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Home / 2003 / October 2003 / Money Laundering

Ask any practitioner how well he or she knows a client, and the answer will probably be "Pretty well". Typically auditors and tax accountants know more about their clients' financial affairs than most other professionals. But, increasingly, that knowledge carries with it high risks and the burden just got heavier. On the 15th of September, the Criminal Justice Act 1994 (Section 32) Regulations 2003 came into force. These regulations designate accountants, auditors, tax advisors and others, including solicitors, for the purposes of the anti-money laundering provisions of the Criminal Justice Act, 1994 the 1994 Act. The provisions include requirements to establish certain procedures and impose on accountants and auditors yet further reporting obligations in respect of suspicions regarding offences under the money laundering legislation. As such, they extend requirements that have existed for banks and other institutions for a number of years. Practitioners now have to: - know their clients; -retain identification records for at least 5 years from the date of last doing business with the client; -retain original documentation (or copies thereof) relating to transactions for a period of at least 5 years following the execution of the transaction; -establish measures to prevent and detect money laundering, including undertaking appropriate training; - report suspicions of money laundering to the Garda Siochana na and the Revenue Commissioners; and - report all transactions connected with certain designated states and territorial units. The Regulations give effect to the 2nd EU Money Laundering Directive on combating money laundering. The Directive defines money laundering offences as dealing with property "derived from criminal activity". "Criminal activity'"in turn means involvement in the commission of 'serious crime'. In the Directive, "serious crimes" are defined as including, at least, fraud, corruption, and offences which may generate substantial proceeds. However, as discussed in the paragraphs below, the definition of money laundering in the legislation is much more wide ranging.

Definition of Money Laundering In the Republic of Ireland the definition of money laundering was amended by section 21 of the Criminal Justice (Theft and Fraud Offences) Act, 2001 (the Theft & Fraud Act). Money laundering now includes acquiring, possessing, or using the proceeds of criminal conduct. As "criminal conduct" includes all conduct which constitutes an indictable offence, the definition goes somewhat further than that in the EU Directive as there are many indictable offences which are minor or technical in nature. The effect of this broad definition is to introduce an 'all crimes' reporting regime where 'proceeds' arise from committing an indictable offence (whether involving a client or other third party). Such proceeds will include 'saved costs' arising from illegal acts. In addition, as the legislation contains no de minimis concessions - even offences involving trivial amounts fall to be reported. The implications of this are likely to include a significant increase in the investigation and disclosure of suspected crimes. The 'new' definition of money laundering effectively means that suspicions of any indictable offence involving proceeds, no matter how trivial, are reportable. Legal advice received is that the consequence of this will include reporting of 'minor' crimes such as shoplifting, making off without payment, theft of petty cash, even when committed by 'persons unknown'. So, for example, a robbery on a client's premises, where the practitioner has knowledge (or suspicion) of this falls to be reported under the legislation. This is regardless of whether the identity of the robber is known to the practitioner or that the crime has previously been reported. As 'saved costs' come within the definition of proceeds, any suspicion on the part of the accountant, auditor or tax advisor of non-compliance with particular regulatory or similar requirement where such constitutes an indictable offence and gives rise to a saving, also falls to be reported. Examples would include non-compliance with tax law, health and safety requirements, and environmental law. While all fall to be reported, it is unclear what response such reports will receive from the Garda Siochana and Revenue Commissioners.

Concern about costs ICAI been concerned for some time about the nature of the various reporting requirements facing accountants and auditors. The various pieces of legislation all require different thresholds of proof or knowledge before the reporting obligation is triggered. In a statement issued last month, the Institute pointed out that auditors and accountants are happy to discharge their legal obligations but are entitled to regulations that are effective, workable and concise. Potentially, large numbers of reports, many of which are likely to be of little use, will be made to the Gardai and the Revenue Commissioners resulting in a significant increase in costs and inconvenience to business and having a detrimental impact on relationships between clients and their auditors and external accountants. Furthermore, in view of the wide definition of money laundering, it is likely that other existing reporting obligations will overlap with the reporting obligation under S.57. For example, under Section 59 of the Criminal Justice (Theft & Fraud Offences) Act, 2001 many offences will invariably involve proceeds and are already potentially reportable to the Garda S�??�?�­och�??�?�¡na. Similarly, indictable offences under companies legislation may involve proceeds. Such offences, when encountered by an auditor during the course of an audit, are reportable to the Director of Corporate Enforcement. If the entity concerned is 'regulated' there may also be a requirement to report to the appropriate regulator.

Tipping off The legislation also contains a number of provisions in respect of 'tipping off'. In communicating with clients' personnel at whatever level, account must be taken of the potential for conflict between other statutory obligations and the offences relating to tipping off. This requires careful consideration of those within an organisation with whom it is appropriate to discuss concerns relating to potential money laundering. Legal or other professional advice may need to be obtained. The situation is compounded by the fact that the various pieces of underlying legislation that impose these reporting obligations all require different thresholds of proof or knowledge (from forming a suspicion to coming across an indication) before the reporting obligation is triggered. The scenario could very well arise where the same issue will give rise to a report under one Act, but not under another. While there is no data available on which to base an assessment of the cost implications of all this, it can be safely assumed that before any report of a suspicion (even relating to trivial matters) is made by an accountant, auditor, or tax advisor, considerable time will have been input to the decision process by senior staff and partners, and possibly by external legal advisors. Discussions on these and other issues are ongoing with the Department of Justice and the Department of Finance as well as the Garda Siochana and the Revenue Commissioners. The Institute, through CCAB-I has issued a Briefing Paper on the Regulations which includes guidance for practitioners on how to comply with the new requirements. This will be updated in due course when the outcome of ongoing discussions is known.

Aidan Lambe, FCA, is Deputy Director in the Quality Assurance Department of The Institute of Chartered Accountants in Ireland. Email: aidan.lambe@icai.ie

The Garda Bureau of Fraud Investigation is at http://www.garda.ie/gbfi.html

Just wondering if you let me know who to contact regarding a building company i know is guilty of money laundering and also guilty of false accounting. Is the guarda or is there a link to the revenue i could follow many Thanks kevin