In March 2017, the Organized Crime and Corruption Reporting Project revealed that British banks have processed more than £20 billion worth of dirty money.
Using anonymously owned UK companies, the banks were described as operating as a “global laundromat” that took predominately Russian funds and obscured their dubious origins from regulators.
While money laundering is nothing new, scandals like this serve as a stark reminder to accountants about how large and severe this type of fraud can become. In order to offer clients the best possible advice, financial professionals need to stay informed of the latest anti-money laundering guidance.
Know the law
In the UK, The Money Laundering Regulations 2007 outlines the measures that companies and sole traders must abide by to prevent money laundering. Under these regulations, any firm or individual providing audit, accountancy, tax, insolvency or related must register with an authorised body such as AAT for supervision and monitoring.
When assisting clients with compliance, it’s important that finance professionals understand that money laundering is not always easy to spot.
Sometimes, for instance, companies aren’t even aware they’re being made complicit in money laundering. Small businesses are often tricked into laundering money on behalf of overseas “investors”. Fraudsters convince victims that the money they’re transferring into their accounts is for “investments”.
“Those attempting to commit money laundering offences by using innocent businesses are becoming more sophisticated in their attempts and the methods they use,” says James Mitchell, senior client manager at Dennis & Turnbull. “More than ever, accountants need to be able to support clients and themselves by identifying risk areas and assessing their exposure to money laundering offences.”
One of the ways accountancy firms can protect themselves is by producing a written anti-money laundering policy. These should contain the company’s procedures and risk assessments. Employees should have permanent access to it and must be aware of the penalties HMRC can impose for not abiding by the Money Laundering Regulations.
The first step to producing a written anti-money laundering policy is to perform a thorough risk assessment. Start by focusing on your clients, where they are based, how they behave and where their money comes from and goes to.
It’s important to make sure your clients are who they say they are by applying ‘customer due diligence’ measures. In practice, this means means verifying their name, residential address or date of birth, as well as checking their identity using a photograph on an official document. If the client is acting on behalf of someone else, you will also need to check the identity of the beneficial owner.
Be sure to store copies of all of the documents you check relating to your customer’s identity and financial transactions, as well as your risk assessments and a written copy of the company’s management processes.
“If a client has a history of frequently changing bookkeepers or accountants that could indicate that finance professionals need to be extra diligent,” says Farida Rahman-Wright, Professional Standard Manager at AAT. “It’s important to closely examine any unusual fees or movements of money. If the company carries a non-existent or satisfied debt that keeps showing as current on financial statements that could indicate that there is activity that needs to be flagged.”
Flagging suspicious activity
There are a number of reasons it may be necessary to flag a transaction as suspicious. If a client’s records consistently reflect sales at less than cost, thus putting the company into a loss position, the company continues must be able to produce a reasonable explanation for the continued loss. Similarly, accounting technicians should pay special attention to all transactions that are unusually complex and have no apparent economic or visibly lawful purpose.
“Under the reportable conditions you need to have reasonable suspicion and a clear understanding of which money laundering regulations are being breached,” says Mitchell. “The money laundering regulations mean that accountancy practices are required to have a nominated reporting officer. Accounting technicians should be able to report to them anonymously, and then they are responsible for taking the concern to the National Crime Agency (NCA).”
In the case of individual transactions, should the officer suspects money laundering or terrorist financing, they must suspend it immediately. If it’s not possible or safe to do so, they should make a report as soon as possible once the transaction has been completed. The NCA analyses Suspicious Activity Reports and passes information to law enforcement agencies.
“The key is to know your clients. Understanding their business model will help you comprehend what they’re declaring,” explains Rahman-Wright. “Accountants are in a great position to prevent money laundering because they work with clients over many years. If you do stumble across something inconsistent or bizarre, that’s when you need start asking questions and potentially raise red flags.”
Anyone in the business can report a transaction to the nominated officer, and it is their responsibility to evaluate whether there is evidence of money laundering or terrorist financing. Staff should all know who their nominated officer is, what their role is, and how to report a transaction to them. You also need to appoint a deputy who can temporarily take on their responsibilities when the nominated officer is not at work.
With money laundering currently under the media spotlight, HMRC have announced that a regulatory watchdog is to be established. The Office for Professional Body Anti-Money Laundering Supervision has not formally opened yet, but the government is taking consultation on how to improve existing anti-money laundering regulations.
Whether you’re a large firm or a sole trader, it’s crucial that accountancy technicians comply with anti-money laundering regulations. As the government increasingly tries to clamp down on this type of fraud, staying up to date with the latest recommendations and procedures is crucial for minimising your risk exposure to this type of fraud.
AAT has resources, podcasts and e-learning to assist you with Anti-Money Laundering guidance.
Jesse Onslow Norton is a writer, editor and communications consultant at Flibl. A former coder, his editorial work focuses on fintech, digital transformation, policy and regulation. His clients include corporations, governments, startups and SMEs from across the world. Follow him on Twitter @JesseOnslow.