Know Your Customer for Accounting

Why Accountants and Accounting Firms Need AML/CTF?

Accountants and Accounting Firms act on behalf of their clients, besides engaging in advisory and accounting services. As a registered accounting firm, a certified chartered accountant, general accountant, or a management accountant; you need to put anti-money laundering/counter-terrorism financing (AML/CFT) measures in place if you engage in the following activities on behalf of a client:

receiving or paying funds; or
purchasing, selling or transferring securities, real property or business assets; or
transferring funds or securities by any means.

Risk exposure

Accounting activities may involve tax transfers, payments or wire transfers, and bookkeeping or instructions on behalf of clients that conceal the source of funds. This allows the proceeds of crime to be laundered, exposing accountants to the risks of being exploited for illegal activities. Providing a registered office or a business address, or actively assisting the client in restructuring organisation/ownership structure or formation of shell companies; also poses risks to the accountant in his role of a facilitator.

Compliance requirements

Accountants are legally obliged to report all suspicious client activity, in spite of any contracts or deemed betrayal of client trust, as they are considered gatekeepers of the financial system. They are subject to AML compliance, including KYC, client due diligence, monitoring, record keeping, and reporting any suspicious activity to the appropriate authorities. Suspicious activities include unusual transactions, tax evasions, transactions with virtual currency exchanges if illegal under the regime, transactions with sanctioned entities or countries, trading in prohibited goods, or activities that pose risks of ML/TF.

Gaps in compliance

The ability to use the skills of accountants for manipulating transactions and concealing any illicit activity or financial crime, allows clients to evade taxes and regulations. This exposes the accountant and his firm to AML/CTF compliance by being facilitators or giving instructions on behalf of their client. Confidentiality contracts and the fear of losing business are the biggest gaps in compliance by accountants.

Establish a Compliance Programme

Accountants and accounting firms are expected to build the framework for a risk-based compliance programme:

Conduct a risk-based assessment for exposure by type of client, the nature of activities executed on behalf of the client, country in which the client operates, industry (e.g. money remittance services or cryptocurrency), size of deals, unusual nature of activities and client relationships.
Create risk reduction measures and controls to lessen risk.
Develop an AML/CTF programme: client identification, ongoing monitoring and reporting; as per the laws.
Implement the risk-based approach to ongoing monitoring of customer, transactions and business relationships. This includes de-risking business relationships to manage business reputation.

Maintain your Compliance Programme

Set up and maintain your compliance programme, as per the laws of your regime. Non-compliance may result in criminal or administrative monetary penalties.

Ongoing compliance involves:

Training staff about the risks involved and appointing a digital ethics officer /compliance officer.
Conducting enhanced due diligence (EDD) when there is evidence of suspicious behaviour or tax evasion.
Ongoing transaction monitoring for suspicious activities, international operations, or dealings with sanctioned individuals or countries.
Capturing customer data across every touchpoint and maintaining the records.
Reporting obligations, as mandated.
Reviewing your risk assessments and compliance program periodically.