Common anti-money laundering pitfalls for accountants and how you can protect yourself

1. Inadequate documented policies and procedures

To ensure properly documented policies and procedures, you should develop comprehensive, written anti-money laundering (AML) protocols tailored to your practice. These should cover all aspects of compliance, including client onboarding, risk assessment, ongoing monitoring, and reporting suspicious activities. Regularly review and update these documents to reflect changes in regulations and best practices. Make these policies as easy to follow as possible. For example, instead of noting that Enhanced Due Diligence requires further documentation to evidence Source of Wealth, detail what types of documentary evidence may be needed.

Implement a system for staff training on these procedures, ensuring everyone understands their responsibilities.

Finally, conduct periodic internal reviews to verify that policies are being followed and to identify areas for improvement. Remember, well-documented procedures not only aid in compliance but also serve as evidence of due diligence if ever scrutinized by supervisory bodies.

2. Inadequate Client Due Diligence (CDD) procedures

It is important to always remember that client due diligence is mandatory and vital to combat money laundering. Ensuring that you treat each client and transaction appropriately from inception and throughout your relationship, will ensure the due diligence you hold is accurate at inception and remains adequate throughout.

The ICAEW has produced guidance on how to complete CDD on new clients as well as when to update your CDD on existing clients.

3. No or inadequate firm-wide risk assessment

Several professional bodies offer templates to assist with firm-wide risk assessments. The ICAEW, ACCA, and AAT have all published their own versions. However, it's crucial to thoroughly understand any template you use. Ensure you've read it carefully and grasp why each question matters and how it affects your client relationships. For best results, tailor the template to your specific practice’s needs. Remember, AML compliance isn't a one-size-fits-all endeavour.

4. Inadequate client risk assessment or records

Understanding red flags is crucial for assessing AML risks in your practice and evaluating potential risks associated with specific clients or matters. These warning signs help you determine whether there are grounds for concern or if a situation warrants a reportable suspicion.

A list of red flags for the accounting profession was produced by FATF. There are many other resources you can lean on for example the ACCA Example Red Flag Training Material. The ICAEW as part of their AMLbites series has a section of videos that discusses Risks and Red Flags.

Below is only a handful of examples (this is a non-exhaustive list and there are many more):

• The business relationship is conducted in unusual circumstances.

• Lack of records such as sales.

• Income received at odd times of day (outside of office hours).

• Lack of assets or supplies.

• Staff costs (either lower or higher than expected).

• Business bank accounts closed (without legitimate explanation).

• The client or a relative close associate is considered a Politically Exposed Person.

• Geographical areas of higher risk or/and Transactions with or through high-risk third countries.

• High-Risk business sectors.

• Businesses that are cash-intensive.

• Companies that have nominee shareholders or shares in bearer form.

• Businesses with no commercial basis.

• Clients who have funds that are obviously and inexplicably disproportionate to their circumstances.

• Tight deadlines for no reason.

As with your firm-wide risk assessment you can find templates provided by the supervisory bodies that can act as a great starting point. The ACCA have published their template as have the AAT.