by John McCarthy Consulting Ltd. | Nov 17, 2024 | Blog, News
A question we often get asked is what is a higher risk client for AML purposes?
There are a number of answers that we could come up with, but one of the most reliable sources to help identify such clients can be taken from the Accountancy AML Supervisors Group Risk Outlook (April 2022) which sets out the circumstances where there might be higher risk of money laundering or terrorist financing in the accountancy sector.
In the coming weeks we will look at extracts from this report to assist readers in improving their AML compliance approach.
As the report says ‘firms will need to identify the type of clients that they serve, considering the risks posed by these clients and identifying whether they present any of the following risks and associated red flag indicators. The presence of one or more red flag indicators may suggest a high risk of money laundering or terrorist financing (MLTF). Red flags are not exclusive to the risk areas identified here’.
| Risk |
Red-Flag Indicators |
Why? |
| Clients seeking anonymity or undue secrecy |
· Undue client secrecy (e.g. reluctance to provide requested information)
· Unnecessarily complex ownership structures, including nominee shareholders or bearer shares
· Uncooperative clients incorrect or misleading information on the register (Companies House) and/or reluctance to correct. |
· Clients may try to hide who they are, or produce unusual forms of identity verification, if they are involved in criminal activity or money laundering.
· Clients who are seeking anonymity on behalf of themselves, a third party or beneficial owner may be seeking to launder money.
· Complex structures are attractive to criminals as they may enable the integration of illicit funds into the legitimate economy. |
| Risk |
Red-Flag Indicators |
Why? |
| Clients with a history of criminal activity |
· Clients with criminal convictions relating to the proceeds of crime
· Clients who are on the terrorist list
· Clients on the sanctions lists. |
· Clients with a history of criminal activity would most likely pose a very high risk of money laundering to your firm.
· If you find out that a person or organisation you’re dealing with is subject to financial sanctions, you must immediately:
· stop dealing with them
· freeze any assets you’re holding for them
· Clients may use accountancy firms to seek advice on restructuring their assets to avoid financial sanctions.
· money laundering legislation in Ireland requires firms to put in place enhanced due diligence (EDD) measures in dealing with countries subject to sanctions, embargos or similar measures
· contact your legal advisers for further advice to deal with the Irish Sanctions |
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 17, 2024 | Blog, News
Following the UK HMRC consultation that closed in May 2024, it’s been announced all UK tax advisers will have to register with HMRC. The consultation follows previous interaction with interested stakeholders as far back as 2018.
79% of the 426 written responses to the 2024 consultation agreed that the UK government should mandate registration for tax practitioners who wish to interact with HMRC.
Respondents had suggested that there was a:
- perceived lack of consistent consequences for engaging in unethical practices and
- proposed that a minimum level of qualification or experience should be introduced.
A few respondents also recommended providing statutory protection of titles such as ‘accountant’ and ‘tax practitioner’.
From 1 April 2026, all tax advisers (regardless of professional body affiliation) dealing with HMRC will be required to register under new Government rules aimed at reducing unethical practices. HMRC will apply checks to all tax practitioners who register. Further details will be announced later.
The process is part of a broader effort to
- regulate the tax advice industry and
- eliminate rogue practitioners offering substandard services.
There have been widespread concerns that unaffiliated tax advisers, currently unregulated, pose risks to clients and the tax system.
There are an estimated 85,000 tax advice firms (including accountants, bookkeepers, tax advisers/consultants, payroll professionals) in the UK (which HMRC say may be a small underestimate), of which roughly one-third are not members of professional bodies.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 17, 2024 | Blog, News
As we said last week the Chartered Accountants Ireland issued their AML Supervision Report for 2023/24 recently. The report covers the whole island of Ireland but in this blog, we focus on the Republic of Ireland aspects of the report.
Higher Risk Services
The report highlights the following accountancy services provided in the Republic of Ireland that are deemed to be of a higher risk from an AML perspective:
|
Service Type |
% of firms offering this service |
| Payroll services |
65.22 |
| TCSPs |
38.87 |
| Investment business |
14.89 |
| Holding clients’ money |
10.8 |
| Tax mitigation schemes |
1.39 |
| Insolvency |
1.23 |
The report focuses specifically on TCSP services provided by accountancy firms and states that ‘in Ireland, the update to the National Risk Assessment of Money Laundering and Terrorist Financing (published in 2022) rates the residual risk of money laundering for the TCSPs supervised by the accountancy bodies as Medium – High on the National Risk Assessment scale. The residual risk of terrorist financing for the TCSPs supervised by the accountancy bodies is rated as Medium – Low on the scale.
Higher Risk Clients
The report also lists the circumstances in which clients may become higher risk for AML purposes, (shown here in order of importance) according to the CAI report:
|
Client Type |
% of firms with these clients |
| High net worth individuals |
16.28 |
| Clients with cash intensive businesses |
12.68 |
| Non face to face contact |
6.63 |
| Domestic PEPs |
4.17 |
| Foreign PEPs |
2.13 |
| Higher risk jurisdiction exposure |
1.96 |
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 10, 2024 | Blog, News
The Chartered Accountants Ireland issued their AML Supervision Report for 2023/24 recently. The Institute supervises almost 1,700 firms, of which 72% (1,222 firms) are in the RoI.
