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Follow the money: How to combat money laundering

Firms need to be alert to the constantly shifting threat of money laundering, says Caroline Biebuyck

Anti-money-laundering (AML) measures are a key component in the battle against financial crime, ensuring that dirty money is kept out of the banking system and doesn’t filter into commercial transactions. While much of the media’s focus is on banks and other financial institutions, professional service firms are also on the front line in the battle against money laundering.

The biggest danger for firms is complacency, says Philip Nicol-Gent, Vice-Chair of the ICAEW Regulatory Board, which oversees ICAEW’s regulatory functions. “From time to time, everyone needs to take a step back and make sure they have proper oversight of their AML procedures. Where other professionals may be involved in transactions from the start to the end, chartered accountants need to ensure that they understand the transaction in the round so that they apply the appropriate level of scrutiny to it and to the client: to exercise professional scepticism and make sure the dial is set right.”

Firms need to understand the risks and be alive to the constantly evolving threats in the landscape, as there is no one-size-fits-all approach to AML, says Louise MacDonald of HMRC’s Fraud Investigation Service. “Firms know their business better than anyone. You are uniquely placed to understand the risks so you can spot when something goes wrong and report it. The more information you can provide in your suspicious activity reports (SAR)s, the more chance we have of understanding the threat and helping combat it.”

The stakes go well beyond satisfying regulators to avoid sanctions or fines. “It’s about helping staff understand the real-world impact of not taking enough care in their compliance responsibilities,” says MacDonald. “Money laundering fuels organised crime, whether that’s drugs, violence on the streets or human trafficking. It creates real harm and misery in society: it can facilitate terrorist acts. That’s why it’s dangerous for any firm to think its AML defences are complete. There’s no room for complacency.”

This can seem daunting. Money launderers have become expert at making illicit gains hard to spot, with their methods constantly evolving to keep one step ahead of law enforcement. It doesn’t matter what size a business is or what types of transactions are used, as criminals will target whoever they can. These targets can be complicit, but they are often either complacent or negligent.

“Money launderers can also rely on personal networks,” says MacDonald. “Just because you have known a client for a long time doesn’t mean the risk associated with them is the same: it may have changed. Good AML practices involve realising that the threat is evolving – it’s about understanding that risk changes and that the firm and its staff need to be aware of this and adapt to it,” she says.

“It’s the business of firms and of ICAEW to ensure that firms have business risk assessments in place; that they have proper policies, procedures and controls; that they exercise these in a challenging way; and that they document their work appropriately,” says Nicol-Gent.

The National Crime Agency (NCA) wants to make the UK a hostile environment for money laundering and reduce the harm money laundering can cause. A key initiative for the NCA is to increase the quality and quantity of SARs when money laundering or terrorist financing is suspected.

ICAEW is working hard to support the NCA and other initiatives to combat money laundering. Through its role as a money laundering supervisor, it has been monitoring its firms on anti-money laundering procedures since 2007. This activity is being stepped up in 2020 as Michelle Giddings, Head of AML and Operations, explains. “ICAEW is supporting the NCA by working to continuously improve the quality of SARs submitted to the NCA by ICAEW firms. 

From the start of this year, all ICAEW Practice Assurance monitoring on-site visits will include a review of SARs that firms have filed with the NCA to make sure the information provided is as complete and accurate as possible. We will also continue to look into firms’ AML policies and procedures to try to identify ways the firms can train their staff in looking out for suspicious items.”

ICAEW recognises that its firms can only increase the number of SARs they submit if they know what money-laundering risks look like. ICAEW is working with law enforcement and other professional body supervisors to identify current money-laundering typologies. “We are doing as much as possible to help firms identify these risks,” says Giddings.

ICAEW is also increasing the range of AML resources it produces for its firms and members. These include AML Essentials, a quarterly newsletter and technical helpsheets. In the past six months these helpsheets have featured topics such as tipping off, submitting a SAR, and what AML risk looks like.

Meanwhile a working group is producing resources to help members and firms with know-your-client research skills. The group’s first project, which took place in February, was a webinar on understanding how to carry out effective due diligence on clients who may be politically exposed persons. 

“The group is currently developing resources on using open source intelligence research in know-your-client checks and there will be more on this in the months ahead,” says Sophie Wales, ICAEW Director, Technical Strategy, Tax, Ethics & Law Group.

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