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Ideas & Debate

Role of accountants in money laundering war

After the recent graft expose dubbed Mara heist, it’s evident accountants help is urgently needed in fighting money laundering plague.

Some of the financial crimes that have become of major concern to many governments around the world are corruption and money laundering. The two crimes are interlinked.

It’s no secret in Kenya the level of corruption and embezzlement of public funds seems uncontrollable. Some people view it as a plague to our economic wellbeing.

Social impacts of corruption and money launderings are being felt virtually in all sectors of the economy. Health sector, agriculture sector, energy sectors and sports sector have been in one way or another negatively been impacted by the massive graft.

The Mara heist put education also on the list of sectors feeling the heat of social impact of graft. The expose was also a wake-up call on the extent to which accountants are vulnerable to the risk of financial crime such as money laundering and corruption.

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There are also several accountants who have been adversely been mentioned by the director of public prosecutions in some of the mega corruption scandals that have rocked the country.

Behind every money laundering scheme, often, there is a professional involved. This is because the laundering must be so well executed to conceal the trails.

Mara heist puts on the spot the roles of the so-called gate keepers’ in the fight against money laundering.

Professional accountants are considered “gatekeepers” of the financial system and as such they have a huge responsibility to detect and deter money laundering and terrorism financing activities. Other gate keepers include lawyers.

Gatekeepers are individuals that protect the gates to the financial system through which potential users of the system, including launderers, must pass to be successful.

In some instances, the gate keepers have abused their financial system expertise and assisted criminals to move proceeds of crime. They also help in structuring corporate entities like trusts aimed at tax evasions and aggressive tax avoidance.

They make it difficult for law enforcement agents to trace illegal money or gather water-tight evidence that can be sustained in the court of law. This frustrates most of the efforts directed towards investigations and prosecution of money laundering related cases.

SUSPICIOUS ACTIVITIES

Those in the legal fraternity will tell you money laundering cases are the hardest to prosecute. This is not only in Kenya but even in developed countries.

In recognition of the important roles that the accountants play in the fight against money laundering, the financial services regulators have included them as reporting entities. What this means is that they have an obligation to detect and report suspicious activities related to money laundering and terrorism financing.

Kenyan anti-money laundering laws are also being aligned with the best global best practices.

The Financial Reporting Centre (FRC), the anti-money laundering watchdog in Kenya has now listed accountants (sole practitioners or partners in professional firms) as reporting entities. This is a big step forward and will make Kenyan CPAs be at par with their counterparts in developed financial centers.

To comply with the Kenya’s anti-money laundering legislation, what will be expected of accountants?

As reporting entities, accountants and accounting firms will have specific regulatory compliance requirements as they engage in specific activities that involves receiving or paying funds on behalf of an individual or an entity. These are called triggering activities.

These triggering activities make accountants and accounting firms susceptible to risks related to money laundering and terrorism financing. Examples of those triggering activities include purchasing or selling securities, real estate property or business assets or entities on behalf of clients. Making a payment on behalf of a client is also a triggering activity.

As an accountant, having a signatory authority over the client’s bank account is another example of triggering activity as well.

To fight money laundering, terrorism financing and other financial related crimes, FRC will require accountants and accounting firms to have in place a robust anti-money laundering programmes. These programmes are made up of three pillars.

The first pillar is having a properly documented and board approved anti-money laundering policies and procedures. The policies must clearly indicate the procedures the firms have put in place to identity and verify their clients; a practice commonly known as Know Your Client (KYC). Accountants are required to identify and verify their clients. Part of the KYC process will require them to collect some personal information.

INDEPENDENT AUDITOR

The second pillar is training and sensitisation of all the employees. It’s mandatory for employees who have contacts with clients to be trained on client’s identification and verification procedures and how to identify suspicious money laundering transactions and activities.

The third pillar requires the accounting firms to appoint a compliance officer who will act as the anti-money laundering chief. The law requires such an individual to be well versed with anti-money laundering regulations. Money Laundering Officers (MLRO) as they are typically referred to are responsible for the implementation of organisation’s anti-money laundering compliance programs.

The officers also report to FRC any suspicious transactions or activity and any cash transaction that is above $10,000. Accountants will also be expected to have an independent auditor review their anti-money laundering controls to ensure they are effectively operating.

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