Money laundering: do you fully understand the risks?

Essential due diligence 

Accountants play an essential role in preventing money laundering by understanding risks, meeting regulatory obligations and encouraging compliance and good practices to mitigate these risks. Reviewing firm-wide risk assessments of money laundering threats on a regular basis is imperative for accountancy firms to make sure they have identified all the areas relevant to their own business – particularly as the risk may evolve because of changes to the firm’s client base, geography and services provided.

The AASG risk outlook provides a helpful reference for firms to use in undertaking their firm-wide risk assessments, highlighting key risks and red flag indicators identified in the UK’s National Risk Assessment and other sources of emerging threats and trends.

Higher risk services

Services that are identified as higher risk in the AASG risk outlook are:

  • Trust and company formation services (TCSP)

This can be used to enable the laundering of millions of pounds, conceal the ownership of criminal assets and facilitate the movement of money to secrecy jurisdictions. The risk is highest when coupled with other high-risk services or factors, such as a client in a high-risk country.

  • Accountancy and bookkeeping services

Criminals will falsify underlying books and records to hide criminal activity and engage a professional accountant to prepare the financial statements to legitimise them and benefit from the veneer of respectability provided by the professional adviser. Another way in which the criminal can mask the true nature of the transactions is with ‘incomplete records’ engagements where the accountancy firm or bookkeeper is asked to use bank statements to prepare the accounts and not the underlying books and records.

  • Payroll services

This may include the handling of clients’ funds and so the accountant may provide services that legitimise the proceeds of a crime e.g. ghost employees or individuals recorded as an employee who aren’t performing tasks or modern slavery. The NCA has published indicators of modern slavery and human trafficking in the accountancy sector, providing red flag indicators to be aware of during payroll engagements. The risk is highest where staff have not received AML training tailored to payroll services, staff are not client-facing, or there is poor quality information provided by the client.

  • Tax advice

Although there are many circumstances where providing tax advice to reduce a tax liability is legal, there is a risk that an accountant or tax adviser may provide tax advice that assists the client in masking their true income, or structuring their income and wealth to gain an illegal tax advantage.