by John McCarthy Consulting Ltd. | Apr 8, 2022 | Blog, News
In recent blogs we looked at some scenarios of money laundering in practical day to day business life.
Today we look at another example based on the latest Consultative Committee of Accountancy Bodies (CCAB) AML Guidance released in early March 2022.
The scenario is: Your client’s overseas subsidiary is one of three key suppliers of goods to a particular market in Europe. The subsidiary has recently significantly increased its prices and margins and its principal competitors have done the same.
There has been press speculation that the suppliers acted in concert, but publicly they have cited increased costs of production as driving the increase. Whilst this explains part of the reason for the increase, it is not the only reason for the increase in margins.
On reviewing the accounting records, you see significant payments for consultancy services and seek an explanation. Apparently, they relate to an assessment of the impact of the price increase on the market as well as some compensation for any losses the competitors suffered on their business outside of Europe.
Some of the increased profits have flowed back to the Irish parent company. There is not a criminal cartel offence under local law but there is under Irish law.
Where do one’s AML reporting duties lie in this situation?
- If you suspect a price fixing cartel – Report the matter as a suspicious money laundering transaction and document your decision process along with any associated professional advice received.
- If you do not suspect criminal activity – do not report but document your decision carefully along with any associated professional advice received.
The CCAB-I guidance elsewhere goes on to clarify that money laundering offences include, in certain circumstances, conduct occurring overseas which would constitute an offence if it had occurred in Ireland, even if it is not an offence in that overseas jurisdiction.
Please note that few potential money laundering reporting scenarios are clear cut. Legal and professional advice may be necessary to fully understand your reporting obligations.
Are your AML Policies Controls & Procedures up to date?
We have just released our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
We have also just released an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms.
To ensure your letters of engagement and similar templates are up to date 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.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
by John McCarthy Consulting Ltd. | Apr 4, 2022 | Blog, News
In recent blogs we looked at some examples of money laundering in practical day to day business life.
Here is another case study based on an example from the latest Consultative Committee of Accountancy Bodies (CCAB) AML Guidance released in early March 2022.
Your client plans to expand its operations into a new overseas area of operation. The client has engaged a consultancy firm to oversee the implementation, although it is not clear what the firm’s role is.
Payments made to the consultancy firm are large in comparison to the services provided and some expenses claimed are for significant sums to ‘meet government officials’ expenses’.
The country is one where corruption and facilitation payments are known to be widespread. You ask the FD about the matter and he thought that such payments were acceptable in the country in question.
What are one’s AML reporting duties in this situation?
- If you suspect that bribes have been paid – Report the matter as a suspicious money laundering transaction.
- If you do not suspect illegal payments – do not report.
The CCAB-I guidance goes on to clarify that money laundering offences include, in certain circumstances, conduct occurring overseas which would constitute an offence if it had occurred in Ireland.
Please note that few potential money laundering reporting scenarios are clear cut and legal and professional advice may be necessary to fully understand your reporting obligations.
Are your AML Policies Controls & Procedures up to date?
There are no excuses as we have just released our latest Anti-Money Laundering Policies Controls & Procedures Manual (March 2022) – View the Table of Contents click here.
We have also just released an updated AML webinar (March 2022) available here, which accompanies the AML Manual. It explains the current legal AML reporting position for accountancy firms.
To ensure your letters of engagement and similar templates are up to date 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.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
by John McCarthy Consulting Ltd. | Mar 15, 2022 | Blog, News
In several recent blogs we looked at some examples of money laundering in practical day to day business life.
Here is another one that is based on an example from the latest Consultative Committee of Accountancy Bodies (CCAB) AML Guidance released on 4 March 2022.
Your client has paid a dividend based on draft accounts. Subsequent adjustments reduce distributable reserves to the extent that the dividend is now illegal. Do I need to report this as a money laundering offence?
The answer is that whether it is money laundering or not will depend on the circumstances and the intentions of the Directors.
- Report as a money laundering offence – If there is suspicion of fraud.
- Do not report as a money laundering offence – If there is no such suspicion. It may be a simple error and will need rectified without delay.
The payment of an illegal dividend is not a criminal offence under the Companies Act.
Commentary
A company can only pay a dividend if it has sufficient ‘distributable profits’ (as defined) available for distribution. Sections 124 and 125 of the Companies Act, 2014 are the principal sections that deal with declaring dividends and the Directors ought to prepare calculations in advance, based on the company law requirements, to ensure they are calculated from profits that are available for distribution, as defined in Section 117. If a dividend is declared unlawfully the directors are potentially liable to repay it to the Company.
Please note that potential money laundering reporting scenarios are not usually clear cut and legal and professional advice may be necessary to fully understand your obligations. There is a significant technical document available on the ICAEW website, Tech 02/17BL, which, although based on the UK Companies Act, 2006, would be persuasive under Irish company law, as GAAP in both Ireland and the UK is the same (at least for now) and both countries have the same accounting frameworks with similar underlying legal principles.
