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Judge slams EY for ignoring money laundering activities

EY has been found in repeated breach of the code of ethics in a case involving money laundering and drug smuggling. Philip Fisher reviews the likely consequences.

23rd Apr 2020
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Last October, as part of an investigative series, BBC’s Panorama programme made a long series of damaging allegations about the behaviour of EY suggesting that the Big Four firm had, at the very least, turned a blind eye to money laundering activities by a client in Dubai and potentially been involved in even more questionable activity.

Readers may recall that one of the cunning plans utilised by the client in question was literally to paint gold bars silver as part of a sophisticated global drug smuggling operation.

Gold bars painted silver

Originally, this had been reported accurately by EY auditors using the words "We acknowledge an incident… with the bars coated with silver."

Allegedly someone at the firm rewrote the report to say "We acknowledge transactions... in which there were certain documentary irregularities." – Hardly the same thing.

As part of the programme, the narrator interviewed a former auditor from EY, Amjad Rihan. Last week, it was reported that his legal claim for unfair dismissal had been settled in court and, as a result, Mr Rihan is richer to the tune of $10,843,941 and also received £117,950 in damages.

Rather than leaving it at that, the judge in the case went out of his way to present his own assessment of the firm’s behaviour. As reported on the BBC website:

On Friday Mr Justice Kerr ruled that EY's behaviour amounted to professional misconduct, and that EY bosses were "responsible for suggesting to Kaloti that it should draft its compliance report in a manner that masked the reality of the Morocco gold issue."

The court found EY breached the Code of Ethics for Professional Accountants, and that it had a duty of care to take reasonable steps to protect Mr Rihan "against economic loss, in the form of loss of future employment opportunity, by providing an ethically safe work environment, free from professional misconduct".

The question at hand

The first question in my mind is why EY did not quietly settle the case out of court. It is hard to believe that they could not have persuaded Mr Rihan to accept less than $11 million and, while the story is certainly out in the world, it would slowly have disappeared from the collective memory.

It can hardly come as a surprise to learn that EY is planning an appeal against this damning indictment of its professional practices.

My immediate reaction to the court decision is that EY had better win its appeal. If that is the case, then the firm will be vindicated and can forget all about an unfortunate, embarrassing episode that will contribute the kind of reputation that belies the usual belief that all publicity is beneficial in the longer term.

If the appeal fails, being labelled as unethical by a senior judge and having that confirmed by his appellant colleagues will inevitably do significant damage to the firm.

In the case that the courts rubberstamp the original decision, there seems little doubt that the relevant institutes will need to take peremptory action in order to avoid any risk that they are seen to be weak. This could include the expulsion of partners, massive fines and a whole heap of opprobrium landing at the firm’s front door.

Going a step further, if no defence can be found, then it is hard to imagine why the legal authorities in the countries where the offence or offences have taken place would not seek to prosecute individuals who must surely have been guilty of conspiracy to defraud stakeholders in one or more organisations, not to mention helping to facilitate money laundering and drug smuggling.

I fear for EY that readers have not heard the last of this story.

Replies (3)

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By anne in basingstoke
24th Apr 2020 10:29

Thanks for this article but I am puzzled by your note that' EY had better win its appeal', given you had previously written:
Quote:'Originally, this had been reported accurately by EY auditors using the words "We acknowledge an incident… with the bars coated with silver." Allegedly someone at the firm rewrote the report to say "We acknowledge transactions... in which there were certain documentary irregularities." – Hardly the same thing.'
So why would you want EY to win? To prove that an auditor is allowed to ignore money laundering rules and to put profit above probity? Please do expand your comments. I for one do not want people to think that big (or small by extension) firms of Chartered Accountants have the right to do as they please.

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By spuddle
24th Apr 2020 11:56

Shocking! I saw the program. And small business accountants are supposed to report people for using the business photocopier for private use......

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By Brend201
24th Apr 2020 13:45

I'm not sure about the headline on this article: "Court finds EY guilty of ignoring money laundering and drug smuggling activities". It seems to me that it was a civil court case so the issue of guilt or innocence does not arise, regardless of what the judge said. Stand by for a solicitor's letter, AW.

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