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MONEY LAUNDERING
Regulatory
Environment
BY SABI AKTHER 1
 What to focus on?

• Definition of money laundering

• Anti-money laundering program

• The need for ethical guidance on money laundering

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 Introduction

Exam focus
Money laundering requirements may be knowledge based, in which you
may be
required to explain the basic elements of an anti-money laundering
program or
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define and give examples of money laundering offences. You may also
need to
Definition of Money Laundering
Money laundering is the process by which criminals attempt to conceal the true
origin and ownership of the proceeds generated by illegal means, allowing
them to maintain control over the proceeds and, ultimately, providing a
legitimate cover for their sources of income.

Money laundering involves 3 main stages:

1 Placement – where cash obtained through criminal activity is first placed into
the financial system.

2 Layering – where the illegal cash is disguised by passing it through complex

transactions making it difficult to trace.

3 Integration – where the illegally obtained funds are moved back into the
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legitimate economy and is now 'clean'.
Definition of Money Laundering
Money laundering offences

• Acquiring, possession or use of criminal property.

• Concealing or disguising or transferring criminal property, or removing it from

the country.

• Entering into, or becoming involved in, an arrangement which is known or is

suspected to facilitate the acquisition, retention, use or control of criminal
property by or on behalf of another person.

• Failure to report knowledge or suspicion of money laundering.

• Tipping off - means to carry out any action that may make suspected money
launderers aware that they are under investigation, or prejudicing the outcome
of an investigation. 5
Definition of Money Laundering
Money laundering offences

Failure to disclose knowledge or suspicion of money laundering may include:

• Failure by an individual in the regulated sector to inform the Financial Intelligence

Unit (FIU) or the firm's Money Laundering Reporting Officer (MLRO), as soon as
practicable, of knowledge or suspicion that another person is engaged in money
laundering, or

• Failure by MLROs in the regulated sector to make the required report to the FIU as
soon as practicable if an internal report leads them to know or suspect that a person
is engaged in money laundering

If a business fails to meet its obligations under the Regulations, civil penalties or
criminal sanctions can be imposed on the business and any individuals deemed
responsible. This could include anyone in a senior position who neglected their own
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responsibilities or agreed to something that resulted in the compliance failure
Definition of Money Laundering

Money laundering offences

Criminal property and criminal conduct

Criminal property is property that has arisen from criminal conduct.

Examples include:

• Property acquired by theft

• The proceeds of tax evasion

• Bribery or corruption

• Saved costs arising from a criminal failure to comply with a regulatory

requirement 7
Definition of Money Laundering
Money laundering offences

Criminal property and criminal conduct

Consider the following scenarios.

• Whilst preparing or auditing accounts you realise that a client has

incorrectly reclaimed value added tax (or other national recoverable
taxes) on the purchase of a motor car. You point this out to the client and
propose an adjustment to the financial statements to provide for the
additional tax that is due. You also advise the client that they must
declare this to the tax authorities. However, the client tells you that they
have just had an inspection by the tax authorities that did not reveal the
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error and they do not wish to do anything further
Definition of Money Laundering
Money laundering offences

Criminal property and criminal conduct

Consider the following scenarios.

• A company knowingly receives payment for one invoice twice (i.e. payment
has been duplicated). The sole director has told the accounts department to
ignore negative balances when they issue statements of account to customers
hoping that they fail to notice. Errors and mistakes of the type illustrated
above may not constitute criminal conduct, provided they are corrected.
However, in both cases there appears to be an intention to gain a permanent
benefit from another’s mistake or to avoid a legal liability. As such, each of
these cases would result in the accountant knowing or suspecting that a client 9
is involved in money laundering
 Anti-money laundering
program
At a minimum, an anti-money laundering program should incorporate:

1) Money laundering and terrorist financing risk assessment.

2) Implementation of systems, policies, controls and procedures that effectively

manage the risk that the firm is exposed to in relation to money laundering
activities and ensure compliance with the legislation.

3) Compliance with customer due diligence, enhanced due diligence and

simplified due diligence requirements.

4) Enhanced record keeping and data protection systems, policies and

procedures.
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 Anti-money laundering
program
Money laundering and terrorist financing (MLTF) risk assessment

A written risk assessment must be carried out to identify and assess the risk of
money laundering. The risk assessment must take into account information
provided by the Supervisory Authority on risk factors in the sector. The
following risk factors must also be taken into account:

• The firm’s customers

• The countries or geographic areas where the firm operates

• The firm’s products or services

• The firm’s transactions, and

• The firm’s delivery channels. 11

 Anti-money laundering
program
Money laundering and terrorist financing (MLTF) risk assessment

The risk assessment should be used to:

• Develop policies, procedures and controls to mitigate the risk of money

laundering.

