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An illustration of AML | AccountingWEB | Outsourcing and AML: Navigating compliance challenges
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Outsourcing and AML: Navigating compliance challenges

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As outsourcing grows across the profession, questions arise about anti-money laundering compliance as work goes overseas. David Winch tries to make sense of the requirements for accounting firms.

30th Apr 2024
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A growing number of accounting firms are embracing outsourcing to address perennial staff shortages and support peak workloads. Once a dirty word, outsourcing is now enabling firms to unlock growth potential and rather than get distracted by resource frustrations, they’re able to focus their attention on scaling. 

As outsourcing accountancy work to providers overseas increases, firms are realising that in this post-Covid hybrid world there is no difference in staff working nearby or three thousand miles away. 

Outsourcing and AML compliance

The growth in outsourcing has led David Winch, the director of MLRO Support and anti-money laundering (AML) adviser, to question how AML compliance operates where work is outsourced. 

Winch explained that overseas outsourcing firms may not be subjected to local obligations like firms in the UK, so they may not have the same requirements to report suspicions of money laundering. 

This then raises the question: how should firms treat outsourcers with regard to AML compliance? Some may argue that the correct way to treat them is as employees. However, this means that they will have to be subject to the relevant training and fit-and-proper tests. “Realistically, it’s not very easy,” said Winch. 

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Replies (8)

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By johnjenkins
30th Apr 2024 10:27

Won't be long before accounts etc. are outsourced to AI which will make it's own AML and compliance policy no doubt. So where will AI be based? I presume there will be a central base, with access available in all sorts of places.
The mind boggles.

Thanks (1)
David Winch
By David Winch
30th Apr 2024 10:46

Just FYI, if you have any AML queries that you want answering I am doing a Q+A webinar with Sophie Maxwell from Firmcheck on Tuesday at 10:30. Register at https://my.demio.com/ref/OPXYKzG0S2J2hnaR
David

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the sea otter
By memyself-eye
30th Apr 2024 14:01

..and what about IR35?
Are HMRC going to be pursuing Johnny Foreigner in future?

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By johnjenkins
30th Apr 2024 14:16

With all the people going to Rwanda, it would be a great place for outsourcing. Grants from the Government no doubt. Shouldn't take too long to set up.

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By FactChecker
30th Apr 2024 14:49

Interesting in an academic way, but what are the practical implications?

It may be obvious to some (but not me) ...
* the AML registration of a practice confers a host of liabilities on that business, including their monitoring/reporting processes and the training of their employees in how to operate these processes for full compliance - as we all know (to some extent anyway)!
* BUT if a sub-contractor is not an EE then the sub-contractor takes on its own AML duties ... so are we saying:
- that the issue is that an Indian sub-contractor doesn't do that (although they should)?
- OR that they don't (and don't need to)?
- OR that the UK business is responsible for knowing/checking the figures and sources etc at a level they no longer have sight of (having outsourced it)?

Basically is the AML gap (when outsourcing) in the legal scope or the limitations of the UK liabilities or a 'black hole' which means honest businesses should (but not must) adapt their processes?

Bottom-line - if every business that outsources anything has to apply the full due diligence suggested by David to every set of accounts returned to them then, however logical from an AML perspective, the business has probably just lost all the 'savings' from outsourcing and might as well cancel the contract.

Thanks (3)
Replying to FactChecker:
David Winch
By David Winch
30th Apr 2024 15:10

Fair questions. I would expect an outsourcing provider to comply with the money laundering requirements of the country in which he operates - but those may be not as demanding as the UK requirements. One solution would be for the UK accountant to require the provider to comply with UK requirements (but I don't think that is feasible if they don't know what those are).
At the end of the day the UK accountant has a responsibility to ensure UK requirements are satisfied. I have tried to suggest a sensible and practical approach to that.
David

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Replying to davidwinch:
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By FactChecker
30th Apr 2024 18:22

Thanks, David. Don't get me wrong, I think (in the circumstances) that all your suggestions are eminently logical - and are probably the closest a business that is outsourcing will come to complying with the concepts that underpin AML.

My point (slightly exaggerated I'm sure) was that the more the business has to do in order to compensate for a perceived 'AML deficiency' in its outsourcer, the less the cost benefit of outsourcing in the first place.

I guess if the UK business is closer to the old-fashioned model (where KYC was a 'thing' before anyone invented an acronym for it), then outsourcing was probably not a good fit with their ethos - but this aspect just killed it stone dead.
Whereas if it's closer to the pile 'em high/volume-driven model (probably with AI outnumbering humans), then outsourcing will be a serious consideration - but this aspect (AML) will be largely ignored, or at least reduced to 'tick-boxes'.

So, I'm with you on identifying the problem - just not so sure that there's a short-term solution with which the various parties are ready to jump on board.

Thanks (3)
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By firebrandfinance
09th May 2024 16:26

For anyone looking for more background on AML, I'd highly recommend David Winch's blog:

https://mlrosupport.co.uk/blog/

And if you're looking for an AML training course for your team, David also has you covered:

https://www.ptpinteractive.com/online-products/mlr-training

I receive no compensation from David for sharing his resources - but I have benefited from his AML wisdom!

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