Earlier this month, the Consultative Committee of Accounting Bodies (a collective of the ICAEW, ACCA, CIPFA, ICAS and Chartered Accountants Ireland) (‘CCAB’) published its first manifesto for fighting economic crime, along with a number of case studies designed to highlight the key areas of risk for the accountancy profession. The term ‘economic crime’ is used in the report to refer to bribery and corruption, money laundering, fraud, tax evasion, intellectual property theft and other breaches and cybercrime.
While the accountancy profession accounted for only 1.2% of all suspicious activity reports (SARs) made to the National Crime Agency (‘NCA’) in the last reporting year, Anthony Harbison (Chairman of the CCAB Anti-Money Laundering Task Force) describes accountants as being among the “gatekeepers” of legitimate finance which highlights the key role they have to play in preventing economic crime.
As part of that role, the CCAB has put forward four proposals for the UK Government to consider. These proposals draw to a large extent on the recommendations made in the Government’s Action Plan for Anti-Money Laundering and Counter-Terrorist Finance (April 2016) (the ‘Action Plan’):
- A central information resource for company ownership information.
- An intelligence information portal for the sharing of information between regulators, law enforcement agencies and businesses.
- Statutory recognition for accountancy services.
Central Information Resource
The first three of these proposals stem from the desire of the CCAB to see a greater and more targeted allocation of resources to the prevention and detection of economic crime. For example, the CCAB highlights that, at present, know-your-client and/or due diligence checks are performed by most (if not all) of the various advisers on a transaction leading to a duplication of efforts. The Government also emphasised its commitment in the Action Plan to “removing duplication“ and “unnecessary bureaucratic burden“ on companies in an attempt to ensure that resources are directed where they are needed. The CCAB suggests this could be achieved by having a central resource to facilitate the checking of company ownership for the purpose of carrying out due diligence checks. Its proposal in that regard focused on an extension of the current role of Companies House and introducing a requirement on those setting up companies to undergo identify checks (which is not currently required).
The second proposal relates to the sharing of information obtained by law enforcement with regulated businesses. While we are seeing an increasing level of co-operation between regulators and law enforcement agencies both within the UK and internationally in their efforts to prevent economic crime, the CCAB points out that there is less co-operation between such agencies and the private sector. As a result, those at the first line of defence – the businesses and advisers involved in the underlying transactions – are not usually in possession of detailed information regarding high risk individuals, companies or business practices (other than that which is already in the public domain).
Further, in October 2015, the Government’s National Risk Assessment for Money Laundering and Terrorist Financing (‘NRA’) highlighted that the role of accountancy professionals (and other professionals in the financial and legal sectors) unintentionally acting as “enablers” was a significant money laundering threat. In response, the Government is looking at ways to transform information sharing between law enforcement agencies and the private sector, both within the UK and internationally, including by way of new legislation and/or an extension of the Joint Money Laundering Intelligence Task Force (‘JMLIT’) which, amongst other things, permits the sharing of information relating to money launderings risks between law enforcement agencies and banks.
In support of this agenda, the CCAB has recommended the development of a joint intelligence portal for the sharing of information between regulators and enforcement agencies and, in turn, better mechanisms for the sharing of this information with the private sector. The CCAB has not set out in detail at this stage how such a system would work and considerable further thought would have to be given to the confidentiality and data protection issues that it would present. Leaving aside the considerable legal and practical issues that this proposal gives rise to, we rather doubt whether law enforcement agencies would support a proposal which requires them to share sensitive material gathered as part of their investigations unless it was specifically provided for in legislation and/or pursuant to an extension of the JMLIT to accountancy professionals and economic crime in general. We therefore await further detailed proposals from the Government on its plans with regards to a private-public partnership to fighting economic crime, particularly on the extent of international co-operation going forward in light of Brexit.
Prioritised SAR reporting
Between October 2014-October 2015, 381,882 SARs were made to the NCA, 4618 of which came from the accountancy profession.
At present, SARs are received and assessed by the UK Financial Intelligence Unit (‘UKFIU’), a unit within the NCA. The UKFIU runs daily searches on all incoming SARs in order to fast track the highest risk SARs to the relevant law enforcement agencies. For non-fast-tracked SARs, however, the turnaround period for law enforcement agencies to be able to access the information on the SAR database is around 7 days.
While there is already a degree of analysis being undertaken to prioritise SARs, the CCAB recommends that the system could be improved further with the implementation of prioritised and formatted SAR reporting. The CCAB’s proposal does not, however, provide any detail as to how such improvements to SARs could be made in addition to the recommendations made in the Action Plan. We note from the Action Plan that the Government is considering making changes to the existing SAR regime, which will include consideration of whether the existing consent regime should be removed.
Statutory recognition for Accountants
As pointed out in the Manifesto, the ethical culture of an organisation is important in instilling a compliance culture and, in turn, for the prevention of economic crime. Professional accountants, along with other professional advisers, therefore receive training in ethical analysis and are required to comply with an ethical code, as well as the requisite technical standards, in carrying out their role.
However, accountants are not currently legally required to join a professional body except in the reserved areas of statutory audit, investment business and insolvency. The CCAB recommends that statutory recognition should now be given to ‘accountancy services’ as a whole in order to ensure that all accountants are properly trained, monitored and subject to disciplinary procedures where necessary.
Given the current Government’s commitment to fighting economic crime, which is further illustrated by the Criminal Finances Bill which proposes a new offence for failing to prevent economic crime, we expect that the Government will take these proposals under consideration.
In the meantime, the CCAB case studies provide helpful guidance in identifying economic crime risk areas and identifying steps which can be taken generally, not just by accountants who operate in the regulated sector, namely:
- Ensuring that employees receive adequate and regular training on the firm’s AML policy and the particular economic crime risks that their organisation may face.
- Organisations should also ensure that they are regularly monitoring and auditing compliance with their policies, engaging third party experts, where necessary, to ensure that firm policies are effective.