IFA AML Conference: Steps for small business to avoid money laundering hotspots

Addressing the conference, IFA Director of Professional Standards Tim Pinkney said the regulations provided a framework for accountancy service practitioners to develop written policies and procedures, conduct risk assessments and ensure customer due diligence.

“Are you fully aware of where that cash came from? You know, is it legitimate? Are there any predicate offenses such as tax evasion,” he says. “Has everything been declared? Or are there other sources of funds that are coming through a business? So that is one of the areas that you would need to look out for.”

Pinkney, who is responsible for regulatory issues relating to members in public practice and oversees the practice monitoring, provided a regulatory update and outlined the hotspots for accountancy practitioners and their clients. He cautioned firms could face penalties if they received money that could be derived from the proceeds of crime and used to pay wages.

Pinkney encourages accountants to document every decision, especially where clients may overlook declarations such as rental property income. “If you suspect somebody is not declaring everything, we've got a reporting regime,” he says.

Some 73% of IFA firms are sole practitioners, with many providing some form of Trust and Company Service Provider (TCSP). AML policies and procedures apply to all individuals and businesses that provide accountancy services and trust and company services are related services.

Money-laundering regulations tightens grip on money laundering

The IFA is responding to HM Treasury's AML consultation process, which is aimed at streamlining the effectiveness of money laundering regulations. The IFA is a member of the Financial Action Taskforce, which made 40 recommendations that resulted in legislation and directives for jurisdictions.

In January, a statutory instrument was put forward relating to politically exposed persons (PEPs) and enhanced due diligence requirements. Proliferators – or those involved in proliferative financing – use evasive techniques to circumvent the financial sanctions restrictions, such as using correspondent banking, front and shell companies.

One of the AML regulations requires disclosure of any discrepancies in Companies House and to correct any client errors.

“Make sure everything's up to date and up to speed, and discuss it with your clients,” Pinkney says. “If you don't declare a client's assets, you could be charged with… being involved in an arrangement because you knew there was a discrepancy and didn't disclose it,” he said.

Pinkney: Embed money laundering controls in firm culture

He encouraged accounting firms with clients in countries deemed high risk by the Financial Action Taskforce (FATF) to conduct regular training with their teams and subscribe to the Treasury's Financial Crime Alerts. FATF considered countries high risk because there is a lack of confidence in the controls used to tackle financial crime.

Good money laundering controls that are embedded throughout a firm’s culture make good commercial sense.

“Software providers now provide money laundering guidance, but you need to understand the system and ensure employees are trained in using it,” Pinkney says.

“The new SARS reporting portal became live in October last year and I think it's far more intuitive and easier to follow than the old portal. If you've got suspicion or grounds of suspicion that something isn't right, you should always err on the side of reporting.”

The Economic Crime and Corporate Reform Bill that came into effect last year expanded the corporate registrar to a regulator. The IFA can share information with other government departments and law enforcement agencies and receive regular information from firms that declare IFA as their supervisor before reporting to Companies House.

National risk assessments in previous years didn’t provide enough detail about risks in areas such as payroll because of human trafficking, modern slavery and ghost employees. In January, there was a statutory instrument put forward and approved by Parliament relating to PEPs and enhanced due diligence requirements.

Under the regulations amended in 2019, there is a requirement for a specific risk assessment on proliferation financing risks, the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing.

Pinkney says: “The majority of our firms deal with local clients in our local communities and provide services that they've provided for a long time and will say straight away, ‘well actually. we don't have any proliferation risks’.” Even so, this must be reflected in risk assessment and in policies and procedures.

“We've had an example of somebody that's got involved with a firm that uses drones,” Pinkney says. “Now you need to look at all those risks and define what they are and how to mitigate those. You have a look at your supply chain risk.” He encouraged people to develop policies and procedures that cover supply chain risk.

“Have a look at who your clients are and if there is anything that any clients could be potentially using these,” he says.

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