It was reported in both the print and electronic media that “the hidden wealth of some of the world’s most prominent leaders, politicians and celebrities including former Tory MPs and six peers have been released in a massive leak. The leak came from the database of lawyer Massack Fonseca who was alleged to have aided the people involved to form off-shore companies which enabled them to evade tax and indulged in money laundering. This revelation has implications for professional accountants who are required to report suspicious transactions and activities of clients.
Required:
i) Discuss the auditor’s duty under money laundering laws and regulations and the requirement of confidentiality under the IFAC’s Code of Ethics for Professional Accountants. (4 marks)
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- The anti-money laundering laws and regulations require auditors to report suspicious transactions and activities to the Financial Intelligence Centre. However, the code of ethics requires the auditors to maintain confidentiality in client relationships. This can result in ethical conflicts namely duty to report to the authorities and duty of confidentiality to the client. This conflict may be particularly sharp where an auditor suspects the client of money laundering.
- Under the anti-money laundering, there is a requirement to report even a suspicion of money laundering which would likely conflict with the auditor’s duty of confidentiality to the client.
- The situation is further complicated by the need to avoid “tipping off” the client that the auditors suspect to be engaged in money laundering which could make it very difficult for an auditor to decide whether they have a duty to report their suspicions as it would be hard to gather evidence of money laundering without “tipping the client off”.
- If such an ethical conflict cannot be resolved, then the auditor may consider obtaining professional advice from the ICAG or from legal advisors. This can generally be done without breaching the fundamental principle of confidentiality if the matter is discussed anonymously with the ICAG, or under legal privilege with a legal adviser.
- The ethical rules also make provision for exceptions under the confidentiality where the auditor can disclose information when required by the law, in this case the anti-money laundering law. (Any 4 points)
ii) Recommend elements that should be included in anti-money laundering programme for an accounting firm. (6 marks)
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- Appointment of a money laundering officer (MLRO) and implementation of internal reporting procedures.
- Train individuals to ensure they are aware of the relevant legislation, know how to recognize and deal with potential money laundering, how to report suspicions to the MLRO.
- Establish internal procedures appropraiate to forestall and prevent money laundering, and make relevant individuals aware of the procedures.
- Verify the identity of new and existing clients and maintain evidence of identification that is customer due diligence measures
- Maintain records of client identification and any transactions undertaken for or with the client.
- Report suspicions of money laundering to the Financial Intelligence Centre. (FIC)