All accountants have an obligation to report money laundering by clients, and where businesses have been drawn into organised crime. Covid-19 has placed enormous strain on many businesses, which could tempt them into accepting offers to launder money.
Here are five ways to spot criminal activities in your clients’ businesses.
1. Lack of sales records
If you are asked to create accounts based solely on the funds flowing through the bank account, this could be an indication of money laundering. You need to be certain the sales and purchases of the business are real.
2. Oddly time income
Where a business is not part of the night-time economy, processing sales after hours could be a sign that business card processing machine or account has been lent to a different illicit business. This can be an indication of money laundering. Do a spot check on the timing of credit card receipts.
3. Insufficient assets or supplies
Where the business hasn’t purchased enough goods to support the volume of sales, this is a clear red flag. A fraudulent service business is more difficult to spot, as it may need to make few purchases. But all businesses need premises to operate from, so check out whether the business address is genuine.
4. Low staff costs
Service businesses need staff. If the turnover is higher than the owners would be able to generate by their own labour, someone else is doing the work. The business may be exploiting workers using modern slavery or human trafficking.
A canny operator will spread their income over lots of connected businesses; companies and sole-traders, but may forget to open separate bank accounts for all. Are all the costs processed through the business relevant to that business?
5. Loans from odd sources
Business owners have been desperate for cash in the last year, so may have taken loans from non-banking sources such as family members, or even loan sharks.
Where a client is repaying an apparent loan check that the loan capital was actually received by the business. If no funds were received this is an indicator of extortion.
Loans may be secured on residential properties with very high levels of interest charged, sometimes more than 100%. This is also an indication of extortion.
If you come across any of these situations the circumstances should be reported to your firms MLRO for them to consider whether a report should be made to the National Crime Agency.Written by the Tax Advice Network