The UK government has recently published an updated National Risk Assessment (NRA). Its full title is ‘National Risk Assessment of Money Laundering and Terrorist Financing 2025’ and it runs to 163 pages – I doubt that many of us will want to read them all. But there are ten pages of particular interest to accountants, bookkeepers and tax advisers, starting at page 122, which it would be sensible to read..
The four tiers of risk assessments
Let’s remind ourselves of the four tiers of anti-money laundering risk assessments.
Top tier – the UK government’s National Risk Assessment of the money laundering and terrorist financing risks affecting the UK economy as a whole; updated every 5 years or so (the previous one was published in December 2020). This meets the requirements of Regulations 16 and 16A MLR 2017.
Second tier – the UK accountancy bodies’ assessment of money laundering risks affecting the UK accountancy sector – and drawing upon the information in the UK government’s NRA. This meets the requirements of Regulation 17.
Third tier – your own firm’s Firm-wide AML Risk Assessment (FWRA) of risks affecting your firm – and drawing upon the information in the risk assessments prepared by the UK accountancy bodies and the UK government. This meets the requirements of Regulations 18 and 18A.
Fourth tier – your own firm’s AML Risk Assessments on each of your clients – and drawing upon the information in your firm’s FWRA and the risk assessments prepared by the UK accountancy bodies and the UK government. This meets requirements in Regulations 19 and 28.
So it is necessary for the MLRO in an accountancy firm to be aware of the current NRA and the key money laundering and terrorist financing risks, as seen from the perspective of the UK government.
The key risks perceived by the UK government
So what does the UK government see as the key money laundering and terrorist financing risks for accountants, bookkeepers and tax advisers acting as ‘external accountants’ and ‘trust or company service providers’ (TCSPs)?
The government is concerned about ‘professional enablers‘, defined as “an individual or organisation that is providing professional services that enables criminality. Their behaviour is deliberate, reckless, improper, dishonest and/or negligent through a failure to meet their professional and regulatory obligations”. Professional enablers can come from a range of sectors but are most likely to involve skilled professionals such as accountants, lawyers and Trust and Company Service Providers.
My own view is that corrupt or dishonest accountants are few, and far between. But when accountants go bad, they go very bad – often involving life changing amounts of money.
The government see payroll, international trade or transactions, and cash intensive businesses as key risk areas.
In particular they see high risks around payroll services where no other accountancy or bookkeeping services are provided (so that the payroll provider has a limited knowledge of the employer’s business). In these cases payroll can be used to disguise distributions of profits by organised criminal groups, for example dealing in drugs, or to operate ‘modern slavery’ perhaps where the employees are from overseas and have no legal right to work in the UK.
In practice, most mainstream accountancy firms in the UK are not providing payroll services on a stand-alone basis, and so the risk is lower.
The risks which can be associated with international trade or transactions and cash intensive businesses are well known to accountants.
Again, where company formation and registered office services are provided as a stand-alone service there are risks of companies being formed for criminal purposes – but most mainstream accountancy firms in the UK are not providing company formation or registered office services on a stand-alone basis, and so the risk is lower.
The NRA sensibly notes, “The fragmentation of services also poses a potential risk. Criminals who require multiple services, may use different firms for each service, preventing a single firm from seeing the full picture. For example, tax advisers and payroll agents may be employed to do specific tasks and only see limited information from their client. Bookkeepers may then also be used but only given incomplete records. Where a firm has access to, or interactions with, most or all the activities of their customer, they will be better placed to understand the full picture and identify risks”.
In relation to tax advice the NRA comments, “accountants may knowingly or unknowingly facilitate tax evasion and fraudulent claims, and consequently the laundering of the proceeds of those offences, where clients deliberately provide inaccurate or incomplete information, for example, by undeclared income or payments”.
This comes as no surprise.
So what’s next?
We can expect the accountancy bodies to update their second tier AML and terrorist financing risk assessments in due course – and as a result of other government moves we may see the CCAB AML Guidance for the Accountancy Sector being updated before too long. So there is plenty to look forward to!
If you are concerned that your firm’s AML compliance is inadequate, or even non-existent, get in touch now using the link below and we can work together to fix this. The hardest part is getting started.
