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AML – The Basics: the vulnerabilities of businesses in difficulty

Author: ICAEW Insights

Published: 22 Mar 2021

The final instalment of the ICAEW and IFAC series ‘AML – The Basics’ focuses on businesses in difficulty and how accountants advising them can avoid becoming linked with economic crime.

At times of financial vulnerability, it is easier for a business to fall victim to economic crime and, in the prevailing economic conditions, it is not surprising that ICAEW and IFAC are focusing the sixth instalment of their AML guide on this topic.

It is not just that distressed companies can be a target for criminals; accountants can also inadvertently facilitate money laundering under these conditions because of the complexities that come with corporate distress. The guidance warns: “It is important that accountants who provide services to businesses in difficulty be aware of – and effectively mitigate through a risk-based approach – the relevant vulnerabilities.”

It is also important for business owners and managers to fully understand the provenance of any new investment in their businesses, especially when they are under financial pressure so that they are not exploited at a time of increased vulnerability. The guidance points out that acquiring a cash-based business is a classic aim of criminals with money to launder, and that business owners should be wary of cash injections that could be disguised proceeds of crime.

“Businesses experiencing financial problems may also be susceptible to misconduct by the business’s management and others,” points out Sophie Wales, ICAEW’s Head of Ethics & Economic Crime. “Accountants should be on their guard for employee whistleblowing reports that suggest wrongdoing in the business, or ongoing criminal investigations linked to the owners or managers of a business.”

The guidance sets out what a risk-based approach should look like and urges accountants to consider the risks of wrongdoing within a client organisation. It also sets out case studies and identifies key red flags by way of illustration of the dangers to companies and their professional advisors.

“It is important for accountants to understand when to walk away,” says Wales. “This should be when you realise that by paying out funds or assets you could be helping to pass proceeds of crime through a business.”

ICAEW & IFAC series AML – The Basics: read the six-part providing basic guidance on anti-money laundering.