The UK police national lead on economic crime has said that accountants are turning a blind eye to organised crime gangs making millions from fraud.
Karen Baxter added that some accountants and lawyers were 'complicit' or 'complacent' in money laundering, and were at risk of undermining public trust in their professions.
Organised crime gangs are known to target professionals in the accountancy, legal and property services primarily because their expertise often gives illicit cash a cloak of legitimacy and respectability. But Baxter has expressed alarm at the paltry number of suspicious reports filed by these professionals considering "at some point [proceeds of crime] probably go through them."
Out of 470,000 suspicious reports made to the National Crime Agency last year, reports by accountants and lawyers accounted for just 1.06% and 0.58% of the total. While recognising that not all businesses are complicit or act as professional enablers, Baxter has urged firms not to be complacent and to improve their systems and controls.
Meanwhile, the insurance industry is also facing a growing threat from money laundering and terrorist financing. Although the sector was not thought to be susceptible in the past (the greater risk being fraud), certain products - such as life insurance - involve significant flows of money and firms operating in the US that issue or underwriter covered products must comply with Bank Secrecy Act (BSA) and AML requirements.
The property sector has a similar problem. Despite an estimated £4.4bn of property thought to be bought with suspicious wealth across the UK, only 710 suspicious activity reports (just 0.15% of the total) were made by estate agents. The reputational risks alone are significant, since the HMRC is obliged to 'name and shame' businesses that don't comply.
Encompass Group predicts that 2019 will be a bumper year for AML fines - with fines topping $7.7 billion between January and April already this year, compared to $1.16 billion for the same period in 2018.
- Increase awareness of the risks - by visiting the 'Flag It Up' campaign website.
- Identify red flags - do you know what signs to look for? For example, questions of identity (concealing their identity, opaque or complex business structure), unusual transactions for their business, transactions that don't make commercial sense (such as a property buyer who has no interested in what they are actually buying), having a prominent public function or a close connection to someone who does, opaque asset ownership, ownership of assets or property in a high-risk jurisdiction or which do not match the source of funds/wealth, etc.
- Adopt a risk-based approach - do you carry out checks proportionate to the level of risk your firm faces? Be particularly vigilant with cash-intensive businesses, clients in high-risk jurisdictions, and predicate offences (such as tax evasion).
- Use your common sense - be suspicious if you are being instructed at a distance, if you are asked to act outside your speciality or if you're offered an unusually high fee. If it sounds too good to be true, it probably is.
- Conduct your own due diligence and Source Of Wealth/Funds checks - don't assume due diligence checks or SOW/SOF checks are not necessary just because someone has a UK bank account. They are. Remember banks will not be able to tell you whether they have filed a SAR already but may be relying on you to provide vital intelligence which 'completes the picture' (such as other aliases, assets, properties, linked accounts or details of offshore businesses).
- Maintain professionalism - direct reciprocity can prevent you reporting suspicions, especially with clients with whom you have a long-standing relationship; don't allow your professional judgment and reputation to be exploited or compromised for profit.
- Implement adequate controls - what measures might you implement to detect and prevent money laundering? How can you stop your firm being manipulated by organised criminals? Is the 'tone from the top' right - i.e. that it's acceptable to miss out on a business opportunity to protect our reputation? Worst case scenario, where the level of risk is substantial, it may be safest to terminate the relationship.
- Consider whether to make a Defence Against Money Laundering (DAML) request - these can be made where you have a reasonable suspicion that a property or asset is linked to proceeds of crime. By applying to the NCA for 'appropriate consent' first, you can avoid committing money laundering offences.
- Benchmark your performance - consult best practice for your industry including CCAB discussion papers for accountancy, Law Society Guidance for those in the legal profession, Financial Action Task Force (FATF) advice for those in the insurance sector, and HMRC's guidance for the property sector.
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