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Accountants and anti-money laundering | accountingweb
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Accountants should take a fresh look at AML

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As new proposals are introduced to beef up anti-money laundering legislation, Philip Fisher suggests that it is time for accountants to iron out the procedures.

5th Apr 2023
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Anti-money laundering legislation has been around for a long time now. When it was first introduced, the profession appeared to be very much in its sights and we all started running around like headless chickens.

These days, for most of us it may well seem more of a box-ticking exercise than a reality that impacts on everyday life.

Accountants typically attend compulsory training sessions and complete endless forms when taking on new clients, but very rarely make a formal report about nefarious activities that we think will interest the police.

In many ways, this is a perfectly reasonable approach. If someone is serious about laundering the proceeds of crime in the most effective manner, they are more likely to do so via the gambling industry – which given the recent story about William Hill must have been a slam-dunk winner – or the banking sector.

Indeed, a quick search on Google shows that NatWest, Santander UK and HSBC have all faced multi-million-pound fines for money-laundering failings, while the recently defunct Credit Suisse was compromised by innumerable problems, including issues relating to money laundering.

Dodgy characters

In our sector, there are two potential areas where we are most likely to fall foul of the current legislation and new proposals outlined by Richard Hattersley earlier this week in his article reporting that the government plans to toughen AML supervision.

The first might be as much a matter of self-preservation as protecting the state from criminal activity. When a prospective client turns up and asks you to act, the natural response is to bend over backwards and do whatever is necessary to secure the business, particularly where the fees and recovery rates both look attractive.

However, taking on someone who looks dodgy in the first place is asking for trouble. It would hardly be great for your firm’s reputation if you are eventually associated with gangsters, whether from the UK or some rogue state. In addition, dodgy clients are the ones who eventually refuse to pay fees and, if you’re out of luck, sue you for poor performance when you threaten legal action to recover the outstanding amounts.

It may be difficult but, as a general rule, the best response to a prospective client who doesn’t quite feel right is to recommend that they might be better suited to services provided by a disliked rival.

Suspicious activities

From the perspective of the authorities, the most likely assistance that they might receive from the accounting profession will be whistleblowing on activities that arouse suspicion. This second area of involvement is an incredibly difficult art form, given that suspicion is such a vague term and concept. Many of us will have been concerned about tax-minimising activities carried out by clients at the behest of other advisers, while some may also be suspicious about profitability, given underlying levels of activity. Is this enough to warrant a report that could end up with the police?

On the other hand, you might occasionally identify financial transactions that genuinely look criminal. In such cases, while it is a pain, you should be speaking to your firm’s anti-money laundering officer in the expectation that a formal suspicious activity report will be required.

My guess is that very few readers will ever have submitted a formal report to the authorities in these circumstances.

If nothing else, doing so will take up an awful lot of time and inevitably lead to stress. However, more positively when everything is done correctly, the client need never know that it was you that fingered them and the experience might be quite a good addition to your personal CV.

Serious situation

The likelihood is that the government’s proposed new Economic Crime Plan 2 with its more rigorous supervision of the professions will have little or no impact on most accountants’ lives.

However, it is vital that we take these proposals seriously and this might also be a good time to review your firm’s anti-money laundering procedures and activities since, at least in theory, getting it wrong could be the end of a successful career or, in extreme circumstances, even lead to the swapping of your luxurious office for a prison cell.

Replies (11)

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the sea otter
By memyself-eye
05th Apr 2023 17:51

All of the above is all well and good - the issue is that when accountants submit a 'SAR' - NOTHING happens.
Yet we all know of many instances of 'cash in hand' 'under the counter' 'off the record' transactions.
The nod, nod, wink, wink business environment is alive and well.
Not true? look at Bounce back loans and 'furlough' claims.
So, so glad I've quit........

Thanks (5)
Replying to memyself-eye:
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By Dib
06th Apr 2023 13:43

"So, so glad I've quit........".

Hope you run out of water half way up the Tardebigge Flight! (not jealous about your retirement...)

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By Hugo Fair
05th Apr 2023 18:12

I doubt (m)any on here would dispute that "taking on someone who looks dodgy in the first place is asking for trouble" ... but there's little correlation (claimed let alone evidenced) between the admin hurdles required by AML and the process somehow helping to identify 'the dodgy'.

