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How to tackle high-end money laundering

Author: ICAEW Insights

Published: 17 Jun 2022

Don’t be distracted by the label’s exclusive connotations: high-end money laundering is a problem that should be on every accountant’s radar, says ICAEW’s Michelle Giddings.

Taken in isolation, the term ‘high-end money laundering’ (HEML) has a distinctly upmarket twang. It’s as though it occurs only in certain elite circles of the finance industry and is therefore something the majority of accountants don’t need to worry about.

In reality, though, it is a problem that every firm and practitioner should watch out for.

Definitions of HEML are many, various and often conflicting. Official takes on the term’s meaning are scarce. One such attempt at explaining HEML in a nutshell can be found in the National Crime Agency (NCA) High-end Money Laundering Strategy and Action Plan of December 2014, which defined the issue as: “…the laundering of funds, wittingly or unwittingly, through the UK financial sector and related professional services”.

In that sense, wrote the NCA: “It can be distinguished from the laundering of street cash generated by the activities of organised criminal groups.” But that definition was written eight years ago. Does it still hold up?

Layers and structures

For ICAEW Head of Anti-money Laundering Michelle Giddings, the NCA definition is fairly accurate – but there’s more to HEML than that. “The most useful distinction is that cash-based money laundering typically aligns with the act of placement: a criminal taking a pile of illicit cash that they have accrued and moving it into the financial system,” she explains. “High-end, meanwhile, refers to anything that is not cash-based – in other words, the layering and integration of the proceeds of crime to disguise and conceal those funds.”

For example, Giddings says, one way in which HEML may occur is if a criminal exploits a complex corporate structure to funnel illicit cash through the business bank accounts of the entities within that structure.

In that context, the focus is on process: any non-cash-based activity that manipulates corporate structures and professional advice to create a web of transactions designed to conceal or obfuscate illicit funds.

Beware the brown paper bag

In terms of how accountants may stumble across or otherwise encounter HEML, Giddings says that there are typically two routes – via what they do, and what they see. “Some firms will advise their clients on the creation of new corporate structures, or the reorganisation of existing ones. They may also be asked to provide help on complex tax arrangements, or advice about how to mitigate tax liabilities – potentially blurring the lines between avoidance and evasion.”

In addition, Giddings explains, an accountant may be faced with what’s known in the trade as a ‘brown paper bag job’, where a client comes in with a jumble of receipts and asks the firm to construct books and records that will make sense of – and build a convincing narrative around – that scrappily presented material.

“That is a way in which criminals will attempt to fabricate a series of transactions that can justify certain slices of income as legitimate business,” she says. “It can be very difficult to tell from the raw information exactly what’s going on.”

Turning to what accountants see, she says: “This comes down to monitoring and professional scepticism. As you are going through a client’s accounts, are fact patterns emerging that suggest something inappropriate is happening?”

That is the main learning point of ICAEW’s latest training film All Too Familiar. In the film, the viewer discovers that even a longstanding client may suddenly change how it operates – a key risk being that the length of the relationship suppresses any scepticism about what is going on within the business. As a result of that suppression, an accountant could easily dismiss or overlook the change and its underlying causes.

In parallel, Giddings notes: “If you are working with a client who owns lots of properties, do you understand what you’re seeing in relation to where those assets sit? Are any of them embedded in a corporate structure? If so, who owns that?”

People and purpose

The everyday nature of some of those analytical steps is the very reason why HEML requires vigilance across the entire profession. “It’s important not to get distracted by the ‘high-end’ part of the label,” Giddings says. “In the end, this is all about concealment through widely accessible means.”

Giddings stresses that insights on how businesses work are vital for pinpointing signs of suspicious activity. “One key form of HEML is trade-based money laundering,” she notes. “So, if you’re helping a manufacturing company, for example, are its invoices and payments related to the transfer of goods stacking up?”

Looking at how firms should respond if they think they have detected a trail of suspicious behaviour, Giddings says that traditional, ongoing monitoring skills must come into play. Accountants must assess the patterns before them in the light of the explanations the client has provided. If a firm becomes suspicious that money laundering may have occurred – ie, that the proceeds of a crime have passed through the business – then the firm must report those concerns to the NCA.

“It is also appropriate to consider whether reporting your suspicion means that you must step away from that engagement,” Giddings says.

Looking ahead

At the end of this year, the government will publish the next Economic Crime Plan – taking in lessons from the current plan and evolving its focus. Here are the anti-HEML points that Giddings hopes the new plan will cover:

  • inclusion of service providers such as wealth management firms, family offices and so-called financial ‘concierges’: facilities that may be enlisted to help bad-faith individuals commit HEML, but do not currently fall within the scope of the Money Laundering Regulations;
  • investment in enforcement agencies that will foster greater sharing of anti-HEML strategic intelligence with the regulated sectors; and
  • detailed communication to accountancy firms of various HEML typologies to assist them with their scenario planning.

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