If you are an accountant providing accountancy or company formation services, you will need to comply with the government’s Anti-Money Laundering rules, as contained in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017). MLR 2017 is subject to regular amendment and review.
The Consultative Committee of Accountancy Bodies (CCAB) publishes and maintains comprehensive guidance for accountants about MLR 2017. CCAB reminds accountants they have a significant role to play in ensuring services are not used to further a criminal purpose. Accountants must act with integrity, uphold the law, and must not engage in criminal activity.
Accountants involved in money laundering cases tend to be unwittingly involved or deficient in applying their own procedures. There are very few reported cases where accountants are complicit or willfully involved in money laundering.
This blog is not a comprehensive guide to money laundering. If you’re an established accountancy practice, or a new practice wondering how to comply with MLR 2017, reading the CCAB guidance is a good place to start. Accountants can also contact their professional or regulatory body for up to date training and other materials on what they need to do to ensure compliance with MLR 2017.
- What is money laundering and terrorist financing?
- What are the key requirements of MLR 2017 for accountants?
- What is a Money Laundering Reporting Officer (MLRO)?
- Risk based approach
- Customer Due Diligence and Enhanced Due Diligence
- Suspicious Activity Reporting
- Acting for a client when a SAR has been made
- Why anti-money laundering is important
- Disclaimer
What is money laundering and terrorist financing?
Money laundering and the financing of acts of terrorism (’MLTF’) are widely defined in UK law. At the most basic level, MLTF means handling or processing the proceeds of crime. It includes proceeds such as money (or money equivalents), saved costs or tangible and intangible property.
There is no ‘de minimis’ level for any proceeds of crime where money laundering is suspected.
What are the key requirements of MLR 2017 for accountants?
MLR 2017 sets out certain legal and mandatory rules accountants must meet in order to prevent and to report actual or suspected money laundering activity. MLR 2017 contains wide requirements and is updated regularly with more services and types of service providers being brought under its control each year.
MLR 2017 requires any accountant providing accountancy services to a client to put the following anti-money laundering arrangements in place:
- Written policies, controls, and procedures
- Staff training
- Customer Due Diligence (CDD) and, where necessary, Enhanced Due Diligence (EDD)
- A firm-wide risk assessment
- Identification of Politically Exposed Persons (PEPs)
- Periodic compliance reviews
- Record keeping and data protection
- A nominated responsible individual (Money Laundering Reporting Officer (MLRO)
- Screening of relevant employees
- Identification of People with Significant Control (PSC) discrepancies among clients.
If an Accountancy Practice fails to meet its obligations under MLR 2017, civil penalties or criminal sanctions (including imprisonment) can be imposed on any individuals deemed responsible. This could include anyone in a senior position who neglected their own responsibilities or agreed to something that resulted in a compliance failure.
The guidance issued by CCAB recognises that accountants who are sole practitioners may not have employees and that a complex compliance framework is not necessary to meet the requirements of MLR 2017. At a minimum, a sole practitioner accountant is expected to maintain policies and procedures based on their assessment of risk. If clients operate in high risk jurisdictions, or in higher risk industries, then additional procedures such as EDD may be necessary.
Where a Practice is regulated by ICAEW, ACCA or AAT, they may be subject to periodic compliance reviews. Regulators can impose fines, sanctions and disciplinary action on any accountant where they find evidence of non-compliance. Most commonly, Practices are found to be non-compliant where policies and procedures have not been prepared or maintained, or where record keeping and CDD arrangements are found to be inadequate.
What is a Money Laundering Reporting Officer (MLRO)?
MLR 2017, and accountancy regulators such as ICAEW, ACCA and AAT, require the appointment of a nominated individual as the Money Laundering Reporting Officer (MLRO). The MLRO responsibility should be assigned to a member of the senior management team at an Accountancy Practice. The role requires a clear understanding of the Practice and its services, the clients it serves and must have the authority to represent the Practice in any legal proceedings. The MLRO has overall responsibility to ensure the framework of controls required by MLR 2017 (highlighted above) is implemented effectively.
