Money laundering finances serious and organised crime.
In 2013, the Home Office estimated that money laundering − everything from tax evasion to financing terrorism and drug dealing − costs the UK £24bn a year.
The European Union (EU) agreed tougher rules against money laundering. The ‘Fourth Anti-Money Laundering Directive’ is due to be moved into UK law early in 2017.
“There is the perception that not enough accountants have been quite as thorough in their application of compliance [with anti-money-laundering rules],” says Richard Simms, an expert on anti-money laundering rules and managing director and insolvency practitioner at F A Simms & Partners Limited. The Leicestershire-based firm specialises in insolvency and business recovery.
The EU directive applies to banks and the whole of the financial sector as well as to lawyers, notaries, accountants, real estate agents, casinos and “company service providers”.
Businesses covered by the directive need to verify the identity of their customers and of the “beneficial owners” of their customers and to monitor the transactions of and the business relationship with the customers.
They also need to report suspicions of money laundering or terrorist financing to the public authorities – usually, the financial intelligence unit.
The directive creates additional requirements and safeguards, such as enhanced customer due diligence for “situations of higher risk”.
In the UK, the main accountancy institutes and associations (the ICAEW, ACCA, AAT etc.) are responsible for checking that accounting firms are sticking to anti-money laundering rules.
The government has said that UK accountants are particularly vulnerable to being used by money launderers and that they need to better at spotting it and reporting it.
A report by the Treasury and Home Office published in 2015, UK national risk assessment of money laundering and terrorist financing, said that although firms had a reasonable level of technical compliance with money laundering regulations, there was evidence of “poor practices” in the accounting services sector, particularly among small firms and sole proprietors.
“Particular areas of concern among supervisors are the levels of training, and the processes for identification of clients, ongoing monitoring and risk assessment.”
Criminals can use accountants to conceal the origins of criminal funds and/or legitimise accounts through the creation of companies, trusts and offshore corporate structures and providing false accounts, the Treasury/Home Office report said.
“Many of [these] vulnerabilities … leave accountants open to being used, wittingly or unwittingly, to assist the financing of terrorism.”
Assessing clients for a risk of money laundering and having a thorough knowledge of their business, the markets they work in and understanding how they move cash, can help accountants spot money laundering.
“If an [accounting firm] is compliant with [anti-money laundering regulations] today they are going be compliant once the Fourth directive comes in,” Simms says. “But those members who are letting the side down, shall we say, will be the ones who probably fall on the flagpole if they do get caught not doing [things] correctly. There is a lot of education going on across the sector.”
Roughly what proportion of UK accountants aren’t doing strict enough checks against money laundering? “…Without sounding rude there is a generational issue in the [accountancy] sector,” Simms says. Some accountants, who worked in the profession for many years before the anti-money laundering regulations in 2007, “don’t really think it applies to them,” Simms says. “Because they have known their clients many years and therefore they don’t need to do it [such as] the ID checks. Their [attitude] is a little bit of ‘I know what I’m doing and I know my clients’ why do [anti-money-laundering regulations] bother me?”
Cash-in-hand payments, a type of tax evasion, are a crime with “proceeds” and are therefore classed as money laundering.
“If, for example, [an accountant has] a client who is a sub-contractor builder who didn’t disclose to [the accountant] that they had done a piece of work for £2,000 cash that is technically money laundering.”
Under the Proceeds of Crime Act, if an accountant “tips off” their client that he/she is going to make a report of suspected money laundering by the client or have made a report, or there is an investigation into the client, that’s a criminal offence.
Doing a thorough background check on a potential client can highlight potential wrongdoing and avoid a lot of stress.
Anti-money-laundering software can help accountants assess financial risks and document compliance with anti-money laundering rules.
Simms enjoys specialising in a couple of subjects and working with mainly small businesses. After qualifying as a chartered accountant and working in venture capital and banking jobs in London, he joined his family business in 1999. Within a few years he became managing director. “A lot of staff have been with us a long time and that makes for a very pleasant working environment and a great team.”
He travels a lot in the UK for work and likes working in a small team. “I like people. I like talking to people. I found that a lack of connection to people [when I was working for a large business] made it quite isolating and not a very fulfilling role.”
In his free time Simms enjoys, skiing, swimming and running. He’s going skiing at Christmas. “It sounds like an expensive hobby but generally it’s not too bad if you price it and pick it right.” Ever the accountant.
Nick Huber is a freelance journalist and has written for Accounting Technician magazine, The Guardian and BBC.