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. | Sep 1, 2024 | Blog, News
An important publication that did not get sufficient attention at the time it was published in March 2024 was the Professional Standards Board Annual Report (PSD) for 2023 from the Chartered Accountants Ireland. The publication explained the following:
In 2023 the summary of the quality reviews carried out had the following results:
| Quality Review Type |
Quality Reviews Completed in Year |
Satisfactory |
Not Satisfactory |
Percentage unsatisfactory |
| Audit |
116 |
87 |
29 |
25% |
| Practice Monitoring |
7 |
6 |
1 |
14% |
| Investment Business |
14 |
14 |
0 |
0 |
| AML UK |
34 |
27 |
7 |
21% |
| AML ROI |
47 |
44 |
3 |
6% |
| Insolvency GB/NI |
4 |
4 |
0 |
0 |
| Insolvency ROI |
9 |
9 |
0 |
0 |
Overall, one in four of the audit quality review outcomes in 2023 were unsatisfactory. The most notable fact is that generally, the firms that fall into this 84% successful category are those who arrange for annual compliance reviews and always have on hand an up-to-date gap analysis of where they stand in relation to quality management and the implementation of cold file reviews.
Quality review outcomes are considered by the Quality Assurance Committee (QAC) (with the exception of UK insolvency quality reviews which are considered by the Insolvency Licensing Committee). Where quality review outcomes are not satisfactory QAC may impose conditions or restrictions on an individual or a firm (or both). Other options can include a range of measures including:
- Monetary fine by way of regulatory penalty;
- Enhanced monitoring via certain regulatory restrictions;
- Licensing conditions imposed by the QAC;
- Quality reviews being repeated more frequently than the required statutory visit cycle; and
- Ongoing outreach (through the PSD Regulatory Bulletin, participation in CPD courses) to all firms providing current information on regulatory matters and common compliance issues.
In extreme cases, QAC may even withdraw a particular licence, registration, or authorisation, (subject, of course, to fair procedure and due process being observed).
Inspections will continue into 2024. It is in every firm’s best interest to avoid receiving an unsatisfactory review. Firms that carry out annual compliance reviews generally get better results on their inspections, so a firm would do well to implement this practice. Your annual compliance review is your firm’s equivalent of an athlete training at the gym to get the best results when they are most needed.
For more on the whole audit quality management (ISQM) process please see our ISQM 1 Toolkit here.
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by John McCarthy Consulting Ltd. | Aug 26, 2024 | Blog, News
Last week we looked at the responsibilities of the MLRO (the Money Laundering Reporting Officer) and some of the items that should be on their ‘radar’.
The MLRO should at least annually document how the AML internal quality control process operates. Ideally this might be in the form of a Memo or in a written report from an external provider. The idea is that the report/Memo triggers actionable items that can be followed up and helps provide evidence that the firm is taking a proactive approach to AML.
Last week we looked at the first five items that should get priority attention. This week we look at the remaining six areas of responsibility that need attention from the firm’s management and the MLRO.
The report should also include the following aspects:
- Ensure that evidence is retained of the sample check of Client Due Diligence (CDD) files that were examined as part of the AML Compliance Review to ensure all information is relevant and up-to-date (e.g. identification is still valid, records match that of CRO and RBO websites, all ultimate beneficial owners (UBOs) and directors have been satisfactorily identified etc.)
- Carry out a Sample check of the documentation of clients’ AML risk assessments to ensure that existing risk ratings are still appropriate, relevant and up-to-date
- Check that the AML Policies, Controls & Procedures Manual is up-to date
- Check that the Firm-Wide Risk Assessment is current and up-to-date
- Check that employees understand the role of ML and their individual responsibilities
- Ensure that recommendations from past internal/external inspections are fully implemented
See more in last week’s blog.
In the meantime, please go to our website to see our:
- Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
- 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 for attendance in your inbox.
- Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items 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 email 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.
