by John McCarthy Consulting Ltd. | Sep 12, 2024 | Blog, News
As we saw in last week’s blog money laundering is a sophisticated process where illicit funds are made to seem legal, concealing their criminal origin to infiltrate the legitimate financial system and avoid detection.
In this third and final blog in a series of three, we explore the fundamental stages of money laundering, which are:
- Placement
- Layering
- Integration
The three stages—placement, layering, and integration—can overlap, occur simultaneously, or occur separately, making detection difficult.
The last stage is known as ‘integration’, and this is where the illicit funds are introduced back into the financial system as ‘Cleaned’ Money.
Integration: Reintroducing the ‘Cleaned’ Money into the Economy
- Final Stage Explained
- In the integration phase, the laundered money is reintroduced into the economy, appearing as legitimate business revenue.
- Integration Techniques
- Property Dealing: Buying and selling property to integrate funds into the legitimate property market.
- Front Companies: Businesses that mix illicit money with legitimate sales and services – often these are cash businesses.
- Investments: Illicit funds are invested in legitimate business ventures and financial markets.
- The Role of Legal and Financial Advisors
- Professionals in the accounting, legal and financial sectors (among others) play a critical role in either enabling or preventing the integration of laundered money and must remain alert to the possibility that by their inaction they are helping perpetrate such criminality.
The maxim prison sentence in Ireland at the moment for committing money laundering offence is 14 years.
Combating Money Laundering
- Global Efforts and Regulations
- International organizations like the Financial Action Task Force establish standards and promote the effective implementation of legal, regulatory, and operational measures across the world.
- Technological Advances in AML
- The use of AI and machine learning (especially in the banking sector) helps in detecting patterns consistent with money laundering activities, given the much higher volume of transactions in the financial services sector.
- Public and Private Sector Cooperation
- Enhanced collaboration between governments, financial institutions, and the accountancy bodies, along with other stakeholders is essential in the fight against money laundering.
The Importance of Awareness and Training – the Implementing thorough training programs for all employees in your firm will help them recognize and report suspicious activities.
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by John McCarthy Consulting Ltd. | Sep 12, 2024 | Blog, News
As we saw in last week’s blog money laundering (ML) is a sophisticated process where illicit funds are made to seem legal, concealing their criminal origin to infiltrate the legitimate financial system and avoid detection.
In this second blog in a series of three, we explore the fundamental stages of ML, which are:
- Placement
- Layering
- Integration
The three stages—placement, layering, and integration—can overlap, occur simultaneously, or separately, making detection difficult.
The middle stage is known as ‘layering’, and this is where the so-called gatekeepers (accountants, solicitors, estate agents, trust and company service providers, to name but some) can become ensnared in criminal efforts that aim to disguise and distance the illicit funds from their original criminal sources.
Layering: Disguising the Trail
- The Complexity of Layering
- Layering involves creating a complex series of financial transactions to obfuscate the audit trail and sever the link with the original crime.
- Techniques Employed – among the varied techniques used in this stage are the use of:
- Shell Companies: Establishing companies and similar entities that act as a front to hold and move illegitimate funds legally. Accountants can be involved in approving such entities’ activities by signing off on the audited and unaudited financial statements and tax returns of such entities.
- Electronic Transfers: Frequently moving funds between accounts across international borders.
- Investment in High-Value Assets: Buying luxury items like Rolex watches, super expensive handbags, yachts, jewellery, antiques or real estate to help alter the form of the money.
- Use of a legitimate business to act as a front: Legitimate cash businesses (like coffee shops, nail salons, cash for gold shops, mobile technology, or corner stores etc.), may be used to act as a ‘funnel’ for illegitimate cash (e.g. from drug sales) that is mixed in with genuine bank lodgements from the business so as not to draw unwarranted attention to the real size and nature of the business. Tell-tale red flags will include a lack of attention to important details by the proprietors such as:
- Not having up to date business licences
- Lack of staff training
- Not seriously promoting the business
- Being disinterested about staff theft or customer shoplifting.
The Importance of Awareness and Training
- Educational Training Programs
- Implementing thorough training programs for all accounting firm employees at all levels to show them how to recognise and report suspicious activities is essential to preventing money laundering.
- This training must include even back-office staff who may never meet clients, but who may see evidence of unusual patterns in the business through the transactions they process.
- The penalties for not carrying out (and documenting) such training regularly include a 5-year prison sentence.
- Staff Awareness Campaigns
- Increasing awareness about the ethics and the wider implications of ML (including the negative societal side-effects of ML such as human trafficking) among staff generally, can be most helpful.
- In the end your firm’s reputation is what’s at stake, so keeping staff updated is one of the most important steps to secure that reputation.
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by John McCarthy Consulting Ltd. | Sep 8, 2024 | Blog, News
Money laundering is a sophisticated process where illicit funds are made to seem legal, concealing their criminal origin to infiltrate the legitimate financial system and avoid detection.
In this first blog in a series of three, we explore the fundamental stages of money laundering, which are:
- Placement
- Layering
- Integration
Understanding the details of these stages is vital for accountants to identify suspicious transactions and activities and assist in effective anti-money laundering (AML) efforts. The three stages—placement, layering, and integration—can overlap, occur simultaneously, or occur separately, making detection difficult.
Placement: The Initial Phase of Concealing Illicit Funds
Placement is the first phase of the money laundering process. Here, the illicit funds are introduced into the financial system, often through small deposits to avoid detection.
