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money laundering

Six misconceptions around money laundering


John Dobson covers key misconceptions that accountants may have about money laundering.

21st Jul 2021
CEO SmartSearch
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Most peoples’ understanding of money-laundering comes from pop culture, such as films, and TV which portray shady backroom deals with duffel bags stuffed with cash. In reality, more often than not, money laundering relies on anonymous transactions via shell companies – a far cry from the heart-pounding escapades of hit shows like Ozark or Narcos. 

Here are some common misconceptions that many – including accountants – have with regard to money laundering. 

Money laundering is easy to spot

Money laundering is big business. The United Nations estimates between $800m and $2tn is laundered every year, and only 1% of that is seized by global authorities. With such vast amounts involved, it is no wonder that criminals take precautions to avoid detection. 

The key to money laundering is to hide behind layers and layers of seemingly banal transactions and entities to avoid raising any suspicions which make illicit funds difficult to spot. 

If accountants are relying solely on gut instincts or experience then this is unlikely to prove an effective strategy. Instead, comprehensive, sophisticated tools are needed in order to ensure that all transactions are above-board. 

To help with this, there are some red flags to be aware of. For instance, if the information provided is inconsistent, or the client is evasive when asked basic questions, these can be clues that not all is as it should be. But the majority of the time, the criminals are well versed in these transactions and are able to conceal their true motive successfully. 

It’s not an accountants’ role to do AML

A recent study from Oxford Economics, in conjunction with the Cabinet Office, found UK financial services firms are already spending a total of £28.7bn on compliance processes annually. 

However, 99% of criminal profits are still going undetected. This is why accountants need to be vigilant.  Money launderers like to focus on areas where they know there will be less oversight, and where they can operate with relative anonymity, such as with bitcoin.

Moreover, different institutions may have different requirements for KYC (know your customer) and AML (anti-money laundering) checks that are not completely in alignment with your own.

To put it simply, AML compliance needs to happen at every stage and in every area where there is a potential risk. Accountants are at the forefront of this. 

AML is a box-ticking exercise 

It is easy to go through the motions when doing anti-money laundering. Maybe a quick glance at the passport, which looks okay. Does it match the selfie? There is a resemblance. And who looks like their passport photo anyway? 

According to financial action task force head Dr Marcus Pleyer, “There is a huge reality gap between the FATF’s global standards and the action being taken on the ground.” 

Accountants need to ensure they go beyond box-ticking and should be looked at as an opportunity. The know your customer procedure can be streamlined enough to take just a few seconds and save accountants massive amounts of time and effort. 

Compliance systems are a nightmare to change

It may be a generalisation, but we have found that the financial services sector has a tendency to select its IT systems based more on the cost of implementation, than the functionality and effectiveness of what it does. The price may be right, but the solution can be found wanting in its ability to spot fraud and money laundering activity.

To that extent, it’s a completely false economy to think you can save a few million pounds on the IT solution because if you do get caught out, the accounting firm could face multi-million-pound fines.

Another concern about the procurement process for a lot of larger firms is the length of time it can take for systems to be implemented. 

It can take anything from one to three, or even four years in some cases, for the process to go through, during which time a lot will have changed in terms of technology. At the same time, regulations will change or new ones introduced, which makes it essential that systems can be updated and kept in line with those changes.

Physical document checks are more reliable than automatic checks

Documents hold a psychological advantage for some as they are physical. They exist. You can hold them in your hand. In fact, bank statements, passports, driving licenses and payslips are still seen by many to be the gold standard for identity verification. 

However, in the technologically advanced age that we live in, it is perfectly possible to forge all of these documents in ways that are virtually undetectable, even to the trained eye. 

Luckily, while technology has made these skilful forgeries possible, it has also given us the means to detect them. Combining the right sources of information, including digital fraud checks, credit reference data, and biometric facial recognition produces what is known as a “composite digital identity” that is all but impossible to fake. 

With more people preferring to do business remotely as a result of the coronavirus, being able to verify someone’s identity digitally provides not just convenience but also security. 

One way to do this is through an automated anti-money laundering solution. By inputting a few details – name, date of birth and address, the system will confirm a person is legitimate in just two seconds, and also screen them against sanctions and PEP (politically exposed person) lists. 

Most businesses don’t need to invest in AML compliance

It is understandable that many companies, particularly small ones with few resources to spare, would baulk at the need to implement additional processes. At the same time, businesses that knowingly or unknowingly involve themselves in money laundering can face serious consequences, both legally and financially. 

While complying with AML regulations can be daunting, the recent Sixth Money-Laundering Directive coming into force in June 2021 adding new layers for regulated businesses to contend with. 

However, AML compliance doesn’t have to be complicated. There are many services on the market that enable organisations to carry out fast, secure and accurate checks in a matter of seconds. They allow businesses to carry on with their day-to-day work without fear of stumbling into an international (or domestic) money laundering ring. 

Most people think of money laundering in an abstract sense – as a practice that is wrong but has no impact on their businesses or daily lives. In fact, money laundering affects us all. To give just one example, money that is being laundered is also money that is not being taxed – which means that the burden falls much more heavily on law-abiding citizens. 

It’s up to all of us – and particularly those involved in financial transactions – to play our part in preventing it. 

