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Detecting AML is not just a tick-box exercise for accountants

Author: ICAEW Insights

Published: 24 Apr 2023

More emphasis is needed on gut feeling, rather than a tick-box approach, to decide whether a company is trustworthy or not, anti-money laundering professionals warn.

With the combination of uncertain economic times and new technologies presenting opportunities for criminal activity, all accountants – public and private – must work together to counteract money laundering and corruption. Failure to do so can have devastating consequences, such as funding other serious crimes including slavery and drug trafficking.

Ashish Kumar, a Policy Analyst at the global watchdog for combating money laundering and terrorist financing the Financial Action Task Force (FATF), says better targeting of limited resources is key.

“The resources to fight financial crimes are limited, both for the government and the private sector. And the answer is not enhancing the resources to an extent that it becomes unsustainable. Instead, the solution lies in following a proper risk-based approach to really understand where the key risks are and taking measures to address them.”

Trusting your gut as an accountant

Kumar contributed to the development of the FATF’s Risk-Based Approach Guidance for the Accounting Profession, which offers practical advice to help accountants identify and avoid money laundering risks.

The guidance highlights the importance of knowing who your clients are, where they are based and details about the source of their funds.

“It is not a checklist approach where you simply tick-box 20 items, it’s more about understanding very well who you are dealing with and what you’re getting into,” Kumar says.

An accountant by qualification, Kumar believes that accountancy professionals have a knack of detecting when something is wrong because professional scepticism lies at the heart of their assessments and decision making.

“Accountants have a sense of what can go wrong and what to be watchful for when engaging with a client. With their professional training, they are best placed to be alert to conditions and dig deeper if something doesn’t seem quite right. It’s a real skill that they can put to use in their client and engagement acceptance decisions to guard against the financial crime risks.”

How to implement and test AML compliance programmes

Accountants play a vital role in the financial system, and this role extends to ensuring their expertise and services are used to address the costs of financial crime for clients. But how should accountants introduce AML preventative measures in their firm?

Laura Bucur, Associate Director, Forensic Risk Alliance (FRA), advises clients on the design, implementation and testing of AML compliance programmes. She says there is no one size fits all when it comes to designing these plans.

“The general rule is that they must be sufficiently robust, dynamic and aligned to the risk profile, nature and processes of a company. It’s therefore critical to fully understand the business and once that is done, the next step will be understanding and mapping the applicable risks to the internal control framework and identifying gaps,” says Bucur.

Bucur has seen in many cases where firms either entirely missed certain risks or underestimated the severity of the risk. “Regulators have maintained focus on certain elements, including on how senior management oversees and manages compliance risk, but also on the effectiveness of internal policies, client onboarding, procedures, and training – all of which should be key elements of an effective compliance programme.”

She says: “Having access to a company’s data and internal control framework means that accountants could be the first to identify changes in patterns, unusual transactions and other red flags. The majority of our FRA team are qualified accountants, and this skill-set brings a huge benefit to our compliance work.”

ICAEW contribution

ICAEW’s Head of AML Michelle Giddings contributed extensively to FATF’s Risk-Based Approach Guidance for the Accounting Profession, having co-chaired the guidance when it was originally published back in 2018.

She says: “Professional scepticism is such an important part of the accountant’s role in the fight against economic crime. Firms need to make sure that staff understand what economic crime and money laundering look like and when to be sceptical, or indeed suspicious.”

Giddings advises that there is a great deal of information available on the ICAEW and FATF websites about risks for the accountancy sector and money laundering red flags to support staff training.

“Furthermore, there is our latest educational film, All Too Familiar, the award-winning short drama produced by ICAEW in collaboration with HMRC. The film aims to challenge mindsets and provoke discussion on the need for greater professional scepticism when faced with potential money laundering risks,” she adds.

A recent AML event hosted by ICAEW and the International Federation of Accountants (IFAC) discussed the role of the accountancy profession in tackling money laundering and the need to improve how financial intelligence is shared between all players in the corporate reporting ecosystem. A recording of the event, Is trust enough to fight money laundering?, is available free of charge.

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In these articles and videos, we explore the latest trends and perspectives on economic crime from around the world, and look at how chartered accountants can help prevent it happening.

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