Risk based approach
An Accountancy Practice should undertake periodic risk assessments, record the outcome and report it to senior management. The risk assessment should have regard to the National Risk Assessment published periodically by the government to see if there are any emerging trends or additional risks for the accountancy sector. The risk assessment will usually consider the extent to which a Practice could be used to launder the proceeds of crime, the risks associated with the type of clients a Practice engages, and the risk of failing to report a suspicious transaction.
Customer Due Diligence and Enhanced Due Diligence
Potential clients may seek to conceal their identity when looking for an accountant to legitamise their criminal activities. An Accountancy Practice needs to know the identity of a client to assess the risk that money laundering may occur. Client Due Diligence (CDD) should be incorporated into new client acceptance procedures and be carried out periodically over the duration of the client relationship. CDD should be undertaken again if there is evidence a transaction is unusual or unexpected given the nature of a client’s business activities.
CDD requires that a client’s identity is established and that the beneficial owner of a business is also identified. Usually a Practice will have software to check a client’s name, permanent address and date of birth. This is also known as ‘Know Your Client (or KYC).
Where a client operates in a high risk jurisdiction or industry, or where there is evidence the client is a Politically Exposed Person (PEP) such as a Member of Parliament, then Enhanced Due Diligence (EDD) will probably be necessary. This may involve undertaking work to understand the clients business, its transactions and the risk of influence by a PEP. The outcome of EDD should always be recorded.
Suspicious Activity Reporting
MLR 2017 specifically states that where evidence of money laundering is found or even suspected, then a report needs to be made to the MLRO. The MLRO may decide, based on the information provided, to report the incident to the National Crime Agency (NCA). The Suspicious Activity Report (known as a ‘SAR’) will let the NCA know there is a suspicion of money laundering activity and they may decide to investigate further. NCA will usually contact the MLRO for further information if they decide an investigation is needed.
Suspicion of money laundering is open to a wide interpretation. It is commonly described as a ‘state of mind’ or a positive feeling or opinion that something’s not quite right about a client or a transaction. Suspicion should not be confused with professional skepticism, idle wondering or a vague sense something is wrong.
NCA provides an online service which Accountancy Practices need to register with. SAR reports are submitted online providing basic information about the suspicious activity, such as the individual and business involved, any bank account details and information about the suspicious transaction. As highlighted above, it is important that effective record keeping and data protection arrangements are put in place by an Accountancy Practice to provide any information requested by the NCA in a timely way.
Under MLR 2017, it is an offence to make any disclosure to a client that an investigation may be conducted or that a SAR has been made. This is known as ‘Tipping Off’ and occurs when a person discloses information that is likely to prejudice an actual or a proposed investigation before a SAR has been made, or which might be conducted after a SAR has been made.
Acting for a client when a SAR has been made
If a SAR has been submitted to the MLRO or NCA, accountants can continue to act for the client by following the usual risk based procedures. The MLRO will evaluate the risks of continuing the relationship and record the outcome. If a Practice does decide to resign where there is suspicion of money laundering, then every effort should be made to avoid the offence of ‘Tipping Off’.
Why anti-money laundering is important
The NCA believes that £150 billion is laundered each year in the UK alone. Money laundering negatively affects a country’s financial systems by undermining stability, it fuels corruption and finances organised crime. Terrorist groups also use money laundering channels to fund their criminal activities.
While money laundering will never be completely eradicated, the enforcement of legislation and maintenance of strong controls will make it more difficult for criminals to exploit the risks the accountancy sector currently faces.
DisclaimerThis blog draws on information published by HMRC, the CCAB, the National Crime Agency and other professional bodies. It is not a complete guide to money laundering or MLR 2017. Information may be subject to change and Initor Global accepts no responsibility should you decide to rely on the information we have published in this blog. Professional advice should always be taken as necessary based on your individual circumstances. |