Concerns about money laundering may seem the preserve of large international firms. But in reality sole practitioners and small firms are just as vulnerable to being targeted by criminal organisations, says Jane Towers from NJT Business Solutions.For many accountants and lawyers working within smaller firms across the UK or running their own practices, concerns about money laundering may seem the preserve of large international firms. But in reality sole practitioners and small firms are just as vulnerable to being targeted by criminal organisations to facilitate their crimes.
Encouraging smaller businesses to acknowledge that they are just as much at risk as larger businesses is half the battle. Some small firms can be somewhat complacent when it comes to effective due diligence, believing that their clients are too small or ordinary to be involved in money laundering.
The Red Flags
Knowing the red flags is crucial to protecting yourself and your business from becoming unwittingly involved. These red flags tend to be clients who become unnecessarily secretive or who may just not “add up” to business sense such as:
- Any inconsistencies in information provided
- Complex group structures that are not fully explained or which obscure the beneficial ownership of assets.
- Transactions that make no sense in the business context
- Evasive clients who fail to offer a plausible explanation
Carrying out these checks on a regular and ongoing basis is essential whether your client relationship is well-established or new, simply to prevent yourself and your business from becoming complicit in possible crimes.
Know your client
Smaller firms are at an advantage in that they can enjoy more direct interactions with their clients, allowing them to know and understand their client on a multifaceted level that transcends documents and reports.
Ensuring you are constantly taking measures to understand and know your client is essential. This is not just limited to regular due diligence checks, but also more widely. Make a concerted effort to understand the wider context in which your client operates, this can help alert you to any activity that simply doesn’t make commercial sense or is in contrast with their business strategy.
Companies House, which currently holds details of 3.5 million companies registered in the UK, is a good source of information for due diligence, and it has become one of the most open and extensively accessed registers in the world. Proactively ask your clients questions about their business too. Major business developments such as a change in directorship can easily go unnoticed by an accountant or lawyer so ensure you are regularly seeking information about changes to the company that could necessitate further investigation.
Try and counteract a lack of direct communication. The decline in face-to-face meetings as a result of technological advances can only serve to help create the “smoke and mirrors” needed by a criminal enterprise to disguise themselves as a legitimate business. If you can, arrange a trip to their office or place of business to establish their credibility. Look for indicators that their business might not be quite what it says on the tin. Is it unusually quiet during peak hours? Does the office lack the style of the corporate organisation it markets itself as? While these factors seem subtle, they may be important pieces of the puzzle to help form a clear picture about the legitimacy of your client.
The most sophisticated criminal enterprises can seem legitimate at first glance. Therefore, the duty to be thorough in due diligence in order to recognise suspicious and indeed illegal activity is essential, especially within smaller firms where dedicated compliance teams are not always present.
Regardless of whether involvement in money laundering is deliberate or accidental, the consequences can be severe, both to yourself as a practitioner and to your business. These consequences can range from reputational damage and heavy fines to loss of licence or even a prison sentence.
What to do
If suspicious activity or a red flag cannot be resolved then you need to consider whether to submit a suspicious activity report (SAR).
The SAR process is confidential, and a legal requirement as stated by the Proceeds of Crime Act 2002, when faced with suspicious behaviour by your client. The intelligence provided is vital to enabling law enforcement to investigate and disrupt serious and organised crime. By helping to build this intelligence picture, accountants and lawyers can protect themselves, their businesses and the legitimate economy from the threat posed by criminal organisations who would exploit them.
Jane Towers runs NJT Business Solutions, and is an AAT Council Member