• Apply a risk based approach to detecting and preventing money laundering.

The risk based approach recognises that the risks posed by MLTF activity will
not be the same in every case and so it allows the business to tailor its
response in proportion to its perceptions of risk. The risk based approach
requires evidence-based decision-making to better target risks.
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 Anti-money laundering
program
Internal controls

Officer responsible for compliance

Firms must appoint a Money Laundering Compliance Principal (MLCP) and this
person must be on the board of directors or a member of senior management.
Sole practitioners with no employees are exempt from this requirement.

Firms must also appoint a nominated officer, Money Laundering Reporting

Officer (MLRO), to receive internal suspicious activity reports and assess
whether a suspicious activity report should be made to the appropriate
regulatory body. The MLRO and MLCP may be the same person if the MLRO is
sufficiently senior.
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 Anti-money laundering
Internal controls program
Employees

Firms must assess the skills, knowledge, conduct and integrity of employees
involved in the identification, prevention or detection of money laundering,
both before and during the course of their appointment.

Staff training must be provided on an ongoing basis in how to recognise and

handle transactions and activities which may be related to money laundering.

Independent audit function

Firms must establish an independent audit function to assess the adequacy and
effectiveness of the firm’s anti-money laundering controls and procedures. Sole
practitioners with no employees are exempt from this requirement 14
 Anti-money laundering
Customer due diligence program
Accountants are required to establish that new clients are who they claim to be by
obtaining satisfactory evidence of identity from the client. This is often referred to as
'customer due diligence' or 'know your customer' procedures

Businesses must apply these procedures at the start of a new business relationship,
at appropriate points during the lifetime of the relationship and when an occasional
transaction is to be undertaken. An occasional transaction is one which occurs outside
of a business relationship and has a value of more than 10,000 Euros for a high value
dealer and 15,000 Euros for a relevant person who is not a high value dealer.

Customer due diligence must be performed as soon as is reasonably practicable after

contact is first made between the two parties. Where satisfactory evidence of identity
is not obtained by the accountant, the business relationship or occasional transaction
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must not proceed any further
 Anti-money laundering
program
Customer due diligence

• Identifying the client (i.e. knowing who the client is) and then verifying their
identity (i.e. demonstrating that they are who they claim to be) by obtaining
documents or other information from independent and reliable sources.

• Identifying beneficial owner(s) so that the ownership and control structure

can be understood and the identities of any individuals who are the owners
or controllers can be known. Reasonable measures should be taken to verify
their identity on a risk sensitive basis.

• Gathering information on the intended purpose and nature of the business

relationship.
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 Anti-money laundering
Customer due diligence
program
The business must be able to answer the following questions:

• Who is the client?

• Who owns/controls them?

• What do they do?

• What is their source of funds?

• Can you describe their activities?

• What will you be doing for them?

• What is its legal structure?

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 Anti-money laundering
program
Customer due diligence

Basic identification procedures include:

• For individuals (including key management personnel where the

client is an entity): inspection of evidence to establish the full name and
permanent address of the client, e.g.

– Driving licence

– Passport

– Recent utility bill to confirm the address.

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 Anti-money laundering
Customer due diligence
program
Basic identification procedures include:

• For businesses: inspection of evidence to verify company name, company

number, address of registered office, e.g.

– Certificate of incorporation

– Lists of registered members and directors

– Certificate of registered address.

• For trusts: inspection of evidence to establish and confirm:

– Nature and purpose of the trust

– Original source of funding

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– Identities of the trustees, controllers and beneficiaries.
 Anti-money laundering
program
Enhanced due diligence

For higher risk clients, enhanced due diligence must be carried out. Enhanced
due diligence procedures include examining the background and purpose of the
transaction and increased monitoring of the business relationship.

Simplified due diligence

For clients presenting a lower risk of money laundering, simplified due diligence
may be carried out.

It may be helpful for the auditor to explain to the client the reason for requiring
evidence of identity and this can be achieved by including this matter in the
engagement letter.
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 Anti-money laundering
Enhanced record keeping program

It is very important that accountants keep comprehensive records to show that

they have complied with money laundering regulations, and protect
themselves if there is an investigation into one of their clients.

