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Forensic+ ML
Forensic+ ML
Money laundering is the process by which criminals attempt to conceal the true origin
and ownership of the proceeds of their criminal activity. In order to be able to spend
money openly, criminals will seek to ensure that there is no direct link between the
proceeds of their crime and the actual illegal activities
(b) You are an audit manager in Nate & Co, a firm of Chartered Accountants. You are reviewing the
situations, which were recently discussed at the monthly audit managers' meeting:
Nate & Co has recently been approached by a potential new audit client, Fisher Co. Your firm is keen to
take the appointment and is currently carrying out client acceptance procedures. Fisher Co was recently
incorporated by Marcellus Fisher, with its main trade being the retailing of wooden storage boxes.
There are specific regulatory obligations imposed on accountants and auditors in relation to detecting and
reporting money laundering activities. You have been asked to provide a description of the auditors'
responsibilities in relation to money laundering.
Required
(i) Define 'money laundering' and explain the money laundering process.
(ii) State the procedures specific to money laundering that should be considered before, and on the
acceptance of, the audit appointment of Fisher Co.
(iii) Explain the policies and procedures that a firm of Chartered Accountants should establish in order to
meet its responsibilities in relation to money laundering.
Explanation
The money laundering process has three stages:
(1) Placement: getting money (usually cash) into the system in the first place. This could be by making
bank deposits, making investments (eg. in a unit trust), or through a 'front' business, which is a legitimate
business that is used to launder money (eg. a betting shop, which legitimately receives high levels of
cash, could be used to deposit stolen cash).
(2) Layering: using lots of different transactions to create so many 'layers' of transactions between the
initial placement of 'dirty' money and the money that is taken out at the end, that it is difficult to trace.
(3) Integration: extracting funds from the laundering system, and 'integrating' them back into the world of
legitimate and use-able money.
ii. Money laundering procedures – before acceptance
The firm should carry out client identification procedures, such as:
Obtaining evidence that the client exists, such as looking at the certificate of incorporation and
establishing the identities of all directors (Mr Fisher and any others) by taking copies of passports or
driving licenses
Conducting a Companies House search on Fisher Co
Confirming the registered address (by obtaining headed paper)
Obtaining a list of shareholders and directors
iii. Appoint a 'Money Laundering Reporting Officer' (MLRO) and implement internal reporting
procedures
The MLRO should have a suitable level of seniority and experience. Individuals should make internal
reports of money laundering to the MLRO. The MLRO must then consider whether to report to the NCA,
and document this process.
Train individuals
Train individuals to ensure that they are aware of the relevant legislation, know how to recognise and deal
with potential money laundering, how to report suspicions to the MLRO, and how to identify clients.
Internal procedures
Establish internal procedures appropriate to forestall and prevent money laundering, and make relevant
individuals aware of the procedures. Procedures should cover:
Client acceptance
Gathering 'know your client' (KYC) information
Controls over client money and transactions through the client account
Advice and services to clients that could be of use to a money launderer
Record keeping
Maintain records of client identification, and any transactions undertaken for or with the client.
Special care needs to be taken when handling clients' money to avoid participating in a transaction
involving money laundering.