TCSPs and money laundering: how can accountants stay alert?

Recently, new regulations on TCSPs (Trust and Company Service Provider secretarial services) have been introduced – a register of companies created by HMRC to safeguard against the small, but very real, prospect of these services being used for money laundering purposes.

And this year sees the relaunch of the “Flag it Up” initiative, a Home Office and National Crime Agency (NCA) campaign designed to generate awareness around anti-money laundering regulations (AML).

So what should accountants be looking out for? And how can you be sure that a client is not involved in nefarious practices?

Think objectively

“A business would be considered high-risk if there are frequent high-value cash transactions, or if it involves many jurisdictions outside the UK,” says Adam Williamson, Head of Professional Standards at AAT. “It’s about staying alert and recognising the kind of thing that might make you suspicious.”

Be concerned if the company appears to have been set up for no other reason than to gain legitimacy. “Company secretarial services can be used to form a company, create a structure and generate value” says Williamson. “The big question is – what is this company doing? What’s it for? Does it have a clear reason for existence? Who owns it? Where does the money come from? All these things should be clear. If not – that’s your alarm bell.”

“Look for patterns,” says the Professional Standards team at AAT. “Be transparent, and look towards your professional body as a supervisor to provide resources for how you can spot what these patterns are. Really understand why these services are regarded as high risk and how they could be exploited.” The point is that you might form a company “and not look out for certain things – usually around these high-risk areas and terrorist financing. You need to be aware and vigilant.”

“This is often a ‘brass plate’ phenomenon, Williamson adds, recalling the case of 29 Harley Street, where 2,159 companies were registered at the same address. “This was designed entirely for the purposes of shifting money through UK and across the world,” Williamson says. “And I’m afraid that London has a bit of a reputation for doing exactly that.”

The sooner AAT members get on board and get ahead of the game, the better off they will be

Are these new regulations a response to the scale of financial mismanagement revealed by investigations such as the Panama Papers?

“The legislation has been in the pipeline for a few years,” says Williamson. “But certainly, the Panama Papers have shown everyone what kind of issue we are talking about – creating company structures that do nothing but move assets from one place to another. Understanding that and being alive to this kind of issue is key here.” The other problem the Papers highlighted is that “often, it is accountants doing this work. It’s not just about the high risks of accountants being duped – but also doing it knowingly.”

As an example, consider the recent case of William Hill Group (WHG), currently facing a penalty package of at least £6.2m after failing to adequately meet AML and social responsibility regulations. Although this is not TCSP-related, it is a clear example of the severity of the problem. According to the Gambling Commission, “senior management failed to mitigate risks and have sufficient numbers of staff to ensure their anti-money laundering and social responsibility processes were effective.”

The WHG case hinged on the fact that “ten customers… were allowed to deposit large sums of money linked to criminal offences [and] WHG did not adequately seek information about the source of their funds.” At least one of these individuals was working in the accounts department of a business.

Are these regulations likely to develop again in future?

Yes. “They are only going to get stricter,” says Williamson, “and the sooner AAT members get on board and get ahead of the game, the better off they will be. It means you won’t have to react to changes on a regular basis, you’ll have things put in place and you won’t have to update systems to remain compliant.”

Does Williamson think Brexit will make things harder? Will we, for example, have a different set of regulations in place from Europe?  “As far as we are aware, the regulations will be adopted as is. The difference is that although the next set of AML regulations are already on their way from Europe, we might be out of the EU by the time they come into force.”

The political climate in a year’s time will be instrumental in terms of whether we follow Europe or not. “There are the rumblings of wanting the UK to move to a deregulated, low-taxation area. Do we want to be completely out of step with Europe?” Williamson says. As always with any Brexit discussion, the message has to be to wait and see. “But it’s an international goal to minimise the ability to launder money. There’s an international dimension in terms of setting the standard, and I think the UK will continue to want to be at the forefront of that.”

Take-outs from the Flag it Up campaign: what should you look out for?

• Clients. Does the company appear evasive or secretive? Might it be covering something up?
• Finances. Are the funds unusually high numbers, and where do those funds come from? If money is being moved through different jurisdictions, ask why. Are those jurisdictions regarded as high-risk countries?
• Transactions. Are there unusual transactions taking place? This doesn’t just have to be large sums of money – it can be transfers outside the normal scope of the business activity.

What should you do?

If you suspect a client, file a Suspicious Activity Report with the NCA (National Crime Agency). Visit : Flag It Up campaign page for more information.

Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.