ICAEW.com works better with JavaScript enabled.

Getting to grips with AML: company formation services

1 December 2020: The latest ICAEW-IFAC anti-money laundering guide outlines how company formation services can be misused by criminals and what accountants should be aware of when it comes to client due diligence.

ICAEW has teamed up with IFAC to produce a series of six short guides for accountants to enhance their understanding of money laundering. 

The third instalment of ‘AML: The Basics’ explains that accountants involved in company and trust formation should be aware of the risk of money laundering in these services.

A risk-based approach to client due diligence will help accountants identify key red flags and know when to refuse a request to undertake this work or file a suspicious activity report. Company formation work could involve company incorporation itself, acting or arranging for someone to act as company director, or providing a registered office or business address, for example.

Criminals have been known to use companies to conceal the origin of funds and company formation agents have been used to obscure the association between one company and another. Accountants should always be on their guard if they suspect this type of activity is in play.

“A company structure can deliver a certain degree of anonymity,” says Sophie Wales, ICAEW’s Head of Ethics and Economic Crime. “And it can distance those involved from the act of money laundering. Members must be aware that criminals can use companies to hide their activities.”

The question for members is what a risk-based approach looks like so they can adopt it and minimise their exposure to potential money laundering activity. The joint guidance from ICAEW and IFAC – the third instalment in their ‘Anti-Money Laundering: The Basics’ series – says a member’s work should include:

  • customer due diligence;
  • understanding the commercial rationale; and,
  • source of funds/wealth checks.

The guidance not only identifies key red flags for money laundering risk in the company formation process but also illustrates when to walk away from this type of work. 

It also explains that, if an accountant becomes suspicious that the client or potential client has committed a crime with proceeds, then that accountant may have an obligation to report those suspicions to their local Financial Intelligence Unit by way of a Suspicious Activity Report.

Read the third instalment of ‘AML: The Basics