Replies (13)

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By Trethi Teg
22nd Jul 2021 11:08

Shouldn't such articles make it clear that the writer has a vested interest in what they are conveying - up front and at the start, before you start reading - and not leave it to the end. I am assuimg Smart Search is involve with money laundering solutions of course. If not then I apologise.

As long as I continue to deal with pub landlords, local builders and IT contractors I am not going to take much notice.

However, as soon as a policitian or their family or thier friends walk through the door the alarms bells will start ringing. They will probably have false passports and supporting documents anyway so pointless even then.

99.9% of the population have to do this pointless box ticking whilst the 0.1% of the crooks simply step around the regulations.

The guys who need to do this in our profession are PWC's, KPMG's etc who regulalry deal with certain types of cleitns and who (together with the solicitors and bankers and estate agents) , I have no doubt, turn a blind eye as long as the fees are large enough.

Leave us small practitioners alone!

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Replying to Trethi Teg:
By memyself-eye
22nd Jul 2021 11:20

Bravo, well said!

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Replying to Trethi Teg:
By johnjenkins
22nd Jul 2021 11:25

Says it all.

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Replying to Trethi Teg:
By GHarr497688
24th Jul 2021 20:22

You are correct. With MTD and AML I have had enough . Crooks are outside the system and would fall under the radar of HMRC etc. The tax system will be if not already in chaos and AML is just a process. Why should I do a cleaners accounts who earns 15K a year and have to do a risk assessment , due diligence , know your client etc etc. It's pathetic as is telling the same client they need to keep digital records and file six times a year. Enough really is enough. Lets hope the people who thought all this up go the same way as daft politicians. Jobs for the boys.

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By barry131
22nd Jul 2021 11:37

The author of this piece seems to forget we are accountants - not part of a quasi unpaid police force for HM Government. I seem to recall in the early days the guidance threatens a jail term if we got it seriously wrong. AML! Just one reason why I left the profession.

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By Richard Grant
22nd Jul 2021 11:47

I've always wondered what AML checks are done when an ex Politician sets up a charity, gets huge funds paid into it for give after dinner speeches then swans around the world giving "advice" and getting still more paid in. Personally I would have thought quite a few bells would be ringing, the least of then being tax avoidance but then again I'm just an accountant so what would I know?
Just curious.

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By Hugo Fair
22nd Jul 2021 11:52

"it’s a completely false economy to think you can save a few million pounds on the IT solution because if you do get caught out, the accounting firm could face multi-million-pound fines" ... says it all really.
If I had even one (let alone a few) million pounds spare, then I wouldn't waste it on an IT solution - from SmartSearch or anyone else!
It's bad enough when you're the client ("You'd like some advice on creating a Will? Certainly sir, now if you could fill in countless forms and provide all the documentation - don't forget the inside trouser-leg measurements and name of first girlfriend's pet cat - which are a legal requirement before we can talk to you further"). But now you want me to pay to do this to my clients?!?

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By Ammie
22nd Jul 2021 12:06

There are arguments and practices for and against all these points.

The authorities have the most power yet have been toothless, that is why they have made it our problem to police. What chance has a micro business to effectively do much? The digital systems are also open to manipulation and error and an intent launderer with highly sophisticated resources would make it highly likely that his vulnerability to being caught is slim. How often does the NCA fail to get a case over the line due to lack of evidence?
Just how much time and resources can any business dedicate, at its own cost, to plugging authority inefficiencies and who will pay for it? Lets not forget we work to live, not live to work and then die!

I would be more willing to host inspection visits to assess my compliance as I would think it will take up much less time than what I am doing now.

We remain vigilant as far as reasonably possible, stacking legislative threat against us, particularly the micro business world, will reap very few results, hence why the stats quoted still make miserable reading.

How many in government or those in authority have actually faced money laundering charges? Given questionable behaviour of some I would be more than suspicious and inclined to submit an SAR if they were my client.

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By whiteways
22nd Jul 2021 12:39

Show me a gardener or a jobbing window cleaner who's been convicted of money laundering, and then I'll take you seriously.

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Replying to whiteways:
By thestudyman
23rd Jul 2021 10:10

whiteways wrote:

Show me a gardener or a jobbing window cleaner who's been convicted of money laundering, and then I'll take you seriously.

I've heard of chefs cooking the books but never a gardner raking the lawns!

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By Rgab1947
22nd Jul 2021 12:55

Then I read that major banks like HSBC, Danske bank are caught money laundering billions and then I question why I must go through all the pain of AML exercises for the IT contract/or other SME who has no schemes running and I have known for years.

Then the big audit firms being fined for colluding with management in scre**ng shareholders.

Sorry many of the myths are the norm.

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By geraldw
22nd Jul 2021 16:17

This has to be one of the most delightful threads of recent times. Echoing my sentiments exactly.
Thankfully I will be retiring in 12 months time and can tell HMRC where to stuff their £300 extra tax demand.
What do they do with it ? Perhaps they should spend more rersources looking at the big 4 than smaller practitioners.

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Replying to geraldw:
By memyself-eye
22nd Jul 2021 19:28

12 months?
i packed in this AML cr*p two months ago
and got a letter from HMRC advising my agents access would be 'suspended' from the end of this month

I could not be happier.
(unless I win that OMAZE house in Devon competition.....)

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