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Emerging money laundering risks

Staff and engagement teams should be alert to the following fraud risks, particularly when preparing the client’s year end accounts and/or undertaking audit planning.

Business trade and the economy

There is a concern highlighted in the National Risk Assessment that organised criminals may exploit businesses who through no fault of their own have fallen into financial difficulty. This is particularly pertinent over the next few months as companies who have received Bounce Bank loans will be required to commence repayment.

Criminals may offer an apparent lifeline to these firms through loans, equity funding or even offer to buy them out. Once criminals have an interest in a legitimate business, that business can then be used to launder further funds disguised as business activity.

Accountants should be alert to this risk. Where a client has received loan or equity finance from a third party (other than a financial institution), the engagement team should ensure that they understand the source of that funding as well as the nature of any new business lines.

Government Support Schemes

There have been instances of criminal exploitation of Government support schemes set up to assist business in the current crisis. These take many forms depending on the nature of the scheme. One area of particular concern is the abuse of the coronavirus business interruption loan schemes.

Although the vast majority of claims are entirely genuine, in cases where, for example, there have been reorganisations of the business structure combined with multiple applications, or where the loans do not appear to have been used to support the trade, engagement teams should be alert to the risk of fraud.

Bribery and Corruption Risks to UK Independent Schools – Case Studies and Red Flags.

Do you provide services to Independent Schools?

If you have Independent Schools as clients you should be aware of the National Economic Crime Centre Amber alert "Bribery and Corruption Risks to UK Independent schools – Case Studies and Red Flags"

You should also be ensuring that any clients operating in this environment have read the guidance and introduced appropriate mechanisms for monitoring risks.

The publication highlights the numerous ways in which independent schools can be used as destination for funds linked to bribery and corruption. It lists the red flags that schools should be alert to when receiving funds for school fees and donations. These might involve school fees being paid by third parties on behalf of parents, students who come from higher risk jurisdictions, cash deposits to pay school fees, payments out of custody accounts and large deposits of payments of fees in advance.

Chinese Underground Banking

Do you provide services to Chinese clients who have transferred monies out of China?

It is very difficult to move money out of China and there are significant restrictions on what money coming out of China can be spent on – in particular, Chinese nationals can't buy UK property unless they can evidence to the authorities that they are emigrating and intend to make that property their primary residence.

This means that 'underground money shops' have been created to facilitate the movement of money out of China. These underground money shops are often involved in money laundering operations all over the world. They have 'collectors' based overseas that collect cash from criminals and use this to facilitate purchases in the UK on behalf of Chinese citizens. Chinese students are often used as mules as they have UK bank accounts.

If you have Chinese clients you need to be alert to the risk that you may be handling, or facilitating the handling, of the proceeds of crime. You should understand the source of funds (and wealth). Firms that have conveyancing firms within their client base should also be alert to any Chinese clients.

You can read more in this NCA publication on Chinese Underground Banking and 'Daigou'.

Further information