants should, therefore, “interrogate the reality behind the term ‘trusted referrers’ and consider the implications for CDD [customer due diligence]”.

Practical mitigations could include insisting on sight of the referrer’s due diligence paperwork before accepting the business, it says.

With a long-standing client, Ms Foyle recommends that, if there is a change in business practice that might trigger questions, there should be a “carefully worded conversation” about the decisions the client is taking.

She says: “You have to ask why and listen and assess. You may be satisfied, or you may need to do a bit more digging if you think that’s really odd.” More often than not, a client will offer the information needed to allay any concerns.

But when that is not the case, that small alarm or red flag could be the difference between maintaining your business’s stellar reputation and losing it.

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.

Comments

Related articles