Suspicious finds

The war on money laundering is on, and accountants are caught in the crosshairs. But what does one do when a client just doesn’t pass the smell test?

Hells Angels members legally purchase ATMs and place them in clubs and bars where they regularly infuse them with dirty money. Asian triads employ hundreds of geriatric casino gamblers to buy chips, play a few hands of blackjack, then hit the tellers’ windows to cash in. A mobster converts his ill-gotten gains into digital bitcoin currency to purchase, trade, invest and gamble through the borderless ether of the Internet. And then there is the busy accountant taking on what appears to be a legitimate new client. A year passes as he guides and advises the company through routine business. New partners appear and transactions become larger as subsidiary companies appear offshore to handle the booming business. Before he knows it, the accountant has become an integral component in a drug cartel’s cleansing of hundreds of millions into the North American financial system.

Once dubbed the "Maytag of the North," Canada is now a respected player in an integrated global system working to stop the laundering of criminal proceeds into the legitimate economy. In the past two years, amendments to anti-money laundering legislation have been introduced to give the war on dirty money more effective weapons to detect and deter. The experts in how capital flows in and out of the system are in the crosshairs of this compliance regime. And professional accountants find themselves in the vanguard of this fight.

"As if we weren’t busy enough," says Matt McGuire, MNP’s national anti-money laundering practice leader and chair of CPA Canada’s anti-money laundering committee. "But we must step up to the challenge because this is a problem that reaches into the very guts of a nation’s — really a world’s — sense of confidence in commerce and its stability. Without strong anti-money laundering policing, organized crime, widespread corruption and fraud could become overwhelming. It’s not the least overstating it," he says, "that the economic equilibrium of entire nations and industries depends on a robust system of safeguards to combat organized crime. Profitable crime undeterred begets more crime, more criminals and more criminal control." To that end, McGuire’s committee is drafting CPA Canada’s Guide to Comply with Canada’s Anti-Money Laundering Legislation to address recent changes in requirements.

"The gist of the guide," says Marial Stirling, CPA Canada’s principal for corporate oversight and governance, "is to ensure accountants know that they are more accountable than ever as they go about their business." In short, the new legislation requires that financial professionals maintain diligent ongoing monitoring of their clients’ activities. "Of course, since 2000 with Bill C-22, accountants have been obliged to maintain records of client transactions should the government decide investigation is required," she says. "Now we see that for accountants to more accurately identify what we call investigative 'triggering' activities, they have to have a far more sensitive finger on the pulse of their clients’ transactions."

Bill C-22, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is enforced by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which investigates reports of triggering activity. "The thing is," says McGuire, a former intelligence officer with FINTRAC, "our regulations have evolved since the 2001 regulations to require a much more detailed understanding of who our clients are, and they require that we monitor their activities armed with that baseline understanding over time. It’s no longer just about ticking boxes and filling out forms," he says. "It’s about intelligent and ongoing due diligence."

Accountants, it would follow, have become more in demand by businesses wanting to ensure they do not transgress. On the other side of the coin, criminals need either oblivious or willing accountants to help navigate their ill-gotten gains into the economy.

This world of dirty dealing is so murky that experts can hardly guess at how much laundered money enters the economy every year, but they can agree that it breeds chaos. By some accounts, the global economy is polluted by some US$800 billion a year; by others, US$2 trillion. "Just consider the size of those numbers and the extent to which that money subsidizes criminal enterprise and corruption," says McGuire. "I’m pretty sure we and the peoples of those countries don’t want to rely on national economies based on such shady underpinnings." And the idea that accountants might be integral to propping up such corruption is the impetus for much of the amended anti-money laundering legislation.

"Call me naive," says Gordon Beal, CPA Canada vice-president, research, guidance and support, "but you’d be hard-pressed to find members in our profession who are of a criminal bent. It would seem that the new rules can only help the profession, if we look at scenarios where an unwitting accountant is lulled into a criminal enterprise over a period of time and feels there’s no way of escape. Ongoing monitoring," he says, "ensures that the accountant recognizes early on that something is not right about a new client."