Some common techniques include:
- Smurfing: This is where large amounts of money are divided into smaller, less suspicious amounts which are below the AML reporting threshold. The sums are then inserted into bank accounts or credit cards and used to pay expenses.
- Currency Exchanges: Cash is exchanged for different currencies or financial instruments.
- Gambling: Casinos are often used to place bets and cash out with ‘clean’ money.
- Legitimate Trading – with criminal cash added – Adding illicit cash from a crime to the legitimate takings of a business, particularly those with little or no variable costs.
- False invoicing using fake customers/suppliers.
- Hiding the beneficial owner’s identity through trusts and offshore companies.
- Customs fraud: Taking small amounts of cash below the customs declaration threshold abroad and lodging it in foreign bank accounts before being re-sent.
In fact, the list of techniques is endless.
Challenges in Detection
The variety and simplicity of initial placement techniques often makes it the most difficult stage for accountants and regulatory bodies to detect and prevent.
Combating Money Laundering
- Global Efforts and Regulations
- International organisations like the FATF establish standards and promote the effective implementation of legal, regulatory, and operational measures.
- Technological Advances in AML
- The use of AI and machine learning in detecting patterns consistent with money laundering activities can help flag criminal activity.
- Public and Private Sector Cooperation –
- Enhancing the collaboration between governments, accountancy bodies, financial institutions, and others is essential in the fight against money laundering.
Please go to our website for:
by John McCarthy Consulting Ltd. | Apr 17, 2024 | News
If you have an upcoming AML Compliance Review from your professional body, be sure to follow these six essential steps to prepare.
- Ensure that you have an appropriate Policies & Procedures document and a Firm-Wide Risk Assessment accompanied by a note of annual reviews of and amendments to the assessment.
- Ensure that relevant staff have received money laundering training accompanied by a record of training completion.
- Carry out some test checks of records of your client Risk Assessments and Client Due Diligence documentation to assess whether the firm’s Policies & Procedures are being properly implemented.
- Check whether an external AML Compliance Review beforehand might be beneficial.
- Check that the information held by your supervisory body about the firm and its MLRO are up to date and correct according to the firm’s most recent Annual Return.
- Ensure that all the work which the firm is doing is correctly licensed under the terms of the firm’s authorisation from your supervisory body (e.g. insolvency work and Clients’ Money).
Following these six steps will ensure that your firm is well prepared for its AML Compliance Review.
All our CPD courses are listed here, including our Audit Update webinar.
To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.
Please also go to our website to see our:
- Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
- ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
- We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
by John McCarthy Consulting Ltd. | Mar 25, 2024 | News
A recent UK High Court case reported in January 2024 makes interesting reading. The auditors were cleared of any liability in a claim for negligence brought by their former client.
A claim for negligence was made by a Travel firm called Ickenham Travel Group (Ickenham) against its auditors, Tiffin Green (TG) Ickenham alleged that as a result of the auditors’ negligence Ickenham achieved £6m less than it could have achieved otherwise, when it sold a business division called BTD.
The claim stated that TG were:
- Negligent and
- In breach of contract;
- Failed to identify various irregularities and an understatement of £4.5m in the financial statements (caused by overstated creditors);
- For each of the four years ended 30 September 2014, 2015, 2016 and 2017 in which they audited Ickenham.
Ickenham stated that if the error had been identified, the company could have taken action to address the amount and avoid any recurrence of the issue.
Ickenham is a travel agency and that had two divisions until July 2019:
- a business travel division called ‘Business Travel Direct (BTD)’ and
- a consumer travel agency, called ‘LetsGo2’.
In early 2019, Ickenham discovered serious irregularities in its accounting systems and records, which originated before the FY14. As a result the trade creditors of LetsGo2 were overstated by £4.5m (the ‘understatement’). In 2019, the combined turnover of LetsGo2 and BTD was £95m, so the understatement was material, even though the accounting problems only related to LetsGo2.
The £4.5m understatement is believed to have built up over a long number of years and started before TG was appointed. It was accepted by Ickenham at the end of the trial that the understatement was at least £2.5m in September 2014 when TG were first appointed. TG first identified the understatement before completion of the audit of the FY 2018 , when new auditors were appointed.
In response to Ickenham’s claim, TG said that BTD was sold for its true value and among other matters was not the ‘type of loss for which TG was liable’.
The Court agreed with the expert witnesses for both sides who gave evidence at the trial and concluded that ‘a reasonably competent auditor probably would have identified and alerted Ickenham to the irregularities and understatement’. TG had failed to do so and had accordingly breached their duties as auditors in both contract and tort by failing to act as a reasonably competent auditor.
These breaches included:
- failing to identify the understatement of £4.5m and
- failing to identify the irregularities’.
Judge Tinker ruled in favour of TG stating that Ickenham had failed to prove that it suffered any loss when it sold BTD, rejecting the loss and factual causation argument.
In the writer’s opinion the claimant would be more likely to have made a more successful case if they had made a different type of claim.
To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021, see our latest Anti-Money Laundering webinar here.
All our courses are listed here.
Please also go to our website to see our:
- Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion, you receive a CPD Certificate of attendance in your inbox.
- letters of engagement and similar templates. Please visit our site here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items if bought together.
- ISQM TOOLKIT or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard, please contact John McCarthy FCA by e-mail at john@jmcc.ie.
- We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. The ISQM TOOLKIT 2022 is available to purchase here.
