C2: AUDITING AND ASSURANCE
Topic: Money Laundering
Compiled by IMACRIS 291
Introduction to Money Laundering
• Is a funnelling of cash or other funds generated form
illegal activities through legitimate financial
institutions and businesses to conceal the source of
funds.
• Money laundering is a process where dirty money is
transformed into clean money.
Key terms
• Financing terrorism- provision of or making available
financial and other services to terrorist.
• Tipping off offence-knowingly disclosing information
that is likely to prejudice any investigation on a
reported actual or suspected ML act
Compiled by IMACRIS 292
Introduction to Money Laundering
Key terms..
• Anti money laundering reporting officer (AMLRO)- a
person appointed by auditing or accounting firm to
ensure compliance with anti money laundering law.
He/she is responsible for:
i. Considering internal reports of ML
ii. Decide if there are sufficient grounds for suspicion to
pass to the government
iii. Liason person with the government and law
enforcement agencies
iv. Designing and implementing internal AML systems
and procedures Compiled by IMACRIS 293
Money Laundering Stages
There are three stages typically involved in money
laundering.
i. The first is placement, which is when cash
obtained through criminal activity is first placed
into the financial system.
– Placement- Putting illegal funds from the illegal activity
into apparently legitimate business activity or property
– Business owners who have illegally obtained funds can
use a cash-intensive business to mix legitimate cash
receipts from business activity with the funds they wish
to launder.
Compiled by IMACRIS 294
Money Laundering Stages
ii. The second stage is layering. This is when cash is
disguised by passing it through complex transactions
involving many layers, making the transactions
difficult to trace.
– This often involves moving the cash internationally, which
adds a layer of complexity to the layering process.
iii. The final stage is integration, which is when the
illegally gained funds are moved back into the
legitimate economy.
– At this point the funds have become ‘clean’ and are invested
in property or financial instruments or otherwise spent.
Compiled by IMACRIS 295
Possible events linking to ML
• Illicit drug trafficking
• Terrorism
• Illicit arms trafficking
• Crime groups
• Human being trafficking
• Sexual exploitation
• Illicit trafficking of stolen goods
• Counterfeiting
• Armed robbery
• Theft
• Corruption
• Forgery
• Hijacking
• Piracy
• Poaching Compiled by IMACRIS 296
ML indicators
• Unusual transactions or activity compared to their normal
dealings.
• Unjustified large cash deposits or constantly large balances.
• The use of large amounts of cash to purchase cashier’s checks or
money orders.
• Unwillingness or avoidance of providing information about their
business.
• Company has no employees, which is unusual for the type of
business.
• Company is paying unusual consultant fees to offshore
companies.
• Client insist transaction being done quickly
• Client has unusual knowledge o reporting suspicious transaction
• Any situation where personal identity is difficult to be
determined
Compiled by IMACRIS 297
Auditors duty under ML and confidentiality
• to report suspicious transactions and activities to the
Financial Intelligence Centre/gvt unit
• Code of ethics requires the auditors to maintain
confidentiality in client relationships.
– This can result in ethical conflicts namely duty to report to
the authorities and duty of confidentiality to the client.
• The requirement by AMLA surpases the requirement
by code of ethics
• ethical rules also make provision for exceptions under
the confidentiality where the auditor can disclose
information when required by the law
• The situation is further complicated by the need to
avoid “tipping off” the client hence the auditor can
not even enquire the client
Compiled by IMACRIS 298
Contents of firm’s anti ML programme
• Appointment of a money laundering officer (MLRO) and
implementation of internal reporting procedures.
• Train individuals to ensure they are aware of the relevant
legislation, know how to recognize and deal with potential
money laundering, how to report suspicions to the MLRO.
• Establish internal procedures appropraiate to forestall and
prevent money laundering, and make relevant individuals
aware of the procedures.
• Verify the identity of new and existing clients and maintain
evidence of identification that is customer due diligence
measures.
• Maintain records of client identification and any transactions
undertaken for or with the client.
• Report suspicions of money laundering to the Financial
Intelligence Centre. (FIC)
Compiled by IMACRIS 299
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