Accounting dilemmas: 3 Politically exposed persons

What should you do if you discover a potential client’s brother-in-law is on the EU’s sanctions list?

AAT’s head of professional standards Adam Williamson cuts through the ethical thicket in search of answers.

Finance professionals are faced with the challenge of making ethical decisions and dealing with difficult situations on a regular basis. Often it’s not always easy to know how to deal with such issues, and generally, there are few hard-and-fast answers available.

While it’s impossible to list out every scenario you may encounter as a practitioner, here’s one you may face at some point, complete with a few tips on how to start to address it:

The scenario

A potential client comes to you. They are setting up a new high-end clothing business and wish you to act as accountants. The client has a significant cash investment of £500,000 to start up the venture. This is to cover everything: premises, stock and everything else they may require.

However, having done some basic background research, you discover that the client’s brother-in-law is a politically exposed person and on the EU sanctions list. What do you need to consider, and what action do you need to take in this scenario?

Considerations and actions

Firstly, you’ll need to consider where the investment money actually came from. The client should be the starting point in this investigation: ultimately you will want details about the funds from a bank or investment firm. An accountant should expect legal agreements or bank transfer details which show the source of the money.

Then, you must identify whether the brother-in-law has any involvement in the business. Again, the client is the first port of call here, but the company structure is also relevant. Are there other directors, partners or shareholders? If so, who are they? Do any of them have links to the PEP that you can find?

These actions will potentially give you the reassurance you need, but they equally may throw up more questions than answers.

Do you have any reason to suspect any money laundering issues?

Probably not, at this stage, unless you’ve been unable to get a proper answer to where the investment money has come from. While documentary evidence isn’t absolutely necessary, you can’t just take the client’s word for it.

If you’ve received suitable answers to the above questions then you may engage in business. However, you’ll need to proceed with caution, continuing to undertake enhanced due diligence.

However, if the answers you have received are unclear, or if the brother-in-law is involved, then don’t engage the client. Instead consider a suspicious activity report (SAR) to the National Crime Agency, as you should do if you have any future suspicions.

Failure to do this may result in disciplinary action by your professional body and potentially lead to prosecution under the Proceeds of Crime Act (failure to report) which can result in up to five years imprisonment.

In Summary

There’s no doubt that despite the challenges posed by scenarios such as the one outlined above, ethical compliance is key to maintaining public confidence in the accountancy profession and your own professional standing.

For more ethical accounting dilemmas:

Adam Williamson is AAT's Head of Professional Standards.

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