Why CPAs need to watch out for sanctions evasion
Given the potential for clients to hide or disguise money trails, it’s especially important for CPAs to be vigilant (Vladimir Vladimirov/Getty Images)
Russia’s invasion of Ukraine has prompted the Canadian government to issue a number of sanctions, prohibitions and restrictions relating to everything from financial services to certain types of exports. And, whether you work in public practice or in industry, it’s important to be aware of these measures as well as any related sanctions evasion, money laundering or other risks.
Here are some key facts to keep in mind.
FAMILARIZE YOURSELF WITH THE REGULATIONS
As Michele Wood-Tweel, FCPA, vice-president, regulatory affairs for CPA Canada, explains, there are two distinct (but interrelated) types of regulations that need to be considered: economic sanctions and AML/ATF rules and requirements.
Sanctions and prohibitions come under the federal Special Economic Measures (Russia) Regulations. And as Wood-Tweel points out, it’s a criminal offence to contravene them. “It’s also important to note that the sanctions must be complied with by persons in Canada and Canadians abroad,” she says.
Wood-Tweel adds that, when the list of sanctions and prohibitions was first announced in February, it included more than 100 individuals and entities. “Now, there are more than 1,200 and counting,” she says.
Wood-Tweel stresses that sanctions evasion in and of itself does not constitute money laundering. The latter falls under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Those who are governed by this legislation and fail to comply with its provisions can be subject to published administrative monetary penalties or be prosecuted for criminal-type offences that can lead to fines and/or imprisonment.
Eric Lachapelle, CPA, national financial crime leader for KPMG Canada, sums up the difference between AML rules and economic sanctions this way: “AML refers to preventing, detecting, deterring and reporting certain types of activities. Economic sanctions are not just confined to detecting and reporting, but also making sure that companies or individuals are not providing services to listed individuals and entities and are respecting all other restrictions at all times. What adds to the complexity is that every country is writing their own economic sanctions and new sanctions are being announced frequently, which can be daily or weekly, especially under these unprecedented times with the war in Ukraine.”
BE ON YOUR GUARD
Organizations engaging in financial services, exchanging money or doing international transactions—including banks, insurance providers, importers/exporters, among others—are most at risk of failing to comply with laws and regulations, says Lachapelle. “Even if the mistake was inadvertent, CPAs or organizations or their clients can face substantial penalties or reputational risk.”
Financial crimes expert Marc Tassé, CPA, agrees. “It has long been recognized internationally by the Financial Action Task Force (FATF) that accountants may be abused by those with money laundering ambitions. It’s up to accountants and accounting firms to assess their clients as well as they can before taking on their business.”
KNOW THE TACTICS USED TO HIDE MONEY TRAILS
Money launderers and those trying to evade economic sanctions may attempt to conceal the origin of funds and assets by various means, such as offshore accounts, shell companies and moving money through multiple jurisdictions. “The intent is to lose track of the funds and reintegrate them into the economy, often by buying real estate, luxury boats and businesses, for example,” says Lachapelle. “Cryptocurrency is also often used to transfer funds as it operates in a less regulated world, but there are more and more detection tools available in the market to trace the transactions for AML or economic sanctions.”
Given the potential for hidden or disguised money trails, it’s especially important to be vigilant. “A transaction that looks relatively benign may have had roots in Russia or Belarus,” Wood-Tweel says.
BE AWARE AND STAY ALERT
“The bottom line for CPAs is to make sure they do not become an intermediary in what money launderers or sanction evaders are doing,” says Wood-Tweel. “You really have to look at the substance of transactions. Be skeptical about what you are seeing. Make sure you know who is at the root of the transaction and giving the instructions, and if the individual or organization is on the sanctions lists.”
Tassé also recommends establishing an effective AML/ATF program that includes six elements, as explored in CPA Canada’s 2022 AML guide:
- Appointing a compliance officer
- Developing and implementing written compliance policies and procedures
- Conducting a risk assessment
- Developing, and maintaining an ongoing training program
- Instituting and documenting a training plan
- Reviewing the effectiveness of the compliance program every two years.
“With the newer regulations, you need to make sure you have the right monitoring tools to detect what is suspicious and report on that for AML purposes or to identify what is prohibited under the different economic sanctions regimes,” says Lachapelle. “Of course, some CPAs may not have the budgets for large-scale solutions; however, CPAs need to at least read up on the regulations.”
Training is also key. “It’s the only way to stay current in a situation that is changing all the time,” says Lachapelle. “You need to be aware of not just one regime but other jurisdictions where the sanctions there would apply and your company or your clients would be subject to the associated regulations. The economic sanctions regimes are not only about holdings or business in those jurisdictions. Any bad advice may have very severe consequences.”
Wood-Tweel, Lachapelle and Tassé also recommend that all accountants and accounting firms consult the information listed on the Global Affairs Canada and FINTRAC websites and check back frequently for updates. (FINTRAC’s special bulletin from March 2022 is also important because it includes information on Russia-linked money laundering related to sanctions evasion.)
“FINTRAC updates its information frequently,” says Wood-Tweel. “To keep up with developments, consider subscribing to its mailing list that includes notifications for new publications and reporting requirements.”
BRUSH UP ON ECONOMIC SANCTIONS AND AML RULES
For more on sanctions related to Russia, see What current global crises mean for Canadian CPAs.