The guide to comply is meant to complement FINTRAC’s guide for all transactional business activity and to assist accountants. (Officially, the amended anti-money laundering legislation came into effect on February 1.)

Penalties for noncompliance can be serious: for the most egregious infractions of refusal to comply, administrative monetary penalties can reach as high as $500,000. When noncompliance leads to criminal charges — the point where there is little or no expectation that the person will cooperate with FINTRAC or law enforcement — the punishment could be up to $2 million in fines and/or five years’ imprisonment. "To put yourself in such a corner with very public sanctions," says McGuire, "taints your firm and the profession, because it gives the impression that you’ve purposely been in cahoots with criminal elements. FINTRAC really does give some opportunity to get your house in order before bringing either of those hammers down."

For some firms, particularly sole proprietorships, the new monitoring and reporting obligations might be onerous in terms of administrative time and cost of compliance. "We often deal with companies that are struggling to interpret and meet these rules," says criminologist Chris Walker, president of About Business Crimes Solutions Inc. His e-based anti-money laundering education and consulting service has been busy since the implementation of Bill C-22. "Some of our clients are accountants who are not necessarily current with the complexity of these mandated laws," he says. "What one has to understand is that accountants are often seen as targets or possibly willing accomplices in organized crime’s money laundering activities. These criminals are anxious to somehow clean literally millions of $5, $10 and $20 bills each month — and who better to help them than an accountant whose training and experience can assist with this?" Indeed, McGuire recently published an apt white paper entitled Spy vs Spy: Accountants Make Great Money Launderers and Defenders. "Hey, accountants are in demand in every industry," he says.

The mob, triads and motorcycle "clubs" are the prototypical crime groups that expend time and energy working traditional casino laundering, real estate, cash-for-cars want ads, offshore protected bank accounts and partnering with unwitting legitimate business. "In a borderless world of financial transactions, some clients are so confused by it all that they may well get in trouble though they be innocent as babes," says Walker. "Then, there are others who look at the speed and complexity of today’s transactions, couple them with the wonders of the World Wide Web and say, 'Hey, this e-world’s really our oyster.' "

Recent digital bitcoin currency scams are a perfect example of a legitimate innovation primed for exploitation by those looking to launder illicit profits. One of the last places to trade a currency anonymously, bitcoins became a magnet for criminals and the intelligence units of FINTRAC and the US Secret Service. Early this year, a Canadian was arrested in a Secret Service sting in Florida. When led off to jail, he had more than US$300,000 in online currency on his laptop and electronic wallet that he was attempting to trade for cash — allegedly generated from stolen credit-card data from Target stores. "The new is actually very much like the old," says James McAuley, KPMG senior vice-president, forensic. "Fraud, theft, any criminal activity that turns a profit, has to insinuate that illegal profit into the system; otherwise, it’s worthless." A play on anything tradable for clean cash is standard fare for the criminal. "The majority of money laundering is generated through organized crime, so we advise KPMG clients of all the rules laid out by FINTRAC and the Office of the Superintendent of Financial Institutions." (OSFI is the regulator for federally regulated financial institutions in Canada.) "Our purpose is to help businesses in this increasingly complicated financial environment, where so much money and transactions are interlinked globally," McAuley says. "As an experienced businessperson or even accountant, it’s no easy task to know that your dealings are as up-and-up as you’d hope they’d be."

For McGuire, this is all the more reason for accountants to spend the time with ongoing monitoring of client activity (particularly new client business activity) and to watch out for triggering activities that require accountants to report or not. "There’s a choice to be made — and it’s always been there, no matter the legislative rules over the years — either be there to solve the problem or be the problem," he says. "And in the case of accountants and their particular skills, they’re often the linchpin to how well the world of money laundering works."