The tell-tale that is always ignored in these articles is the (hard to come by) analysis of the actions & fines doled out by the regulators.
Outside of a few of the headline-grabbers (which more usually relate to failures in Audit not AML), the majority of cases seem to relate to (relatively trivial) non-compliance in following the check-box procedures ... and *very* few relating to the uncovering of money laundering. 'Nuff said!

Thanks (7)
By ireallyshouldknowthisbut
05th Apr 2023 18:33

I think what accountants do is really just "window dressing" as far as AML goes.

Most of it is "because the rules say we have to" rather than helping in a meaningful way to cut financial crime .

A more thoughtful approach would be to put all the resources into creating specific reports for accountants so we can make meaningful contributions which we know will be looked at and acted on, rather than generic ones designed for banks.

There seems to be considerable more compliance effort checking up on accountants ticking pointless boxes than is ever spent following up on our reports.

What we should have is very light touch rules on the ground, trusting accountants to act professionally and sensibly, and all the resources focused on action on well designed reports.

O and rather than threatening jail time, how about 10% of any proceeds as a bounty.

Thanks (4)
David Winch
By David Winch
08th Apr 2023 18:11

I have been helping a number of firms prepare for, or respond to, reviews of their AML procedures by their professional or supervisory body. For obvious reasons I'm not going into detail about that.
But while I'm talking to firms there very often is a conversation along the lines of, 'While we're talking, what do you think about this situation ....'.
Every firm has a 'problem client' or problem relationship.
I do see something of a theme emerging! The 'problem client' is typically outside the mainstream of work which the firm undertakes - so for example he may be based outside the UK (when normal clients are local), or involved in a business sector in which the firm has no other clients and no experience.
These 'problem clients' are - at best - not worth the anxiety they generate and - at worst - a potential fertile ground for issues with your regulator, or HMRC, or your professional indemnity insurer.
So my tip would be - ditch the unusual client who is outside your area of expertise! You will sleep better without that anxiety.

Thanks (6)
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By johnjenkins
11th Apr 2023 11:26

Yes, you're quite right Philip, Accountants do need to approach AML in a different manner. How about a report on every client with the proviso that "not being trained in the art of interrogation, or having a degree in psychology, I cannot state for sure if my client is a money launderer. However if something crops up that I am 100% sure is against the law I will send in a report, reporting that occurrence.
Seems to me that should cover compliance (which is really what we do anyway).

Thanks (2)
Replying to johnjenkins:
David Winch
By David Winch
11th Apr 2023 11:52

Hi John
I understand what you feel. Unfortunately the legislation goes down a different path in two important respects.
Firstly it requires you to consider information which HAS COME TO YOU in the course of your work in the regulated sector. So you have no obligation to employ thumbscrews and interrogate your clients (although your mindreading skills may be required in order to form a view as to whether your client may have been dishonest).
Secondly you have no need to be "sure" - much less do you need to be 100% sure - of anything. Being "sure" is what a jury is required to be after an investigation has been completed and the evidence has been presented to them in court. You are tasked with considering whether you have a suspicion. In other words if you are feeling 'Someone ought to look into this' then you have a suspicion which you may be obliged to report.
I hope that makes you feel better - or at least does not make you feel worse!
David

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Replying to davidwinch:
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By johnjenkins
11th Apr 2023 12:43

Hi David,
I'm pretty sure I know the ins and outs of "what is required". However there will be some of us that, by nature, have a suspicious mind so consequently reports galore, and, of course, there will be others that believe all they are told and wouldn't think that their client is naughty. This is hardly a good recipe for legislation on the basis of "suspicion". At least my proposal covers your backside (not yours in particular).

Thanks (2)
Replying to johnjenkins:
David Winch
By David Winch
11th Apr 2023 12:57

Hi John
I didn't realise you were planning to re-write the legislation. I could contribute a few additional suggestions of my own .....
David

Thanks (1)
Replying to davidwinch:
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By johnjenkins
11th Apr 2023 15:53

Hi David,
Everything regarding HMRC and business legislation needs, not only looking at, but re-writing. If not then we are in for a long period of stagnation.

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By BryanS1958
11th Apr 2023 11:26

How dare they even SUGGEST that accountants should beef up their AML procedures, when HMRC has no systems in place to check that over 11000 Chinese companies are registered at one address in Wales!

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