Reporting the 'red flags' of money laundering

As a professional supervisory body under Schedule 1 of the Money Laundering Regulations 2017 the Association of International Accountants (AIA) has a responsibility to educate and inform our members alongside enforcing the requirements.

Accountancy professionals are targeted for their skills and services, which can provide a cloak of legitimacy to illicit cash; accountants have a crucial role to play in protecting the economy and wider society by submitting Suspicious Activity Reports (SARs).

Money laundering isn't always obvious, but the consequences can be severe.

This article outlines and reinforces how accountants can:

• use due diligence to detect suspicious activity
• recognise the 'Red Flags' of money laundering
• report suspicious activity
• seek further advice and guidance

Customer Due Diligence

Due diligence should form part of a firm's risk assessment. It's important to:

• identify your client
• verify your client's identity
• gather information on the purpose and intended nature of your business relationship
• apply enhanced due diligence where appropriate
• have ongoing monitoring for longstanding clients

Requesting this information, recording it and reviewing it periodically is a relevant requirement and will support your efforts to spot suspicious activity.

Recognising Suspicious Activity

It's the responsibility of accountants to make AML measures a key priority to minimise the reputational and legal risks of unwitting involvement with criminals.

Reporting knowledge or suspicion of money laundering is a legal requirement and all relevant employees should be trained on reporting their concerns to the firm's Money Laundering Reporting Officer (MLRO).

By flagging up your suspicions you're playing a key role in tackling criminality.

Know the indicators and be on alert for them when dealing with new and existing clients

But what should you be looking for? The following pointers are guides to activities that could relate to money laundering and they should inform accountants' risk assessments of their clients.

• Transactions - are transactions unusual because of their size, frequency or the manner of their execution, in relation to the client's known business type?
• Assets - does it appear that a client's assets are inconsistent with their known legitimate income?
• Identity - has the client taken steps to hide their identity, or is the beneficial owner difficult to identify?
• Political Status - is the client engaged in unusual private business given that they hold a prominent public title or function? Or do they have ties to an individual of this nature?
• Geographic Area - is the collateral provided, such as property, located in a high-risk country, or are the client or parties to the transaction native to or resident in a high-risk country?
• Structures - complex or illogical business structures that make it unclear who is conducting a transaction or purchase?
• Resources - are a client's funds made up of a disproportionate amount of private funding or cash, in relation to their socioeconomic profile?
• Behaviour - is the client engaged in unusual private business given that they hold a prominent public title or function? Or do they have ties to an individual of this nature?
• Documents - are information or documents being withheld by the client or their representative, or do they appear to be falsified?
• Choice of Professional - have you, or other professionals involved been instructed at a distance, asked to act outside of your usual speciality, or offered an unusually high fee?

Red flags might not mean anything in isolation but taken together can provide a strong indication of money laundering.

Reporting Suspicious Activity

If there is enough to constitute a suspicion of money laundering, a Suspicious Activity Report (SAR) must be submitted to the National Crime Agency (NCA). 

The online system through the NCA website provides instant acknowledgement and a reference number.

Beware 'Tipping Off'

A tipping off offence is committed when a person in the regulated sector discloses that:

• a SAR has been made
• an investigation into allegations of money laundering is underway (or being contemplated)

The consequences of tipping off include a maximum of five years imprisonment and/or a fine. Accountants should take extreme care when communicating with clients.

See Section 333 of the Proceeds of Crime Act and contact your professional body for more information.

DAML SARS

A Defence Against Money Laundering (DAML) can be requested from the NCA where a reporter has a suspicion that property they intend to deal with is in some way criminal, and that by dealing with it they risk committing one of the principal money laundering offences under the Proceeds of Crime Act 2002 (POCA). A person does not commit one of those offences if they have received ‘appropriate consent’ from the NCA.  

You can read official guidance from the NCA concerning Defence Against Anti-Money Laudering SARs.

Your SAR might not start an investigation, but when combined with other information may be a vital piece of the jigsaw

Submitting good quality SARs

Good quality SARs help prevent and detect crime, including spotting new trends and patterns. But SARs can only be useful if they follow standard rules.

• include full name, date of birth, occupation and addresses
• give information on any account numbers
• use SARs glossary codes
• include clear descriptions of reasons for suspicion
• if you don't have information for any field use 'UNKNOWN'
• everyone benefits if the information you submit is correct

Next Steps, Further Information and Guidance

• review guidance from your AML supervisor
• read Anti-Money Laundering Guidance for the Accountancy Sector
• for more information on SARs consult the UK Financial Intelligence Unit (UKFIU) website, the task force that receives, analyses and distributes financial intelligence gathered from Suspicious Activity Reports (SARs).
• subscribe to HM Treasury e-mail alerts
• review FATF high-risk jurisdiction guidance
• AIA provides Anti-Money Laundering Compliance software for every Member in Practice, watch the video highlighted below:

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