AML: Don’t let your guard down

Richard Simms picks out the salient points in the latest National Risk Assessment on money laundering and terrorist financing.

Published on 17 December 2020, the National Risk Assessment (NRA) 2020 is the third such report. All of the NRA reports have been issued jointed by the Home Office and HM Treasury.

You need to be aware of the NRA – part of your own business’ risk assessment should take account of its contents. Understanding its finding is imperative for your business’ ongoing success.

I’ll talk about the accountancy sector, which includes accounting, bookkeeping, tax, audit and insolvency, along with those from the sector that provide trust and company services.

The NRA 2020 is the longest and, in my opinion, the best by some margin. Why is it so good? Firstly, if you’re new to Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) this a great place to start. It gives an excellent introduction to the threats faced by the UK and an explanation of steps that are taken to counter these threats. There’s also a useful run through the relevant legislation you need to look out for.

The progression of the NRA is a sign that the general and sector risks of ML/TF (Money Laundering/Terrorist Financing) is better understood and, most importantly, there is a wider involvement of the private sector in identifying and combatting the live risks that the UK faces.

It’s worth considering the professional services sector and specifically the accountancy marketplace. You’ve no doubt heard of OPBAS (Office of Professional Body Anti-Money Laundering Supervision). It’s been in place since early 2018 and although they would say that they were set up to address perceived failing in the UK professional sectors’ AML/CTF effectiveness, for me, a big part of OPBAS’ role has been to understand sectors that had not been fully understood in the past. Had they understood these sectors, OPBAS would not have been needed. Had HM Treasury, before the arrival of OPBAS, understood what should have been taking place in the professional sectors, they could have addressed the issues back in 2008 and not waited until 2018.

Great sector insight

For the more experienced it’s a great place to review all of the industry sector threats. I would imagine that many of those reading the NRA will be from within the regulated sector and will therefore have detailed knowledge of that sector. So, the NRA provides a great insight into other sectors. For those of you that may feel you are unduly burdened with AML/CTF responsibility there’s also an element of “we’re not in this alone” by learning about the wider sectors that are impacted by AML.

I’m writing for those within the accountancy sector but there’s plenty who are outside the sector looking in and watching carefully. The performance of our sector remains the responsibility of those within it!

Our digital lives – that is the ongoing digitalisation of our daily lives – evidently provides new challenges to law enforcement and new opportunities for criminals. This has been accelerated beyond any expectations by the Covid-19 pandemic. Is the lack of physical contact with clients a risk to our businesses, and our sector? Accounting information is submitted online, and we rarely see a hard copy document. Does that present a risk of data manipulated by a sophisticated criminal? The answer must be “yes”!

Professional services continue to be seen as a method of adding legitimacy to criminal proceeds, in particular where companies and corporate structures are involved.  It’s clear that those in the accountancy sector must remain vigilant as criminals are consistently looking to exploit weaknesses in the sector, your firm and you!

The tax gap

The tax gap for tax evasion is estimated at £4.6 billion per annum and there is a further estimated £4.5 billion per annum resulting from criminal activities such as smuggling. My expectation is that our sector has more exposure to the risk of clients being involved in tax evasion that any other offence.

The accountancy sector remains as high risk for exposure to money laundering. This is consistent through the three NRAs. Risk of exposure to terrorist financing is low. The reality remains, and this is of course a good thing, that the involvement of an accountancy professional with an individual or business, adds legitimacy and respectability. However, this is one of the reasons that make the sector attractive to money launders.

Be absolutely clear then, that if you work in this sector, you can never let your guard down and please don’t become complacent. Company formation, when associated with other services and factors that could further increase its risk, remains a significant concern. Roles as nominee directors and being a company’s registered office are also considered a risk.

Company termination also raises concerns, as it could be used to hide transactions that took place in a company before it was closed. It does make we wonder that when a company is being struck-off from the Companies House register, whether an independent review of its financial position should be mandatory? Add to this the ongoing abuse of the Covid-19 support schemes, perhaps this should be considered.

There is evidence to support accountants actively assisting criminals in laundering money. Please don’t lose sight of the breadth of this, bookkeepers could be providing paper trails to support illicit flows of funds. False records to support a financial position or to legitimise criminal assets are both possible.

Poorly trained staff

The risk of payroll services is high due to perceived poor mitigation factors. These include staff who are poorly trained on AML, non-customer facing staff providing services and insufficient information obtained from the client to identify suspicious activity.

Tax advice and acting as an agent with HMRC are seen as a risk. An awareness of the risk of considering accepting cryptoassets in payment is important as they can be used to disguise the origin of the funds.

In the eye of the government, via OPBAS, great progress is being made in the AML supervisors perceived failings. There is significant evidence that information sharing between the public and private sector and within the private sector is taking place and benefits are being shown from this.

It is considered that the accountancy sector will remain flawed while there is a risk that members of the sector don’t fully understand money laundering risks or don’t apply them appropriately. This is thought to be more prevalent where someone is not registered with an AML supervisor. How does the sector address the question of unsupervised advisors? This must be a question for all of the AML supervisors to address alongside the government.

It’s clear the risks for the sector are evolving and will continue to do so. All of us need to do our bit to protect ourselves and the sector that we rely upon to make our living.

• Richard Simms is Managing Director of F.A. Simms, AMLCC and BusinessSupport.co.uk

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