by John McCarthy Consulting Ltd. | Jan 31, 2025 | Blog, News
In last week’s blog we discussed the CPI, or the Corruption Perceptions Index (CPI) often used by MLROs as a supplementary tool to assist in their understanding of money laundering risks in overseas territories.
There are other tools available to MLROs and senior staff in accountancy firms which can also be of great assistance in assessing whether natural persons or other legal entities are in any way connected to high-risk third countries (HRTC). Applying enhanced due diligence is normally recommended in dealing with such countries.
HRTC is defined as: ‘a country named on either of the following lists published by the Financial Action Task Force as they have effect from time to time—
We strongly recommend that accountants access this website on a regular basis (the list changes three times a year) as the current HRTC will change again after the FATF Plenary meeting in February and will change in June and October 2025.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Jan 31, 2025 | Blog, News
The CPI, or the Corruption Perceptions Index (CPI) is (according to the publishers Transparency International) the leading global indicator of public sector corruption and provides a comparative snapshot of 180 countries and territories. It is often used by MLROs as a supplementary tool to assist in their understanding of money laundering risks in overseas territories.
The next index, which will be for 2024, will be published on 11 February 2025 at this link.
Transparency International (TI) is a Berlin based non-profit organisation set up by former employees of the World Bank. The index is calculated using data from 13 external sources (including interviews of businesspeople around the globe) and scores countries out of 100, meaning that the higher the score, the lower the level of corruption is in the country. In the 2023 index, Denmark came out best with a score of 90.
Ireland has a score of 77 out of 100 in the 2023 index, with no change since 2022, meaning it ranks 11th out of 180 countries.
In its 2023 report it criticises the lack of access to the Irish RBO register about companies’ real owners which was significantly restricted for civil society and journalists across the EU. It states ‘Ireland for example, currently requires journalists and activists to provide not only proof that they are engaged in anti-money laundering work but also demonstrate that a company of interest is connected to financial crime. In practice, this may hinder most access requests as this approach expects applicants to already know the very information they are seeking to uncover. With Ireland’s importance as a financial centre growing, the country needs to ensure utmost transparency in the ownership of all types of vehicles that are currently vulnerable to abuse.’
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Jan 28, 2025 | Blog, News
In last week’s blog we looked at higher risk clients and PEPs in particular, who might present a higher ML risk to the accountancy sector.
One of the most reliable sources to help identify such risk, especially in the case of new clients is the Accountancy AML Supervisors Group Risk Outlook (updated July 2024) which outlines some circumstances where there might be higher risk of money laundering or terrorist financing in the accountancy sector.
This week our focus is on other client sectors that might present particular risks over and above other clients. According to the AASG, these include:
- arms dealers;
- property transactions with unclear source of funds (including remote sales);
- transport/logistics businesses;
- legal services;
- art market participants;
- financial services; and the
- luxury goods market.
Sectors such as the arms trade can be linked with corruption, money laundering or terrorism. Large property transactions, where the source of funds is unclear, have also been linked to laundering the proceeds of crime.
There is existing HMRC guidance on Understanding risks and taking action for estate agency and letting agency businesses provides further red flag indicators. Firms should also ensure that where overseas entities own UK property, the beneficial owner must be properly recorded on the Overseas Entities Register and assess the risk that a client may try to transfer ownership to avoid registering their beneficial ownership.
There has been a rise in cases reported in the press where transport and logistics businesses have been involved in modern slavery and human trafficking cases. These businesses have the potential to be involved in smuggling (e.g. alcohol, fuel, tobacco etc.).
Legal services, art market participants and financial services are ranked as being at higher risk of money laundering, along with luxury goods markets (high value goods sold for, cash exceeding €10,000 in a single or linked series of financial transactions) which can provide a route to transfer value or assets from sanctioned individuals to avoid international sanctions.
Firms should employ sufficient professional scepticism when performing services or analysing the books and records of clients in the above sectors.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Jan 20, 2025 | Blog, News
Our last blog for 2024 looked at new clients that might present a higher ML risk to the accountancy sector arising from particular characteristics of those clients.
One of the most reliable sources to help identify such risk, especially in the case of new clients is the Accountancy AML Supervisors Group Risk Outlook (updated July 2024) which outlines some circumstances where there might be higher risk of money laundering or terrorist financing in the accountancy sector.
The report specifically addresses the AML risks that may arise from Politically Exposed Persons or PEPs.
A PEP is defined in Section 37 of the Criminal Justice (Money Laundering & Terrorist Financing) Acts 2010 to 2021 as:
- a head of state, head of government, government minister or deputy or assistant government minister;
- a member of a parliament or of a similar legislative body;
- a member of the governing body of a political party;
- a member of a supreme court, constitutional court or other high level judicial body whose decisions, other than in exceptional circumstances, are not subject to further appeal;
- a member of a court of auditors or of the board of a central bank;
- an ambassador, charge d’affairs or high-ranking officer in the armed forces; or
- a director, deputy director or member of the board of, or person performing the equivalent function in relation to, an international organisation. See below Prominent Public Functions.