It is apparent from the report that some of the future emerging risks arising from the 2023/24 AML supervision cycle include:
- Crypto currency – a very limited number of firms have exposure to this risk;
- The increasing prevalence of artificial intelligence – there is so much that is unknown about how AI may be used to facilitate money laundering;
- Money laundering or investment scams associated with green finance;
- The continued potential for post-Covid fraud such as that arising from the Restart/Bounce Back loans and Income Support Schemes continues to exist, and it remains a continuing risk especially for the insolvency profession;
- Issues arising from the Ukraine crisis also remain in focus – although media interest in the ongoing war has waned, there is still the concern of displacement activity relating to sanctioned individuals and entities.
The Report identifies various risk factors to which accountancy firms may be exposed, including but not limited to the following:
- Higher risk services;
- Higher risk clients;
- Exposure to high-risk jurisdictions;
- Complex firm structures; and
- Poor regulatory history.
There will be more extracts from this interesting report in the coming weeks.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 10, 2024 | Blog, News
As we saw in last week’s blog almost 42,000 companies (14%) and 239 Societies (25%) were non-compliant with their RBO registration requirements at the end of 2023 – the latest date reported on by the Registrar of Beneficial Ownership.
This position is in stark contrast to the numbers of Discrepancy and Non-Compliance Notices (see more below) that are being filed. One would expect such notices to be increasing when the rate of non-compliance is so high, but in fact the rate of these reports fell by up to 67% between 2022 and 2023! This may be only a temporary phenomenon (see more below), but penalties may follow unless the situation improves.
The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 (the Act) requires ‘designated persons’ (defined in Regulation 20(3)(b) of SI 110 of 2019) such as accountants, law firms, banks and certain other service providers to inspect the RBO register as part of their Customer Due Diligence (CDD) processes before establishing a business relationship with a customer, and to report to the Registrar any:
There are also reporting requirements for what are called ‘relevant persons’ (defined in Regulation 26(1) of SI 110 of 2019) (i.e. regulatory authorities and the Revenue Commissioners, Criminal Assets Bureau and Garda reporting using the DN1 form) but it’s not the purpose of this blog to deal with these.
A ‘discrepancy’ (as defined in legislation) is where:
‘A designated person carrying out customer due diligence on an entity, or otherwise, forms the opinion that there is a discrepancy between the information in the central register (RBO) and the information the entity must hold in its internal register of beneficial ownership, then the designated person shall deliver, in a timely manner, to the Registrar notice of that opinion, specifying the particulars as respects which the foregoing discrepancy exists.’
‘Non-compliance’ (as defined in legislation) is:
‘An official notification to the Registrar stating that, having searched in the RBO Online Portal for the beneficial ownership details of a relevant entity, the person searching has found no beneficial ownership details in the RBO for the particular entity, and is reporting to the Registrar that the entity in question appears to have failed to comply with its obligations under Regulations 20 and 21 of SI 110/2019’
Notices filed in 2023 v 2022
| |
2023 |
2022 |
% change |
|
Discrepancy Notices (DN 2) filed |
2,168 |
3,420 |
-37% |
|
Non-Compliance Notices (NCN) filed |
787 |
2,387 |
-67% |
Potential Cause of the Drop in Reporting
The drop in reporting in both the DN2 and the NCN notices between 2023 and 2022 may be something to do with the lack of access that accountants had to the RBO register after the ECJ decision on November 2022. This problem has since been resolved so one would expect the rate of DN2 and NCN notices to increase in 2024/2025.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 5, 2024 | Blog, News
Since Statutory Instrument SI 110 came into effect in July 2019, certain entities mainly companies and Industrial & Provident Societies) are obliged to register their beneficial ownership details with the Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies (the RBO).
Since April 2021 a further leg of this AML legislation was enacted under the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021 (the Act). The Act requires accountants (among others) to inspect the RBO as part of their Customer Due Diligence (CDD) before establishing a business relationship with a customer, and to report any:
- discrepancies (as defined) and
- non-compliance (as separately defined) to the Registrar.
Some of the statistics from the RBO’s latest Annual Report for 2023 are shown below.
Companies
These statistics indicate that Companies’ compliance rate with this legislation has improved by 1% from 85% in 2022 to 86% in 2023, still leaving almost 42,000 companies (14%) that are not fully compliant with their RBO obligations by 31 December 2023.
| |
31/12/2023 |
31/12/2022 |
| Live companies required to file with the RBO |
299,496 |
280,721 |
| Companies which had registered beneficial owners with RBO |
258,241 |
239,444 |
| Compliance rate in % terms |
86% |
85% |
Societies
Likewise Industrial &Provident Societies also improved their compliance rate by 1% from 74% in 2022 to 75% in 2023, still leaving 239 societies (or 25%) that are not fully compliant with their RBO obligations at the end of 2023.
| |
31/12/2023 |
31/12/2022 |
| Live societies required to file with the RBO |
941 |
949 |
| Societies which had registered beneficial owners with RBO |
702 |
698 |
| Compliance rate in % terms |
75% |
74% |
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
