Accountants can help prevent and disrupt crime by exercising their professional intuition and knowing when to detect and investigate Anti-Money Laundering Red flags. Accountants have a crucial role to play in protecting the economy and wider society by filling Suspicious Transaction Reports (STR). Money laundering isn’t always obvious, but the consequences can be severe. Staff training and awareness are both a firm’s best defence in order to prevent and detect money laundering.
This blog outlines and reinforces how accountants can:
- Recognise the ‘red flags' of money laundering,
- The obligation to investigate and report red flags - Report suspicious activity,
- Seek further advice and guidance regarding AML training.
Red Flags
All accountants should be attentive to red flag indicators and exercise vigilance in identifying and carefully reviewing aspects of transactions if there are reasonable grounds to suspect that funds are the proceeds of criminal activity.
The Association of Chartered Certified Accountants (ACCA) has published Anti-money Laundering and Counter-Terrorism Financing Example Red Flag Training material to assist professional accountants and their staff in meeting the training requirements of the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021. The following red flags have been summarised and are common crime indicators for accountants to help identify potential money laundering risks with clients and should be investigated and reported.
A summary of common red flags that may be encountered by an accountant are listed as follows;
- The business relationship is conducted in unusual circumstances, perhaps with unusually tight deadlines, with non-resident parties, or via an agent or third party. Or the client offers to pay unusually high fees or a premium for the service.
- The engagement is conducted remotely, and the clients appear to actively avoid face-to-face meetings or are reluctant in providing relevant information. Clients who appear to be acting on somebody else’s instructions without disclosure.
- The business in question has no commercial basis or clients have funds or assets that are obviously disproportionate to their circumstances.
- The reason for the client choosing the accountant is unclear, given the firm’s size, location, or specialisation.
- Clients or transactions that are associated, registered, or resident in high-risk jurisdictions (see the list provided by the European Commission of High-risk third countries).
- The ownership structure of the company appears unusual or excessively complex given the nature of the company’s business. Examples of this may include ownership or control structures that use multiple corporate vehicles or arrangements/trusts or traverse jurisdictions that support reduced corporate transparency or allow nominee shareholders/directors or the use of shell companies.
- The relationship between employee numbers/structure and the nature of the business is divergent from the industry norm.
- Frequent or unexplained change of client’s professional adviser, or sudden activity from a previously dormant client.
- Non-profit or charitable organizations with unusual transactions.
- Clients with previous convictions for crimes that generated proceeds.
- Industries or sectors that are cash intensive or where opportunities for ML/TF are particularly prevalent, including but not limited to:
- Remittance houses, currency exchange houses, bureaux de change, money transfer agents and banknote traders, or other businesses offering money transfer facilities.
- Operators, brokers, and others providing services in virtual assets.
- Casinos and betting shops.
- Dealers in precious metals and stones and high-value watches and jewellery.
There are a number of red flags associated with financial transactions or asset transfers, including:
- Financial transactions that use the accounting practice’s client account.
- Multiple inter-company transfers within the group to disguise the audit trail.
- Transfer of real estate or other high-value goods or assets between parties in a time period that is unusually short.
- Transactions using unusual means of payment (e.g., virtual assets or precious metals or stones).
- Transfers of goods that are inherently difficult to value.
- Successive capital or other contributions in a short period of time to the same company.
- Transactions involving closely connected persons.
- Businesses not normally cash intensive appearing to have substantial amounts of cash.
- Clients using financial intermediaries or financial institutions that are not supervised.
- Anomalies related to invoicing such as, over or under invoicing, multiple invoicing of the same goods/services, falsely described goods/services, over or under shipments.
- Legal persons or arrangements that are personal asset-holding vehicles.
The Obligation to Investigate and Report Red Flags
If you know or suspect that a client has been or is engaged in an offence of money laundering or terrorist financing, it is your obligation to report that knowledge or suspicion. It is a statutory obligation to make a Suspicious Transaction Report or STR.
The obligation to make a STR is set out in section 42 of the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021 when:
- An accountancy firm or an individual connected with the firm knows or suspects, or has reasonable grounds to suspect, that another person has been, or is, engaged in money laundering or terrorist financing.
- The information on which came to the firm or the individual in the course of carrying on the business of an accountancy firm or accountant.
- The firm or individual has scrutinised the information in the course of reasonable business practice.
Further guidance on how to use Revenues online service to submit a STR can be found here: How to submit Suspicious Transaction Reports.
AML Training
Section 54 of the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021 calls for all relevant employees to receive AML training, stating that employees should be “…provided with ongoing training on identifying a transaction or other activity that may be related to money laundering or terrorist financing, and on how to proceed once such a transaction or activity is identified”.
Reporting knowledge or suspicion of money laundering is a legal requirement, which means all relevant employees should be trained on reporting their concerns to the firm’s Money Laundering Reporting Officer (MLRO) or other nominated officer.
The ACCA Anti-Money Laundering Training Factsheet has interpreted that the regulations call for periodic and regular training to mean as often as necessary, with a minimum expectation of providing training to relevant employees on an annual basis and whenever there is an important update to the regulations. Training must also be provided to all new starters at the firm.
You Focus on your Clients, We Focus on your AML
Although the AML obligations on firms are significant, there are technology options available that allow you to be effective, and compliant and improve your internal processes. The adoption of technology does not necessarily mean taking on a large or expensive project.
For example, within AML HQ we have developed a one-stop AML portal that helps your team to achieve compliance through convenience. Our portal provides smart processes to help your team efficiently onboard clients with a risk-based approach that automatically creates the records and reports to demonstrate due process and compliance. Our service includes:
- A set of policies, controls, and procedures that you can use out of the box, or further tailor to suit your firm.
- Digital risk assessments to easily complete firm and client risk assessments so that you can apply appropriate due diligence.
- Client onboarding tools that allow you to identify and verify corporate and private clients and meet your CDD obligations.
- Access to instant reports that provide audit-ready extracts and compliance gap analysis.
- Our AML training hub ensures that all staff are appropriately aware of their obligations and trained to apply the AML policies, controls and procedures as adopted by your firm.
Subscription to our service starts from €45 per month for firms that have up to 100 clients. Why not try out AML HQ on a free 14-day trial.