Money Laundering and the Accountant

Rahman Ravelli’s Aziz Rahman explains why accountants are ideally placed to identify money laundering…and the legal obligations this brings.

The nature of accountants’ work means that they are usually the ones who have the first opportunity to look at the books. The first to cast their eyes over the financial activities of a company, organisation or individual. The first to be able to look for any wrongdoing, make a judgement on whether there is illegality and – perhaps most importantly – decide what to do if they find anything untoward. Accountants, therefore, are often the very first to have the chance to identify money laundering – which brings its own responsibilities.

Money laundering is, as the name suggests, the “cleaning’ ’of money: the disguising of its origins so it can no longer be identified as the proceeds of crime. There can only be money laundering if the money or assets are the proceeds of criminal conduct. The laundering can take place in one of three ways. Money can be self-laundered – where a person launders their own criminal proceeds – or laundered by someone on behalf of another person. Both are offences under the Proceeds of Crime Act 2002 (POCA), with penalties of up to 14 years in prison. Section 327 of POCA makes it an offence to conceal, disguise, convert, transfer or remove criminal property from the jurisdiction. Section 328 makes it an offence to enter into or become concerned with an arrangement to acquire, retain or use the proceeds of crime. There is also the offence of having possession of criminal property, which comes under Section 329 of the Act.

All three of these offences are extremely unlikely to impact on law-abiding accountants. What accountants have to bear in mind, however, is that sections 330-332 of POCA make it an offence to fail to disclose any knowledge or suspicion of money laundering. These sections cover failure to disclose the identity of a suspect, the knowledge or any suspicion they may have of money laundering and the whereabouts, if known, of the money or other assets that have been or are being laundered. Of course, these sections of POCA do not solely affect accountants. But as they are the people having the overview of – and, to some degree, a responsibility for – a client’s financial affairs, this legislation does place a clear duty on them if wrongdoing is known or merely suspected.

Accountants, by the nature of their work, are at the sharp end when it comes to the law on business crime. Which is why they need access to the relevant legal expertise.

For maximum safety, accountants need to be well versed in business crime legislation. The most realistic alternative, however, is to be able to call on legal specialists who can make sure any such matters are handled in the most appropriate way.

In some situations, it may be equally important to know what does not constitute money laundering. Offences where no benefit results – such as late filing of company accounts, tax return errors corrected before the deadline and failed frauds – cannot be classed as money laundering, although they may make someone liable for other penalties and charges. Knowing whether and if to file a Suspicious Activity Report (SAR) is massively important for the Money Laundering Reporting Officer. Accountants have to be aware of such issues – or at the very least know a legal firm who does.

At Rahman Ravelli, we are regularly consulted by accountants to advise on these matters.

While having knowledge of something needs no explanation or clarification, accountants have to be aware of what constitutes suspicion under POCA if they are to avoid any problems. A look at the case law indicates that the courts have come to view suspicion as stronger than speculation and yet less than knowledge. In the case of Da Silva (2006) it was said to be “a possibility, which is more than fanciful, that the relevant facts exist’’.

When such a definition is considered, it becomes clear that there could be many circumstances in which an accountant should disclose what they know or believe to be the case. They cannot claim ignorance of the law or naivety if they should have known or suspected that their client was laundering money. There is no scope for turning a blind eye to fact or suppressing a suspicion.

If both a business and their accountant have failed to take steps to identify and prevent the risk of money laundering, they could encounter major legal problems if the authorities then spot wrongdoing. Verifying customer identity, recognising the genuine beneficiaries of a deal and knowing the exact nature of a business relationship are important parts of diligence that must be carried out to comply with the Money Laundering Regulations. The Regulations impose a statutory duty on accountants, auditors and tax advisors to report any knowledge or suspicion of money laundering to the authorities – to make an “authorised disclosure’’ under ss338 of POCA.

This emphasises the need for accountants to assess every situation for possible signs of money laundering. But money laundering does not cry out to be noticed. Accountants may need to make their own enquiries and seek legal advice. This could place them in a potentially awkward position with their clients. But as professional experts they are arguably the best people to determine the legality or otherwise of a business’ dealings –albeit with the assistance of the right legal expertise.

Money laundering is now under an increasingly bright spotlight. Seeking the relevant legal expertise, can ensure accountants are not left in the dark.