Ethics over fines: why accountants need to be on the right side of history

According to the United Nations, between 715 billion and 1.87 trillion Euros are laundered each year, equating to between 2 and 5% of annual global GDP. Closer to home, a recent report by the investigative Financial Times team highlighted how endemic the issue of money laundering has been, with around a billion pounds parked in residential London properties. Due to business-friendly aspects of British legal and financial institutions, London is an easy target for money laundering. Accountants in particular remain an attractive target for financial criminals, who seek to leverage the industry’s prestige while using the firm/client relationship to launder their money and give their illicit funds a veil of legitimacy and respectability. The ethical impact It’s easy to believe that only the immediate threat of fines or reputational damage can ensure proper behaviour of accountants when avoiding onboarding bad actors. However, our recent survey has revealed that accountants value the ethical side of anti-money laundering compliance over the more obvious risks (e.g. receiving a fine). In fact, the core reason for money laundering rising up company agendas was a focus on customer transparency and ethical customer onboarding (68%). This was followed by external risks (50%), such as the situation in Russia and people traffickers, and only finally, the increased risks of fines (46%). There is a very real, human impact associated with money laundering. Money is being made through terrorism, the trafficking of humans, animals and drugs, and child exploitation. Our survey shows that accountants want to be on the right side of history in stopping illegal activity. The importance of thorough Customer Due Diligence CDD is an important tool in the fight against money laundering and the financing of terrorism, but many firms are failing to successfully adhere to CDD standards despite wanting to do the right thing. The main reason firms are not successful are threefold: 1) Incomplete source of wealth information. For most cases the documentation needed can come from payslips, work contracts and bank accounts but for more complex customer cases you may need to dig deeper. This is where it is important staff is trained to recognise possible suspicious transactions, spot the red flags and find the legal source of funds in each transaction. 2) Additional requirements in a company’s specific compliance framework. In addition to rules set by the regulators, a business may have its own set of rules.It is important that the staff and systems are able to follow these as well, since a breach of your own rules will result in a breach of the act itself. 3) An exit plan for CDD data. According to UK AML laws, a business must destroy CDD data after 5 years of ending a business relationship. Some firms may not have a plan on how to do this and risk being caught by auditors/regulators still having this data. Creating a culture of compliance Compliance to money laundering or financial crime regulations shouldn’t just happen because it’s something imposed on businesses. According to KPMG “a poor culture of compliance has been identified in enforcement actions as a key cause of shortcomings in AML / CFT frameworks”. KPMG identified seven main building blocks for strong AML culture, the first one of which focuses on the senior management showing their commitment to AML requirements, not just as a box-ticking exercise for the business but rather an “effort to protect the market and institution against regulatory and criminal risks”. Having a strong positive culture of compliance can help ensure the business not only has the right systems and controls in place to comply with AML regulations but that the staff has ethical, moral reasons to do so. Outsourcing AML to ensure processes are tight According to a recent industry survey, financial institutions reported an average annual AML compliance spend of £186.5 million - with larger institutions citing costs closer to £300 million each year. However, investing money, time and resources in AML compliance solutions doesn’t necessarily mean that all issues are solved, as shown by some recent cases of AML breaches. For accounting firms, outsourcing the grunt work of their AML compliance and leaving the final risk assessment in-house can be more effective and efficient than trying to manage the entire process themselves. Doing so allows firms to access highly trained specialist resources as well as innovative technology. Instead, firms can focus on specific risk factors relevant to their business, and focus on being on the right side of history. By Simon Luke, UK Country Manager, First AML