We have an up to date Anti-Money Laundering Procedures Manual (September 2021) – View the Table of Contents click here.
To ensure your letters of engagement and similar templates are up to date 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.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
by John McCarthy Consulting Ltd. | Mar 14, 2022 | Blog, News
In several recent blogs we looked at some examples of money laundering in practical day to day business life.
Here are some more examples from the latest Consultative Committee of Accountancy Bodies (CCAB) AML Guidance released on 4 March 2022.
Some customers of your client have overpaid their invoices. The client retains overpayments and credits them to the profit and loss account. Do I need to report this as money laundering or not?
Obviously the circumstances can vary and the CCAB guidance is not to be interpreted as giving legal and definitive advice. The scenarios outlined a merely there for the purposes of illustrative guidance and for educational purposes.
The circumstances will influence whether to report this matter for money laundering purposes or not.
Report the matter if you:
- know or suspect that the client intends to dishonestly retain the overpayments. Reasons for such a belief may include:
- The client omits overpayments from statements of account.
- The client credits the profit and loss account without making any attempt to contact the overpaying party.
You may not need to report the matter if you:
- believe that the client has no dishonest intent to permanently deprive the overpaying party. Reasons for such a belief may include:
- Systems operated by the client to notify the customer of overpayments.
- Evidence that requested repayments are processed promptly.
- Evidence that the client has attempted to contact the overpaying party.
- The client has sought and is following legal advice in respect of the overpayments.
These situations are not usually clear cut and legal and professional advice may be necessary to fully understand your obligations.
We have an up to date Anti-Money Laundering Procedures Manual (September 2021) – View the Table of Contents click here.
To ensure your letters of engagement and similar templates are up to date 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.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
by John McCarthy Consulting Ltd. | Feb 8, 2022 | Blog, News
In last week’s blog we looked at the CCAB case study on incomplete records. This week we look at the potential AML problems that arise when a client doesn’t pay their payroll taxes and VAT (suitably edited for local Irish legislation).
The pandemic crisis has put strain on the cashflows of many businesses. This note considers the obligations that an accountant may have if they become aware that a business that they work for, or one for which they act, is deliberately failing to pay their taxes when due.
- Payroll taxes are deducted from the wages/salaries of employees by the employer. It is the employer’s obligation to account for these taxes to the Revenue Commissioners within the prescribed time limits. The Revenue Commissioners may be willing to agree to instalment arrangements where certain conditions are met, but these arrangements should be agreed in advance. If a business fails to pay its payroll taxes by the due date, interest is levied and there can also be penalties, depending on the circumstances.
- VAT is levied on sales to customers and collected when payment is received. VAT paid on goods and services used in the business can (in many cases) be offset in whole or in part against the tax collected from customers.
In general, late payment is a civil matter. But at what point does late payment become non-payment and when might this become a criminal matter?
If steps have been taken to disguise the true tax liability, then this is fraud and would be criminal behaviour. For example:
- some employees are not included in payroll returns;
- the amount shown on the payroll return differs from the amount actually paid to the employee; or
- VAT on sales is deliberately understated.
However, there are other cases where the business simply chooses not to pay on time.
If this is a temporary, unforeseen matter – for example, the business has overdue monies due to it and does not have the banking facilities to cover the payment, and therefore delays the payment until the debtor has paid up – this is unlikely to be criminal. In general, it is advisable to contact the Revenue Commissioners as soon as difficulty making payment is expected, to discuss the prospect of agreeing time to pay.
On the other hand, there are cases where the business is aware that it has structural cashflow issues. In these cases, it does not have the funds to pay bills as they fall due, but uses the funds withheld from salaries (or in the case of VAT, collected from customers) to fund other expenses, with no plan for payment of the tax due.
Depending on the facts, if the business subsequently becomes insolvent with tax due, it should be considered whether this is fraudulent evasion of tax. The business may be in possession of proceeds of crime, which would mean that an accountant acting for that business would have obligations to report the money laundering activity.
There are some key red flags to be alert to:
- Has there been any deliberate attempt to disguise the amount of tax due?
- Has there been a deliberate, reckless or wilful use of funds which should have been earmarked for tax payments to meet other obligations?
- Has there been non-payment of tax and continuation of the trade in circumstances which should have indicated that the business could not meet its obligations as they fall due?
Where these factors are present, you should consider whether a Suspicious Transaction Report (STR) should be made simultaneously to the Garda/Revenue Commissioners on GoAML and on the ROS AML portal.
To ensure your letters of engagement and similar templates are up to date 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.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
We also have an up to date Anti-Money Laundering Procedures Manual (September 2021) – View the Table of Contents click here.
