Money laundering - Some tell tale signs

By Daniel Hedley, ICAS Practice Consultant

12 January 2015

Some unscrupulous accountants are involved in money laundering, generally through acting as "professional enablers" to the launderers.

Many operate in the City, which is to be expected given its status as a centre of global finance. There are some defining characteristics of a "professional enabler":

  • They tend to operate from "rent a room" operations, usually with "accounting services" or something similar in the name.
  • They tend to operate from iconic addresses - it helps boost credibility.
  • Often they will operate for two years undetected and then wind down their business and move on to something else.
  • Often the professional enabling manifests itself in the form of "wilful blindness".
  • Most of the enablers' business is in the form of receipt of money in some form of escrow and then not waiting until the contingency is fulfilled with the funds being passed on to the third parties.
  • Enablers tend not to provide the year-end type of service that most professional accountants offer, instead only providing management accounts and bookkeeping services - they will tend to bail out before the year end comes around.
  • The majority of enablers are not members of a professional accountancy body, although there are still some qualified accountants who get caught up in wrongdoing.

Anecdotal evidence from law enforcement suggests that most accountants who get involved in criminality are unqualified and not members of a professional body. However, a number of significant criminal investigations over the last decade have involved, in one way or another, qualified accountants, including ICAS members. Some of those were drawn in "unknowingly" but others took the relevant "risk/reward" decision with their eyes wide open. Needless to say, they had to face the consequences.

Trends in behaviour

The London presentation also highlighted some of the emerging trends in fraudulent behaviour and some of the business fronts that are typically used for the purposes of money laundering. The various guises are interesting and, in some cases, surprising:

  • Current hot spots are gold, diamonds, palladium and land banks. These are small, fairly closed markets so operators setting up in these are likely to face some risk.
  • There is currently some concern around the explosion in micro-brewing businesses and small distillery businesses, especially those producing gin.
  • The typical turnover of fraudulent operations is in the region of £3m to £4m - not large businesses and perhaps typical clients of a small firm.
  • They tend to have unusual commercial activities/purposes with often unexpected levels of margin - for example, buying items at £50 and selling at £1,000.
  • Other signs include large salary percentage taken out of the business - for example, 90 per cent relative to turnover.

These trends in fraudulent behaviour provide some useful insights into the exposure of professional accountants and practitioners would be advised to take great care with any clients who may fall into the categories described above.

Experts also suggest the legal changes to pension funds and how they may be accessed by retirees from next year could lead to an increase in unscrupulous traders trying to part the pensioner from a proportion of his/her pension pot. Practitioners may not be affected directly by this, but their clients could find themselves being approached by operators looking to capitalise on a new market. Practitioners should, therefore, ensure that they look out for their clients and engage with them on this subject where they perceive there is a risk.

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