The Financial Intelligence Centre (FIC) has issued a draft risk assessment to help accountants understand their profession’s money laundering (ML) and terrorism financing (TF) threats, vulnerabilities, and risks, and the measures that can be used to mitigate and manage ML/TF risks.
Item 2 of Schedule 1 to the Financial Intelligence Centre Act includes trust and company service providers (TCSPs) as accountable institutions. Accountants who perform any of the TCSP activities listed under Item 2 are regarded as accountable institutions.
The FIC’s Public Compliance Communication 6A provides guidance on how to interpret Item 2 and the activities that fall within or are excluded from the scope of TCSP business.
Read: FIC issues guidance for trust and company service providers
The FIC’s draft sector risk assessment (SRA) focuses on the ML/TF risks of institutions and individuals who perform accounting services and does not include independent auditors, internal auditors, or tax advisers who are not performing accounting functions.
Functions that may put accountants at risk
A section of the SRA discusses the functions performed by accountants that make them potentially vulnerable to ML abuse.
The standard accountancy services that have a low risk of ML are:
- Financial and tax advice – criminals might seek such services to place assets out of reach and avoid future liabilities.
- Gaining introductions to financial institutions – criminals may use accountants as introducers or intermediaries. Alternatively, criminals may use financial institutions to gain introductions to accountants.
The following accountancy services may be considered high risk, depending on the facts and complexity of the legal person or structures and the transactions involved:
- Company and trust formation – criminals may attempt to confuse or disguise the links between the proceeds of a crime and the perpetrator through the formation of corporate vehicles or other complex legal arrangements – for example, trusts.
- Buying or selling property – criminals may use property transfers to serve as either the cover for transfers of illegal funds (layering stage) or the final investment of these proceeds after they have passed through the laundering process (integration stage).
- Performing financial transactions – criminals may use accountants to carry out or facilitate financial operations on their behalf. For example, cash deposits or withdrawals on accounts, retail foreign exchange operations, issuing and cashing cheques, purchase and sale of stock, sending and receiving international funds transfers.
- The maintenance of incomplete records by clients, as revealed during the accounting or bookkeeping services provided by accountants, can be an area of higher risk. In addition, the preparation, review, and auditing of financial statements may be susceptible to misuse by criminals where oversight by a professional body is lacking or accounting and auditing standards are not adhered to.
Sector-specific risk factors
The report goes on to discuss the ML and TF risk factors and vulnerabilities in the accounting sector. The risk factors align with the FIC’s Guidance Note 7, which includes references to TF risks. Accountants must consider these factors in their daily business operations.
Product and service risks
Certain accounting services pose higher ML and TF risks, including company and trust formation, property transactions, financial transactions, and handling incomplete records.
Client risks
Accountants should assess and identify the ML and TF risks associated with their clients, particularly high-risk clients, such as Politically Exposed Persons (PEPS), individuals involved in complex legal structures, and clients from high-risk jurisdictions. Enhanced due diligence should be applied in such cases.
Transaction risks
Accountants should monitor and evaluate transactions to understand and mitigate ML and TF risks. High-risk transactions may involve cash or cryptocurrencies, unusual reversals of transactions, or those lacking economic sense.
Risks related to delivery channels
Accountants need to be cautious of the delivery channels they use because non-face-to-face onboarding methods may increase the risk of being exploited for money laundering. Due diligence on intermediaries and verification of client information are recommended.
Geographic risks
Some foreign jurisdictions pose higher ML risks. Accountants must be aware of the risks associated with clients from such areas and have appropriate risk mitigation processes in place.
Terrorist financing and proliferation financing risks
When providing services to non-profit and non-governmental organisations, accountants should ensure that funds align with the organisations’ objectives. Compliance obligations should be adhered to, and due diligence should be applied when dealing with clients involved in high-risk activities or geographies. Clients with extremist views should be subjected to enhanced due diligence.
Potential indicators of money laundering
The SRA also outlines the potential indicators of ML and TF activities associated with the accountancy sector. These include:
- Cash payments for services.
- Anonymous and complex transactions.
- Using new payment technologies, such as cryptocurrencies.
- Clients requesting the creation of trusts, shell companies, or other arrangements that may conceal the true identity of beneficial owners.
- International payments (directly or indirectly) from high-risk jurisdictions.
- Dealing with high-risk clients, including those linked to institutions or jurisdictions on sanctions lists.
- Clients who fall into categories such as Domestic PEPs, Foreign PEPs, and Politically Influential Persons, and high-net-worth individuals who are internationally regarded as high-risk clients.
- Clients offering to pay exceptionally high fees for services that do not warrant such charges.
- Receiving payments from third parties not linked to the client or in cash when it is not typical.
- Accountants physically handling funds and transferring assets between parties in an unusually short period can hinder the know-your-client process and potentially conceal beneficial ownership from authorities.
- Receiving funds from or sending funds to a foreign country without an apparent connection to the client.
- Clients using multiple bank accounts or foreign accounts without a clear reason.
- Sudden, unexplained changes in how transactions are conducted or clients’ instructions.
How to comment
Comments on the SRA must be submitted via this link only. The deadline to submit comments is the close of business on Friday, 17 November 2023.
Any questions or requests relating to the SRA may be sent to consult@fic.gov.za.
The FIC intends to publish a final version of the SRA by 14 December 2023.
