One of the many features of Anti-money Laundering (AML) training for accountants is a discussion of ‘red flags’ – the warning signs that should raise awareness of the possibility that money laundering is occurring. These are the things that are supposed to make the hairs on the back of your neck stand up! But does the training get this right?
The usual list
Typically training will list red flags based on the wording of the Money Laundering Regulations 2017 (MLR 2017). These red flags are
- a transaction is complex and unusually large,
- there is an unusual pattern of transactions, or
- the transactions have no apparent economic or legal purpose.
Where does this list come from?
The list is from Regulation 33(1)(f) MLR 2017. No one could be criticised for basing their training on the wording of the Regulations. Indeed the CCAB quote the same list of red flags at paragraph 3.6.2 of the AML Guidance for the Accountancy Sector (June 2023).
But the MLR 2017 were written for the generality of businesses to which the Regulations apply – and key among those are the banking sector. The Regulations were not drawn up with the accountancy sector specifically in view; they do not take account of the type and depth of financial information which accountants hold about their clients – which is very different from, and more extensive and detailed than, the information a bank holds about its customers.
An additional list for accountants
So it is logical to suggest that accountants should have additional red flags in mind when considering whether their client might be engaged in money laundering. I would add to the above list
- A very poor system of accounting records,
- Repeated failure to produce accounting records on request,
- The business effectively being operated by someone other than the named owner,
- A significantly adverse HMRC enquiry outcome,
- The client’s bank account or credit card merchant account being frozen or withdrawn without explanation,
- Significant adverse reports in the local media or on the web, or
- The same business passing through a succession of limited companies.
In my work on criminal cases these are indications I have seen of underlying criminal conduct of one sort or another – and associated money laundering. In many of those criminal cases accountants have been engaged – and they have failed to spot the money laundering (or at least they have failed to report any suspicion of it).
AML Risk Assessments
So if you are your firm’s MLRO maybe, next time you are reviewing your own firm’s individual client risk assessment forms and Firm-wide AML Risk Assessment you will want to add some extra red flags in there!
If you think that you may not have sufficient documentation to satisfy your AML supervisor to a satisfactory standard, or would simply like to discuss your firm’s AML compliance, then please contact us now.