Are accountants enabling money laundering?

Serious and organised crime, from drugs and cybercrime to people trafficking, costs the UK economy an estimated £24 billion a year

The majority of its financial proceeds are laundered through UK banks and other regulated businesses, as are trillions of pounds each year from international criminal activity or corruption.

While money laundering is itself an example of serious crime, this illegal practice plays a wider role, allowing criminals to fund and expand their operations and costing regulators, businesses and governments time and money in the fight against it. The National Crime Agency (NCA) also suggests money laundering is a threat to national security with “a marked overlap between money laundering and terrorist financing”.

Money laundering transfers financial power from legitimate businesses and individuals into the hands of criminals, while undermining financial institutions and markets. The accountancy industry is unfortunately – and mostly unwittingly – involved in the practice, as criminals seek to clean their money by concealing it as part of the legitimate financial system.  For the victims of crimes enabled by laundered money, the effects can be devastating and lifelong, from ruined business reputations to the loss of family members and childhoods from drugs, firearms and violence.

What is an accountants role?

For most accountants it is a case of stopping this unknowing assistance, says Jeffrey Davidson, managing director of Honeycomb Forensic Accounting: “It’s virtually impossible to launder money without banks, lawyers and accountants involved. Because we manage people’s money through client accounts or through doing their books, people are able to use accountants unwittingly.”

Additional pressure from clients or a business perspective may add to this unintended enabling of money laundering, adds Business Tax Centre director and anti-money laundering compliance specialist Steve O’Neill: “A client says you will do what I tell you because I’m paying you, and a lot of people don’t want to lose the fee, but you’ve got to do your job to your ethical standards. The client can always go somewhere else.”

There are  standard procedures and rules in place for accountants and accountancy firms when it comes to complying with anti-money laundering regulations, from having a written anti-money laundering policy and risk assessment processes in place, to flagging suspicious activity with an internal officer who may then suspend a transaction, or raise a Suspicious Activity Report with the NCA. As a result of DAML requests made by all regulated sectors in the 18 months to March 2017, the NCA reports that £56,541,579 of assets were denied to criminals. These red flags have helped to identify and stop illegal activity and allow money and goods to be returned to victims.

“It’s not a whole new set of things to do; it’s things you are already doing. These [regulations] are just flags at various stages of the job to make you stop and consider whether you’ve documented what you know and done what you’re supposed to do by your professional body’s standards,” says O’Neill.

Money laundering transfers financial power from legitimate businesses and individuals into the hands of criminals tweet

Flag It Up Campaign

To help the sector better understand the importance of anti-money laundering procedures, the message from the government and regulators has changed in recent months to focus on the social impact of money laundering, with the Home Office and NCA’s Flag It Up campaign leading the charge.

“Previously bodies have looked at it purely from a regulatory perspective, but there’s a social basis for fighting against money laundering and the use of proceeds of crime. It’s a different emphasis on the socially destructive element of money laundering rather than simply reminding people of just their obligations,” says Adam Williamson, the AAT’s Head of Professional Standards.

I think simply introducing regulation is seen as burdensome and more red tape. If you make it a more personal understanding and narrative, then people might be willing to take the extra step and enhance their procedures and due diligence rather than doing the bare minimum.”

Greater engagement with the issue would allow the sector to be one step ahead when the next anti-money laundering regulations are introduced, he adds.

Are you an enabler?

To help prevent accountants from becoming professional enablers of money laundering, firms must also look at their culture, says Davidson. Rotating clients between accountants, especially partners, on a regular basis can stop staff getting too close to clients and agreeing to do something they shouldn’t in order to maintain that relationship, for example.

Updated money laundering regulations introduced in 2017 require staff to be screened before and during an appointment and should make firms assess whether staff are confident in the work they are doing and whether there is sufficiently regular training and appraisals to check this, adds O’Neill. For smaller firms or sole traders this, can be problematic in terms of cost and capacity, but Davidson says that a requirement for firms to incur the cost of an external scrutineer to review them and their procedures in this area every year would be beneficial.

“We are accountants but we are business people looking to sell professional services and earn a living. We won’t spend our whole time wondering about regulatory issues. You need somebody you’re accountable to,” he says.

New anti-money laundering regulations

The principles behind the previous and new regulations aren’t different, but the 2017 regulations’ depth and enforcement is, says O’Neill. He adds that while the move towards more standard AML supervision practices, such as the introduction of Office for Professional Body Anti-Money Laundering Supervision, is welcome, it could increase the costs of this function for regulators.

With a renewed focus on the social impact of money laundering, the Flag It Up campaign and regulatory bodies hope they will continue to improve professional standards. This will help accountants avoid unwittingly playing a role in criminal activity, while rooting out criminals and those who knowingly enable money laundering.

Laura Oliver is a Freelance Journalist and Former Head of Social and Community at the Guardian.

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