It may feel like a betrayal of client trust, but accountants are legally obliged to report all suspicious activity, even for low-value transactions, as Steve Giles explains
Studying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. One hour of learning equates to one unit of CPD. We'd suggest that you use this as a guide when allocating yourself CPD units.
This article was first published in the February/March 2019 UK edition of Accounting and Business magazine.
The money laundering threat landscape is changing, not least for accountants. It is recognised today that the risk is broader than just disguising the origin of cash from the illegal drugs trade; new laws and regulations target beneficial ownership and tax evasion.
The UK authorities highlight threats to national security from large quantities of criminal funds being laundered through high-end property deals and the use of sophisticated corporate structures. This broader lens still includes bankers, but it brings the role of other professionals, including accountants, into sharp focus.
Accountancy bodies continue to promote best practice on anti-money laundering (AML). For example, the CCAB (Consultative Committee of Accountancy Bodies), an umbrella group for professional associations, offers accountants guidance on meeting their obligations under UK law to prevent, recognise and report money laundering; and ACCA issues sample AML policies and procedures. Both provide AML refresher and update training.
To begin with, accountants need to understand their legal AML obligations, which include identifying suspicious activity and submitting suspicious activity reports (SARs). Accountancy service providers are key gatekeepers for the UK’s financial system. As such, they are subject to AML regulations and have a significant role to play in ensuring their expertise and services are not used to further criminal activities.
Accountants should be familiar with the 2017 money laundering regulations, which build on the previous AML regime. One new requirement is that every firm must carry out and document a ‘whole-firm’ risk assessment. Accountants must have in place systems and controls (including training) capable of:
- assessing risk
- performing client due diligence
- monitoring existing clients
- keeping appropriate records
- reporting suspicious activities both internally (to a nominated officer) and externally (by the nominated officer to the National Crime Agency).
To date, the authorities have focused on SARs, which provide crucial intelligence for the disruption of criminal activity. Analysis of the SARs submitted in 2013 uncovered a surprise – less than 2% of more than 315,000 reports were from accountants (lawyers submitted even fewer). This low level of reporting seems counter-intuitive and raises concerns that accountants might – wittingly or unwittingly – be acting as enablers of criminal activity.
The authorities responded as follows:
- The serious and organised crime strategy 2013 states: ‘Organised criminals very often depend on the assistance of corrupt, complicit or negligent professionals, notably lawyers, accountants and bankers.’
- The UK’s second national risk assessment of money laundering and terrorist financing in 2017 confirms the grading of the first assessment (made in 2015) that accounting services are at high risk of exploitation for money laundering.
- Government minister Ben Wallace said of organised criminals in 2018: ‘They employ facilitators to give them a veil of legitimacy and to allow them to enjoy their wealth. Lawyers, accountants and estate agents are too often woven into their web.’
Despite these warnings and the government’s Flag It Up campaign, little has changed. Analysis of the 463,938 SARs submitted between April 2017 and March 2018 shows that only 5,140 came from accountants and tax advisers – 1.1% of the total. However, as AB went to press, the home secretary Sajid Javid announced a commitment of £3.5m to reform the SARs regime.
I have set out below some observations and recommendations arising from AML training sessions I have run on behalf of ACCA for members. During these sessions, I put AML in its proper business context of risk and controls. Once risk is understood, proportionate controls can be put in place to manage it. The identification and reporting of suspicious activities is an essential detective control.
Developing an appropriate risk-based approach gives practitioners greater assurance around AML compliance and adds value to their businesses.
There are some encouraging signs. Three years ago, some accountants did not seem committed to full AML compliance – for instance, whole-firm risk assessments were far from universal. But things seem to me to have changed; the questions are different, and there is less reason for concern. This is important, as documented assessments are a regulatory requirement.
There is also greater focus on outliers in business models. One practitioner told me he runs a low-risk business apart from one client, a high net-worth individual with a prominent media profile. Another said two of his clients had business interests in high-risk jurisdictions – the only transactions he handles outside the UK. Each is now considering letting those clients go – the fee income is not proportionate to the risk.
Comments to me by members doing training help explain the low level of reporting. Trust seems to be an obstacle. Some view reporting clients (especially those they know well) as a betrayal, particularly if the suspicious activities are of low monetary value. Practitioners also say that HMRC is sometimes already aware of a suspect transaction, so they do not submit an SAR because it would serve no purpose.
Reasoning in these ways is dangerous, exposing accountants to the risk of reputational damage, fines and even prison. However small a transaction, it is not exempt from the UK’s money laundering requirements. Failure by an accountant to disclose knowledge or suspicion is itself a money laundering offence. Accountants work in the public interest, and must act with integrity and uphold the law at all times – otherwise public trust is eroded.
My advice to accountants looking to navigate the money laundering landscape is straightforward: understand risk in your business, submit SARs whenever you have knowledge or suspicion, and remain vigilant – always.
Steve Giles is a consultant, lecturer and author specialising in governance, risk and compliance.