Head of Professional Standards AAT
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Accounting dilemmas: Misuse of the client account

AAT’s head of professional standards Adam Williamson considers the red flags of holding clients' funds and how this could put the firm at risk of becoming a professional enabler of money laundering.

14th Apr 2020
Head of Professional Standards AAT
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Great Britain Pound

The scenario

You have a client who specialises in purchasing high-value properties with the aim of selling them on at a profit. Your client advises you that their funding came from profits and bank loans. Their bank statements support this.

A few months later, the directors tell you they are having some difficulties with the company's bank account. They asked if the company could use the firm's client account as a temporary measure. This client is one of your firms most valued and lucrative clients, so you agree to hold their funds in their client account.

Over the next two months, your client allowed over 100 deposits and withdrawals on the client account, for both personal and business expenses. None of the transactions related to any accounting matter in which you were involved.  What should you do next?

Considerations and actions

By holding the clients' funds for the reasons alluded to by the client you have placed the firm at risk of becoming a professional enabler of money laundering.

There is no proper connection between holding the money and the services being provided by the accountant. Here, the payments relate to other transactions on which your firm was not acting. 

In all such cases where money is being held in their client account, we would also expect the firm to question whether there is a proper reason for the funds to be held by them, rather than paid directly between the parties. The client's convenience is not a legitimate reason, the firm should seek adequate explanations from their client. We would expect the firm to explain fully why the payments are being made and to have fully considered the risks involved – for example, involvement in money laundering, avoiding money being caught in insolvency, or the hiding of assets.

The red flags, in this case, were that the client asked to use the firm's client account improperly, they used corporate funds to fund personal expenses, and the client account had been used to accept funds from unknown third parties.

The transactions should be kept under review to make sure that holding the money remains proper and justifiable. The firm should have undertaken the relevant due diligence checks on their client to establish the true source of the funds. If it is found to be that the transactions are not justifiable the firm launched an internal investigation and reported the matter be reported.

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By meadowsaw227
14th Apr 2020 10:42

Have never nor would ever hold clients money - do not even have clients cis refunds paid to us .

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