Factors Influencing Accountants' Compliance with Professional Standards and Involvement in Money Laundering and Terrorism Financing Crimes

What are the professional standards that accountants should comply with to prevent money laundering and terrorism financing crimes?

Accountants are legally required to provide services that make them vulnerable to becoming involved in money laundering or terrorist financing activities [1]. Therefore, accounting and auditing firms must protect themselves from misuse by criminals and terrorists [1]. Professional money launderers use shadow accounting systems to record transactions involving proceeds of crime, which makes it extremely difficult for accountants to identify money laundering 'red flags' [1]. To prevent money laundering and terrorism financing crimes, accountants should comply with anti-money laundering and counter-terrorism financing (AML/CFT) laws and professional standards [2][3][1]. Furthermore, accountants should design effective measures to manage their ML/TF risks when establishing or maintaining business relationships [1]. They have an obligation to identify and verify beneficial ownership information [1]. In the United Kingdom, auditors are statutorily obliged to file Suspicious Activity Reports (SARs) into an online database, ELMER, and criminal sanctions apply to auditors’ instances of non-compliance [3]. However, there is not much guidance regarding how suspicion is determined for filing SARs [3]. Auditors generate information flows which are subsequently reassembled into discrete and virtual ‘data doubles’ to be captured and utilised by authorised third parties for unknown purposes [3]. The accounting sector must comply with customer due diligence and record-keeping requirements when involved in real estate transactions, managing assets, bank accounts, securities accounts, companies, legal persons, and buying or selling business entities [1]. Overall, compliance with professional standards is crucial to preventing financial crimes such as money laundering and terrorism financing.

What are the factors that influence accountants' compliance with professional standards?

Accountants have a vital role in enabling compliance with anti-money-laundering regulations and economic sanctions [4]. However, compliance with professional standards has become increasingly difficult in recent months [4]. Financial statement auditors are required to assess whether a client is committing illegal acts that affect the financial statements [4]. Nonetheless, money laundering activities often go unnoticed by financial statement auditors [4]. The auditor must understand the entity being audited to fulfill their obligations [4]. To address these difficulties, accounting professionals work hard to protect the public by watching for red flags and investigating them [4]. Accountants keep current with the latest guidance and trends to become better educated about the latest money laundering techniques [4]. They also study enforcement actions to become better educated about the latest money laundering techniques [4]. The lists issued by the U.S. Office of Foreign Assets Control identify individuals and companies targeted by sanctions, as well as businesses or individuals designated as terrorists or narcotics traffickers, which can affect accountants' compliance with professional standards [4]. Therefore, accountants in the United States query these lists to comply with professional standards [4]. Rules and standards in accounting are seen as autonomous and state-enacted from a positive legal viewpoint, and infringing on these rules is equivalent to questioning the internal legal order [3]. Unfortunately, there is no information provided in the text about the factors that influence accountants' compliance with professional standards [3].

How do accountants become involved in money laundering and terrorism financing crimes?

Accountants can become involved in money laundering and terrorism financing crimes through various means. Firstly, forensic accountants play a crucial role in constructing cases against individuals involved in such crimes [4]. Secondly, accountants may become involved in financial crime procedures while working for regulators and law enforcement agencies [4]. Thirdly, accountants may inadvertently become involved in money laundering and terrorism financing crimes by using third parties to conceal the identity of sanctioned persons [4]. The preparation of a money laundering operation differs from the financing of terrorist activities, and accounting knowledge plays an important role in the development of money laundering [3]. Accountants may integrate accounting knowledge into financial crime procedures through three degrees of involvement [3]. Furthermore, money laundering and money dirtying techniques are not based on the same accounting practices and mechanisms [3]. White-collar criminals are often motivated to commit financial crimes, and sometimes individuals commit fraud due to difficult circumstances [3][4]. In addition, bank employees may ignore suspicious deposits to increase the number of accounts, and companies facing financial problems may justify accepting funds from sanctioned individuals to avoid bankruptcy [4]. The increasing complexity of financial regulations means that accountants must be vigilant in their work to ensure they do not inadvertently become involved in such crimes.

References

1. FATF Guidance for a Risk-Based Approach for the Accounting Profession. (n.d.) Retrieved September 5, 2023, from www.fatf-gafi.org
2. Ministry of Justice. (n.d.) Retrieved September 5, 2023, from www.justice.govt.nz
3. The role of accounting in money laundering and money dirtying. (n.d.) Retrieved September 5, 2023, from www.sciencedirect.com
4. Accountants protect against money laundering amid Russia’s invasion. (n.d.) Retrieved September 5, 2023, from www.aicpa-cima.com