Anti Money Laundering (AML) – Awareness of Changing Conditions

Imagine that you’re driving your car along a road. How do you decide how fast to go? Can you decide now, or do you need some more information? You see a 30-speed limit sign – a good starting point for the top end of your choice, but does that mean you would automatically choose the limit and for the whole road? What if you saw a row of red brake lights ahead, a sign warning of a narrowing road, cars parked on both sides making it even narrower, an oncoming car, a sign warning you of school children crossing. Same speed? The pavements start to fill with children pouring out from school, some peek out between the parked cars. Still the same speed? How about the same road, same circumstances, but the winter evenings have made it dark – you’re struggling to see. Would you do anything different? Winter is set in and it’s snowing now. The snow obscures your windscreen and lays thick on the road. Anything different to your approach? Would you choose one speed for the whole road and stick to it without further consideration? Same speed for every circumstance?
Hopefully, you’re not racing along as fast as your car allows by this point, or even holding your nerve at 30. You might have decided that you don’t want to risk driving in the snow or fitted winter snow tyres to your car to reduce that risk. It’s a significant measure, but can be very effective if those are the conditions, you’re going to drive in. How about turning on the lights when it became dark, windscreen wipers when it started snowing. Reasonable measures to address each risk, but it would have worked less effectively done the other way around – would putting the windscreen wipers on or the snow tyres in the dark really have helped? Each problem has its own reasonable and effective solution. Each time you drive the road you react to the circumstances you find, using your knowledge of the developing risks. You wouldn’t blindly choose the same speed every time without considering those things, even if you’d driven it for many years.

The risks above are obvious, the things we do to reduce them are simple and effective. But imagine trying to drive down that busy, dark, snowy road with no awareness as to what any of those risks are. No understanding as to what those brake lights in the distance means, unable to read the speed limits or signs, unaware that children might dart out unexpectedly, that your car will slip and skid on ice. Imagine not knowing what the effect of your lights and wipers are, how or when to use them to be effective.
It all sounds farfetched, doesn’t it? None of us would behave like this behind the wheel of a car, but equivalent behaviour can be found during supervised practice AML reviews. The most common findings in inspections are practices where members were unaware of the risks they faced, had standard off the shelf policy and procedures that did not fit the practice profile, and didn’t understand why they were carrying out their own procedures. Undoubtably many practices spend time, effort, and money on some form of AML process, but unless the risks and mitigating processes are understood and relevant, they have little value or effect. AML should not be a tick box process that is set at the start of an engagement and then forgotten about. Conditions change, risks evolve, and mitigation steps should adapt to match them.

Anti-money laundering requirements should not be a burden of operating in a regulated sector that can be brushed over. The requirements are there for a reason. Money laundering is the process that proceeds of crime must pass through to make the initial crime worthwhile, to make the value of the crime useable. Crimes that harm society – people trafficking, drug dealing, fraud, extortion to name a few. Criminals will stop at nothing to ensure they profit from their crime, devising ever more sophisticated methods to avoid detection. Exploitation of legitimate businesses is a well-known method, and with many businesses facing hardship and desperation, many will be forced to act out of character for survival. With inflation at a 41-year high, the cost-of-living crisis has seen lower consumer spending power and higher operating costs adversely affecting many businesses. As a result, firms are looking for ways to reduce costs which can often mean the eye is taken off the compliance road. Many will also look for ways to inject cash into their business quickly. These factors can quickly drive a previously law-abiding legitimate company into the criminal world of money laundering.

According to the Office for National Statistics there has been a 25% increase in fraud offences for the year ending March 2022 compared with the year ending March 2020. Experts are predicting this trend will continue throughout 2023 due to the cost-of-living crisis. This is something anyone with AML responsibilities must be vigilant of.
So, you may drive down the same road every day without any problems. It is part of your daily routine, and you take it for granted that the journey is a simple one. Then one day out of nowhere you hit an accident which causes a huge delay to your journey. If only you had checked the local news before you set off, you could have planned a different route.
The same complacency can be encountered with client engagement, but the impact can be a lot more devastating than a delayed journey. Regular risk assessments, even with long standing clients or clients who are personal friends, will help you to remain vigilant against changes, identify any potential areas of concern and act accordingly.
As supervised practitioners, you are in a prime position to be able to identify these risk and red flags through your often granular work with clients. Work completed by your practice is accompanied by the veneer of respectability, having been completed by a regulated accountancy sector professional. It’s another tactic that criminals use to legitimise their proceeds of crime, and all the easier if the practice doesn’t know what it’s looking for.

Our inspections find that practices that have engaged and considered AML in their practice are more likely to be operating compliantly. To support this, the IAB continues to develop resources for supervised members, which are available through our website https://www.iab.org.uk/aml-supervision/
Supervised practices should use these resources to raise awareness of risks and regulatory requirements and put in place proportionate and effective systems to identify risk, and design appropriate controls in response. No two practices will be the same or find the same off the peg approach effective, so understanding what works for your specific practice is key.