This is the second report the Treasury has put out, and it says that while the 2015 national risk assessment identified intelligence gaps around the role of professionals in high-end money laundering, recent work by law enforcement ‘has helped significantly to develop our understanding of this area’.

The research found accountancy services remain attractive to criminals due to the ability to use them to gain legitimacy, create corporate structures or transfer value.

It states: ‘Some of those accountants involved in money laundering cases are assessed to be complicit or wilfully blind to money laundering risks, though the majority of these cases are likely to involve criminal exploitation of negligent or unwitting professionals.’

The latest assessment confirms the earlier view that accountancy services are at high risk of exploitation for money laundering, but says here is no specific evidence of these services being abused by terrorists, so the terrorist financing risk associated with the sector is assessed to be low.

The areas judged to be at highest risk of being exploited are the creation and operation of companies, facilitating financial transactions (including through client accounts) and tax evasion. The report points out that the term ‘accountant’ is not a protected one but says law enforcement agencies assess that accountants with professional body status are attractive for those seeking to engage in high-end money laundering due to the credibility that their services can confer.

The most significant problems are in the area of company formation, where services are judged to pose higher risks when offered by accountants than when offered by specialised company formation agents, as criminals may also access and exploit the accountant’s wider services.

Additionally, company liquidation and associated services (including insolvency practice, which may be conducted by certain accountancy professionals) pose a risk of criminals masking the audit trail of money laundered through a company and transferring the proceeds of crime.

Accountancy services have also been exploited to provide a veneer of legitimacy to falsified accounts or documents used to conceal the source of funds. The report cites the case of a multi-million pound fraud which was conducted through the selling of unregulated self-invested personal pension products to UK investors.

Within this main fraud, a smaller, sub-fraud was perpetrated using a double invoice scheme to enable one UK based sales agent to take a 65% commission from each investment to allow the payment of pension ‘cash-back’ to certain investors. A professional-body supervised accountant, responsible for the company’s accounts and payroll, routinely signed off duplicate invoice payments to UK and overseas bank accounts in the name of that sales agent and of an off-shore sales agent under a false identity.

In reality, the off-shore sales agent was in fact the UK based sales agent, and the off-shore company and account belonged to the UK based sales agent. The accountant also set up the payments of false invoices into the suspect company director’s overseas bank accounts, some of which were then paid into the accountant’s personal UK bank account.

In addition, there have been instances of misuse of accountants’ client accounts for money laundering. The report says there is a risk posed by accountants performing high value financial transactions for clients with no clear business rationale to be involved, allowing criminals to transfer funds through bank accounts with little scrutiny as a means to complicate the audit trail.

Despite these concerns, the 2015 national risk assessment assessed that the number of suspicious activity reports (SARs) submitted by the accountancy sector was relatively low, and numbers have continued to decline with accountants and tax advisers submitting 4,254 SARs in 2015/16.

National risk assessment of money laundering and terrorist financing 2017 is here. 

Report by Pat Sweet