Fight against money laundering heats up

New guidelines should help auditors. By Roger Trapp

Money laundering is a thorny issue for professionals. Sometimes they are the unwitting victims of sophisticated criminal groups; other times they connive by not asking the right questions or going along with the answers they receive, and at others they are directly implicated.

The problem is becoming so serious - it is estimated that about pounds 500bn of money earned from drug dealing and other serious crimes is laundered through the world's financial markets each year - that professional bodies are constantly trying to keep in touch with the situation.

In early July, the audit faculty of the Institute of Chartered Accountants issued guidelines on dealing with a problem it said had increased in scale as the sums involved had grown. The key, it says, is to "know your client" and design audit procedures accordingly, especially where there appears to be a higher than normal risk of laundering occurring.

The technical release also helps auditors with what they should do if they suspect money laundering. While they must report to the authorities any knowledge or suspicions of drug money laundering or financial arrangements that facilitate terrorism, they should also report any knowledge or suspicion relating to the proceeds of other criminal conduct.

That sounds straightforward enough, but as the faculty points out, "difficulties can arise in the interaction between an auditor's statutory responsibilities in reporting on the financial statements and those of reporting suspected money laundering to the police."

Moreover, Prem Sikka, the accountancy academic who has long been a scourge of the profession, argues that the involvement of accountants and other professionals can often be much more than incidental. After all, the complex webs of transactions required to make laundering schemes work can only be set up with their help, he argues in a recent paper written with Labour MP Austin Mitchell and fellow academic Hugh Willmott.

The paper also makes the trio's already well-rehearsed allegations about the inability of the professional bodies to regulate their members.

But, as the audit faculty release points out, the law in this area is complicated and experience of how it affects auditors is limited. In some cases, it says, auditors should seek legal advice before making a report.

Tony Bingham, chairman of the institute's technical and practical auditing committee, concluded that a prime aim of the paper was to "cause auditors to consider whether they are sufficiently sceptical about the activities of the companies they audit." Although auditors were unlikely to come across money laundering often, they needed to know that the consequences of "inaction or unwise action" in such circumstances could be extremely serious.