Clearly, this attractiveness represents a gross risk. Firms will already have comprehensive AML procedures that they have designed to mitigate the risk that criminals use them for money laundering. Firms can now use the information provided in the NRA to further strengthen and improve their AML procedures to mitigate the risk that they are exploited by criminals for money laundering.
HMT has published the 2017 update of the NRA. The first version was published in 2015 and is available here.
High risk areas identified by the NRA
The NRA has identified five areas that pose the highest risk of exploitation of money laundering. These are:
Company formation and other company services
The NRA assesses company formation and other company services as the service at highest risk of exploitation. The risk is greatest when company formation services are offered in conjunction with other accountancy services, to create complex corporate structures that conceal the true source of wealth and/or funds.
Company liquidation and associated services
Criminals may mask the audit trail of money laundered through a company. The NRA does, however, recognise that the scope for abuse is limited by the regulatory framework for licenced insolvency practitioners.
Specific AML guidance for insolvency practitioners is due to be published later this year.
Accountants ‘badge’ used on financial statements based on falsified books and records
In many cases, underlying books and records have been falsified by criminals and the accountant has unwittingly legitimised the financial statements by preparing them.
Clearly an accounts preparation engagement does not demand the same level of scrutiny as an assurance engagement and it is recognised that a firm providing such a services is reliant on information provided to them by the client. It is vital to maintain professional scepticism and be alert to unusual transactions or balances. Firms should continue to provide training to their staff on reporting suspicious activity to the MLRO.
Firms should also assess the risk associated with ‘incomplete records’ engagements where the accountancy firm is asked to use bank statements to prepare the accounts and not the underlying books and records.
Misuse of client money accounts
Client money accounts is one of the only ways where accountants actually handle client assets. The NRA concludes that there is a risk posed by accountants performing high value financial transactions for clients with no clear business rationale, allowing criminals to transfer funds through the client’s money account.
A minority of ICAEW firms operate client money accounts and many only operate a client money account to process tax refunds from HMRC.
Firms should ensure that they comply with ICAEW’s Client Money Regulations. In particular, firms should remember regulation 8A requires that payments into and out of the firm’s client bank account must relate to an accountancy service that is being (or has been or will be) provided by the firm.
The facilitation of tax evasion
Law enforcement agencies have found that accountancy services are used to facilitate tax evasion and VAT fraud. Members in practice can mitigate the risk of facilitating tax evasion by adhering closely to our Professional Conduct in Relation to Taxation Guidance (PCRT).
What your firm should do
Firms can mitigate the risk that a criminal will use the firm to money launder by performing and documenting a firm-wide risk assessment, incorporating these five areas. Once the firm has assessed the risk to it, the firm should design client due diligence procedures that would clearly identify a situation where a criminal may use the firm in this way. This may include performing enhanced due diligence for clients where you are providing these services.
You should also ensure your staff are trained to understand these risk areas and how criminals may use them to exploit accountancy firms, and remind them of their obligation to report any suspicions to the MLRO.
ICAEW Members can discuss confidentially any concerns or questions with the Technical Advisory Services helpline on +44 (0)1908 248 250.