Typically accountancy firms will continue to treat natural persons as PEPs for up to one year after they cease to hold that office, but also to continue to apply due diligence measures to a PEP for as long as is reasonably required to take into account the continuing risk posed by that person and until such time as that person is deemed to pose no further risk specific to politically exposed persons.
The effect of treating someone as a PEP is that they must be subject to enhanced due diligence i.e. applying enhanced levels of customer due diligence (CDD) to that particular client i.e. increasing the amount of information and documentation gathered about that client, based on judgements made by the MLRO and their support personnel, guided by the circumstances of that PEP and the potential a greater risk of money laundering that may arise as a result.
Since January 2020, all EU jurisdictions are required to publish a list describing those positions that are called ‘prominent public functions’ and which would bring the holders of such positions within the definition of a PEP in their country.
The list of those Prominent Public Functions in Ireland was published in by the Department of Justice in 2023 under section 37(12) of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) clarifying those functions in the State that may be considered to be prominent public functions for the purposes of the Act.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 26, 2024 | Blog, News
Last week we looked at clients that might present a higher ML risk to the accountancy sector generally. This week we are continuing our series of blogs by focusing more on the potential characteristics of new clients that may present a higher money laundering risk.
One of the most reliable sources to help identify such risk, especially in the case of new clients is the Accountancy AML Supervisors Group Risk Outlook (updated July 2024) which outlines some circumstances where there might be higher risk of money laundering or terrorist financing in the accountancy sector.
The report states ‘firms will need to identify the type of clients that they serve, considering the risks posed by these clients and identifying whether they present any of the following risks and associated red flag indicators. The presence of one or more red flag indicators may suggest a high risk of money laundering or terrorist financing (MLTF). Red flags are not exclusive to the risk areas identified here’. The bold highlights are our own.
|
Risk
|
Red-Flag Indicators |
Why? |
| New clients outside of your normal client base |
· new clients carrying out one-off transactions
· new clients based in locations significantly different from your normal client base
· new clients in sectors significantly different from your normal client base |
· You should fully understand why an unusual client has approached you rather than using a firm of accountants that is closer geographically or a firm that advertises themselves as a specialist in a particular field
· A client may be higher risk if there is no logical rationale. |
| New clients – professional advisors |
· client has changed professional advisors a number of times in a short space of time without legitimate reasons
· another professional advisor refused to provide the service to the client without legitimate reasons
· the customer is prepared to pay substantially higher fees than usual without legitimate reasons
· the client’s previous professional advisor was not a comparably sized firm |
· You should also be wary of why a client has changed professional advisors and seek to understand why this has happened.
· This may indicate a difference of opinion or a breakdown in the client-accountant relationship, which could be a red flag indicator that the accountant had concerns about something that the client doesn’t want to address
· Clients concerned about the impact of sanctions or subject to sanctions may start to change their behaviours and consider changing their professional advisors
· Larger professional advisors with sophisticated intelligence gathering systems may be concerned about existing clients and disengage. |
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
by John McCarthy Consulting Ltd. | Nov 17, 2024 | Blog, News
This week we are continuing our series on what is a higher risk client for AML purposes?
There are a number of answers that we could come up with, but one of the most reliable sources to help identify such clients can be taken from the Accountancy AML Supervisors Group Risk Outlook (updated July 2024) which sets out the circumstances where there might be higher risk of money laundering or terrorist financing in the accountancy sector.
In the coming weeks we will look at extracts from this report to assist readers in improving their AML compliance approach.
As the report says ‘firms will need to identify the type of clients that they serve, considering the risks posed by these clients and identifying whether they present any of the following risks and associated red flag indicators. The presence of one or more red flag indicators may suggest a high risk of money laundering or terrorist financing (MLTF). Red flags are not exclusive to the risk areas identified here’.
|
Risk
|
Red-Flag Indicators
|
Why?
|
| Clients seeking anonymity or undue secrecy |
· Undue client secrecy (e.g. reluctance to provide requested information)
· Unnecessarily complex ownership structures, including nominee shareholders or bearer shares
· Uncooperative clients incorrect or misleading information on the register (Companies House) and/or reluctance to correct. |
· Clients may try to hide who they are, or produce unusual forms of identity verification, if they are involved in criminal activity or money laundering.
· Clients who are seeking anonymity on behalf of themselves, a third party or beneficial owner may be seeking to launder money.
· Complex structures are attractive to criminals as they may enable the integration of illicit funds into the legitimate economy. |
| Clients with a history of criminal activity |
· Clients with criminal convictions relating to the proceeds of crime
· Clients who are on the terrorist list
· Clients on the sanctions lists. |
· Clients with a history of criminal activity would most likely pose a very high risk of money laundering to your firm.
· If you find out that a person or organisation you’re dealing with is subject to financial sanctions, you must immediately:
· stop dealing with them
· freeze any assets you’re holding for them
· Clients may use accountancy firms to seek advice on restructuring their assets to avoid financial sanctions.
· money laundering legislation in Ireland requires firms to put in place enhanced due diligence (EDD) measures in dealing with countries subject to sanctions, embargos or similar measures
· contact your legal advisers for further advice to deal with the Irish Sanctions |
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