Records must be kept of:

• All customer due diligence completed, including copies of the evidence

inspected.

• Transactions with each client.

• Internal and external money laundering/suspicious activity reports.

Records must be held for five years after a relationship with a client has ended
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or the date a transaction is completed.
 Anti-money laundering
Reporting procedures program
It is a criminal offence not to report knowledge or suspicion of money
laundering. Money laundering regulations require that:

• A person in the organisation is nominated to receive disclosures (usually an

MLRO).

• Anyone in the organisation, to whom information comes in the course of the

relevant business as a result of which he suspects that a person is engaged
in money laundering, must disclose it to the MLRO.

• Where a disclosure is made to the MLRO, they must consider it in the light of
any relevant information which is available to the organisation and
determine whether it gives rise to suspicion 22
 Anti-money laundering
program
Reporting procedures

• Where the MLRO does so determine, the information must be disclosed to a

regulatory body authorised for the purposes of these regulations (the FIU),
such as the NCA in the UK.

• The MLRO completes a standard form that identifies:

– Suspect’s name, address, date of birth and nationality

– Any identification or references seen

– Nature of the activities giving rise to suspicion

– Any other information that may be relevant

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 Anti-money laundering
program
Monitoring of policies and procedures

• The MLRO and appropriate senior management should together monitor the
effectiveness of policies, procedures and processes so that improvements
can be made when inefficiencies are found.

• Senior management should encourage relevant employees to provide

feedback on the policies and procedures in place.

• When changes are made to policies, procedures or processes, these should

be properly communicated to relevant employees and supported by
appropriate training where necessary
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 Anti-money laundering
program
Monitoring of policies and procedures

• The effectiveness of the MLTF systems must be independently reviewed.

Independent does not necessarily mean external, but could be performed by
internal audit, a compliance department or an internal quality function.

• Senior management responsible for compliance and the MLRO should

monitor publicly-available information on best practice in dealing with MLTF
risks, for example, by reading thematic reviews by regulators to improve
understanding of good and poor practice

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 Anti-money laundering
program
Potentially suspicious transactions

There is no formal definition of suspicious. A suspicious transaction will often be

inconsistent with the client’s known or usual legitimate activities. Examples
include:

• Unusually large cash deposits.

• Frequent exchanges of cash into other currencies.

• Overseas business arrangements with no clear business purpose.

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 The need for Ethical Guidance
ACCA provides guidance in its Code of Ethics and Conduct in the area of money
laundering. This is needed because there is a clear conflict between:

1 the accountant’s professional duty of confidentiality in relation to his client’s

business, and

2 the duty to report suspicions of money laundering to the appropriate

authorities as required by law.

Professional accountants are not in breach of their professional duty of

confidentiality if they report in good faith their knowledge or suspicions of
money laundering to the appropriate authority.

Disclosure in bad faith or without reasonable grounds would possibly lead to

the accountant being sued 27
 The need for Ethical Guidance
Financial Action Task Force

International efforts to combat money laundering

The Financial Action Task Force (FATF) is an international body that promotes policies
globally to combat money laundering and terrorist financing. FATF issued
recommendations to combat money laundering.

The recommendations included:

• International co-operation including extradition of suspects.

• Implement relevant international conventions on money laundering.

• Criminalise money laundering and enable authorities to confiscate the proceeds of

money laundering.

• Implement customer due diligence, record keeping and suspicious transaction

reporting requirements for financial institutions and designated non-financial 28
businesses and professions.
 The need for Ethical Guidance
Financial Action Task Force

International efforts to combat money laundering

The recommendations included:

• Establish a financial intelligence unit (FIU) to receive suspicious transaction

reports

FATF focuses on three principal areas:

• Setting standards aimed at combating money laundering and terrorist

financing.

• Evaluating the degree to which countries have implemented measures that

meet those standards.
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• Identifying and studying money laundering and terrorist financing techniques.
 Summary
Money Laundering

Financial Action Task Force on Money Laundering (FATF)

Legislation
Offences Duties
Proceeds of • Money laundering • Risk assessment
Crime Act 2002 • Tipping off • Systems, policies,
• Not setting up controls &
Money procedures procedures
Laundering • Not complying with • Customer due
procedures diligence
Regulations 2017 Ethical guidance • Enhanced record
• Conflict with keeping
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confidentiality
Thank You for Watching!!

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