Chartered Accountants play a dual role in the issues of money laundering and/or terrorist financing. In one way, they contribute to the fight against money laundering and/or terrorist financing, which forms part of their responsibility when auditing the financial statements of financial institutions. They are also a tool or avenue used by criminals to aid in the washing of their dirty money.
This article aim at addressing the dual role played by Chartered Accountants in the issues of money laundering and terrorist financing.
Money laundering, as already known from my previous articles, is a process where dirty money received from criminal activities, such as misuse of drugs, theft, prostitution and tax evasion etc, is passed through legitimate businesses and turned into clean money. It is a significant problem, both in Ghana and worldwide.
The Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930) makes it mandatory for Chartered Accountants (External Auditors) to express an opinion about a financial institution’s anti money laundering and/or combating of terrorist financing program. Section 85, subsection 2, clause D of Act 930 states that “…in the opinion of the auditor, the bank or specialized deposit taking institution has complied with the provisions of the Anti-Money Laundering Act, 2008 (Act 749), the Anti-Terrorism Act, 2008 (Act 762) and the Regulations made under these enactments”. That is expressing an opinion on the effectiveness and efficiency of a financial institution’s Anti Money Laundering and/or Combating Terrorist Financing (AML/CFT) programs. The question is how this responsibility achieved or can be achieved.
Chartered Accountants before expressing an opinion on the AML/CFT programs of financial institutions perform the following tasks to satisfy themselves about the effectiveness and efficiency of the programs:
The accountant should review the policies and procedures put in place by the Board of Directors in verifying the identity of their customers. That is, reviewing the KYC regime and processes of the financial institution. Also the accountant should check the mechanisms put in place to identify and report any suspicious transactions and any proceeds of unlawful activity. The financial institution’s policy on customer identification and verification should be able to address the following:
- the satisfactory production of evidence of the identity of a person (customer) before it establishes a business relationship;
- takes into account the suspicion of money laundering where the prospective customer is not physically present during the identification process;
- ensures that the business relationship or single transaction is not continued where satisfactory evidence of the prospective customer’s identity is unable to be obtained;
- provides that the identity of a person is established where a third person acts on behalf of that person;
- requires the financial institution to conduct ongoing due diligence by scrutinizing transactions undertaken throughout the course of the business relationship to ensure that
- the transactions being conducted are consistent with the financial institution’s knowledge of the customer,
- the business and risk profile of the customer, or the customer’s source of funds are properly investigated.
- ensures that information collected during KYC or due diligence process are kept up to date by reviewing existing records.
The Chartered Accountants should also review the financial institution’s approved (by the Board of Directors) AML/CFT policy to ascertain whether the following has been addressed:
- How Enhanced Due Diligence (EDD) is performed on high risk accounts and transactions
- How the risks related to money laundering and terrorist financing are assessed;
- How the risks of money laundering and terrorist financing associated with the product and service of the financial institution are assessed;
- How policy programs related to suspicious or unusual transactions are monitored;
- How foreign branches and/or subsidiaries observe the rules and provisions consistent with the laws in the parent company’s country.
- How and when employees (including Anti Money Laundering Reporting Officer) are trained in the recognition and handling of suspicious or unusual transactions and how the firms products and services are vulnerable to money laundering and terrorist financing;
- How the transactions on the financial institution’s digital platforms are monitored and analysed.
Accountants should develop audit programs to enable them obtain information from management about how Politically Exposed Persons (PEPs) and their transactions are identified, classified and treated. The PEP list of the financial institution should be obtained and sample tested by reviewing the account opening documents of these PEPs to ensure proper due diligence, approvals and authorizations. The review should also cover how management is able to establish and verify the source of the PEP’s wealth and funds. Also the audit program should include the review of relevant documents (that is KYC forms) for opening account for normal customer.
Before expressing an opinion about the effectiveness and efficiency of a financial institution’s AML/CFT program, chartered accountants should be on the lookout for the following red flags (not exhaustive):
- Inconsistence in information provided by the customer
- Evasiveness from customer or unwillingness to provide compressive answers to basic questions.
- Request that don’t make sense in the context of the customer’s profile
- Complex group structures that are not properly explained or where justifications are “tax reasons” or “privacy fund”
In as much as the Chartered Accountant has a responsibility by law in expressing an opinion about the AML/CFT programs of a financial institution, they can also be used as an avenue to wash the dirty money of criminals.
One way a Chartered Accountant can be used to launder money, is when the Chartered Accountant serves as a promotor in the registration and formation of the company for the criminal. The Accountant introduces the criminal’s company to the Registrar General for the registration of the business, which in most case, is a “front company” to wash the dirty money. That is legitimizing the dirty money through the company.
Another way for Chartered Accountant to be used as conduit to launder money is when they are employed by these criminals to keep and maintain the account records of the business. The criminal uses the accountant service to conceal the original source of the money. Also creating fake and non-existing invoices and/ receipts help in the laundering process. This is what we call, Professional Money Launders (PMLs). PMLs use specialized knowledge and expertise to exploit legal loopholes; find opportunities for criminals; and help criminals retain and legitimize the proceeds of crime in exchange for a commission, fee or other type of profit. These professional are sometimes not familiar with the predicate offence (e.g. narcotics or human trafficking) and are generally not concerned with the origins of the money that is moved. This was exhibited in the movie called “NARCOS”.
Advising these criminals on investment options is one of the ways chartered accountants are used to further wash the dirty money. They do this by analyzing the technical and legal aspects of the investment planned by the criminal and identifying the most appropriate financial technique to make these investment appear licit/ legit.
Chartered Accountant can help in the fight of money laundering and terrorist financing by carrying out due diligence on their customers/ clients. That is, by conducting and implementing Know Your Customer (KYC) principles, the accountant will be able to notice any suspicious transaction and behavior and report on them. Accountants should be able to verify every information their customer provide and the beneficiary owners of the company they represent.
Constant training and awareness creation on money laundering and terrorist financing issues will help in the fight against money laundering.
Adoption and implementation of the Financial Action Task Force (FATF) recommendation on establishing AML responsibility over these professions (Accountants, Lawyers, Notaries – Gatekeepers) in the same manner as industries or financial sectors will help prevent criminals from washing their dirty money. These responsibilities include customer identification and record keeping, reporting suspicious activities and implementing AML programs and controls.
Accountants might be able to stop money laundering and terrorist financing by working according to the ethic and professional conduct of the association they belong to. Money laundering is now under an increasingly bright spotlight. Seeking the relevant legal expertise, can ensure accountants are not left in the dark.
Given such a dynamic picture, it is important that Chartered Accountant (Accounting professionals) have a clear legal framework within which to report suspicious transactions.
If you require further information on this article, please contact Richieson @ email@example.com