Accountants are the gatekeepers to prevent money laundering

In 2021, the Financial Services Industry in Asia Pacific paid $5.1 billion for breaching anti-money laundering (AML) & data privacy laws. Earlier in October 2022, the Financial Action Task Force added Myanmar to a group of high-risk countries known as the blacklist, citing its failure in making sufficient progress to address illicit financial flows. The global watchdog is also encouraging the Philippine government to continue enforcing strict rules to effectively curb, if not entirely remove, money laundering and terrorist financing in the country.

While more than 80 per cent believe themselves to be compliant with AML standards, most banks and financial institutions in South-east Asia find the growing complexity of the compliance landscape to be somewhat overwhelming.

According to Deloitte’s report, well over half of all banks and financial institutions in Asia report a shortage of adequately trained AML professionals, signalling a talent gap in the compliance framework in the region.

In Singapore, job demand for professionals in the compliance function including anti-money laundering soared recently with pay raises of up to 25 per cent. Especially now, the digitalisation of finance has opened up a whole new set of avenues to dodge regulations, making life tougher for banks and financial institutions to prevent money laundering.

The expectation on the obligation to mitigate money laundering now is “if you could have known, then you should have known”—and this is where accountants can be gatekeepers to keep up with expectations and be the first line of defence in the financial system to prevent illicit funds from finding their way into the economy.

Changing the mindset

The correct AML checks and protocols such as Client Due Diligence are unfortunately often seen by firms as unnecessary red tape, especially when dealing with long-standing clients. In January 2022, the Monetary Authority of Singapore fined Vistra Trust S$1.1 million for failing to comply with requirements on anti-money laundering by not carrying out appropriate customer due diligence.

A similar case happened to UOB Kay Hian Private Limited in March, where the company was fined S$375,000 for its failure to implement adequate control over its corporate finance business, and failure to ensure that its corporate finance business was subjected to an internal audit.

Not just financial institutions, corporations like Genting Singapore’s Resorts World Sentosa were also hit with S$275,000 worth of fines during the 2021-22 reporting period, for breaching AML rules due to failure in performing customer due diligence measures.

Accountants are actually in a position to change mindsets about seeing checks as a tiresome compliance exercise and see themselves as being an important part of the fight against economic crime.

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AML supervisors suggest accountants shouldn’t shy away from asking questions about the people they’re servicing, which helps them to spot unusual and unexplained changes in their client’s business and assess any risks that the client might be involved in money laundering. Eventually, that may also save them from being the person that assists a criminal enterprise.

Professional scepticism to spot red flags

Vigilance and insights into how businesses work are vital for pinpointing signs of suspicious activity.

When encountering a series of transactions with raw information, the accountant’s monitoring and professional scepticism help to observe if the factual patterns emerging suggest something inappropriate is happening.

For both traditional and high-end money laundering, any transaction that adds effort and cost without obvious economic benefits is a red flag. Identifying red flags help accountants to detect any trails of suspicious behaviour and allows them to assess patterns for reporting.

Reporting is the first firewall to money laundering. In Indonesia, the Financial Transaction Reports and Analysis Centre said it had received 73,000 reports on suspicious financial transactions in 2021, up from 68,057 in 2020. As soon as a firm becomes suspicious that money laundering may have occurred, the firm must submit a suspicious activity report (SAR) to the relevant law enforcement agency. In some countries, there is a legal obligation for professional accountants to report suspicions of money laundering to the Financial Intelligence Unit by way of the SARs.

Support for the accountants

Companies can provide proper training to ensure all staff are aware of AML laws and regulations, and their responsibility to appropriately document transactions and information. Apart from due diligence, regular internal control reviews and reassessments should be embedded at the core of financial assessment procedures. Frequent reviews that reflect AML risks the business is exposed to will assist the accountants to assess and spot any potential suspicious patterns.

The writer is regional director of China and Southeast Asia of the Institute of Chartered Accountants in England and Wales (ICAEW).