It is essential that businesses are aware of the seriousness with which the authorities regard money laundering – the legislation has been termed “Draconian” and turning a blind eye to any form of criminality these days can present the risk of lengthy prison terms for innocent parties that are exploited by criminals.
Fraud Advisory Services come across the fallout from companies and individuals that have fallen foul of the Anti Money Laundering Regulations that target professionals and also any organisation that handles cash.
The term “money laundering” conjures up images of bags marked “swag” being furtively exchanged in dimly lit back rooms of pawn brokers for a handful of industrial diamonds or a bag of gold sovereigns. This somehwhat quasi glamorous picture is very far from the truth. Money laundering is a criminal industry that many consider to be more important, more damaging and more of a threat to both our economy and our society than the predicate crimes of murder, drug dealing, people trafficking, extortion and fraud.
Money laundering is the pivot upon which most other crimes revolve. Without it there would be little point in committing any crime that has a financial involvement. This includes making criminal profits, terrorist activity and paying others to commit crimes such as murder or intimidation.
In the UK Money Laundering is regulated by several separate Acts of Parliament:
The USA has a similar raft of legislation:
- Bank Secrecy Act 1970
- The Money Laundering Control Act of 1986
- The USA PATRIOT Act 2001
The Proceeds of Crime Act 2002 within the UK typifies the seachange in thinking by both the USA and UK in attempting to remove the profits from the organised criminals and financing from terrorists. But, given the low levels of recovery compared to the estimated levels of financially motivated crime and fraud, only a small amount of money laundering activity is being stopped. However, it is part of the ongoing attempts to deal with what is a very difficult and large problem – if the answer were simple…
Money laundering is the interaction of illegally obtained financial wealth (cash, physical assets or electronic deposits) with both the finance industry (banks, insurance companies etc) and the financial record keeping of businesses and companies. Therefore, the forensic accountant, who is by definition a financial investigator, potentially has a fundamental role to play in a number of areas:
- Tracing the route of criminal proceeds for the prosecution and regulatory authorities to identify the various stages in the life of laundered funds, namely placement into the financial system, providing veneers of legitimacy by layering and reintroducing the funds as usuable money by integration;
- Advising organisations on the impact that The Money Laundering Regulations have on them – there is need for compliance and the penalty for getting it wrong, inadvertantly, can mean lengthy prison sentences even for individual junior employees;
- Advising organisations on transactions that may be regulated or may need clarification. The whole issue of “Know Your Client” and when or how to make a “Suspicious Activity Report” is so often misunderstood, lip service is given or worse, ignored;
- Because it is so easy to fail to comply with Money Laundering Regulations it is possible for organisations to find themselves in a position where they must explain to the authorities where funds have come from or why a particular transaction was made. A Forensic Accountant is able to analyse such movements of money and present a clear case on behalf of the defendants in such cases.