https://www.fm-magazine.com/news/2020/aug/suspicions-of-money-laundering-cima-ethics.html

The modern workplace can be an ethical minefield. This monthly column helps you tackle the thorny, but very real, challenges that management accountants face in the workplace.

Written by the CIMA professional standards team and based on realistic situations, the following is a practical guide to using the CIMA Code of Ethics to guide good decision-making.

The scenario

You’re a CIMA member in practice (MiP). You have been doing the accounts of a client for two years when you notice some irregularities in the numbers. Large sums of money have been coming in and out of the organisation with vague descriptors like “office costs” or “management fees” — you have never seen these sorts of items in the client’s accounts before.

You query these with the client, who tells you to back off and informs you that your contract is being terminated. A few days later, an accountant who will be taking over the client’s accounts contacts you and asks for any relevant information about the client of which they should be aware.

What should you do?

Ethical issues and guidance

There are two key issues in this dilemma. First, what should you do about your concerns about the unusual transactions in the client’s accounts? Second, what should you tell the incoming accountant?

You should take your concerns about the unusual transactions seriously. Large sums of money without adequate explanation could potentially be indicators of money laundering. Additionally, the client’s unwillingness to explain the transactions and the fact that they responded by disengaging from your services suggest that they do not want you to look into it any further, which should further raise suspicion.

In the UK, you should make a Suspicious Activity Report to the National Crime Agency. This is required if you have any reason to suspect involvement with money laundering or terrorist financing. In other jurisdictions you should consider where would be most appropriate to make a report. CIMA’s members’ handbook contains helpful information on anti-money laundering regulations. You may also consider taking legal advice to clarify your reporting obligations. Whilst you do have a duty to keep client information confidential, Section 114.1 A1 of the CIMA Code of Ethics states that disclosure of confidential information is permitted where required by law.

Regarding what you should tell the new accountant, it is normal practice for an incoming accountant to request any relevant information from the outgoing accountant. This is so that they are able to better understand the work they are taking on in order to provide a good service to the client, as well as to assess any potential threats to their compliance with their own professional code of ethics.

Section 320.7 of the Code of Ethics states that “[w]hen an existing or predecessor accountant is asked to respond to a communication from a proposed accountant, the existing or predecessor accountant shall:

(a) Comply with relevant laws and regulations governing the request; and

(b) Provide any information honestly and unambiguously.”

There are requirements around confidentiality when it comes to handing over information about the client. Section 320.7 goes on to state that “[w]hether the existing or predecessor accountant is permitted or required to discuss the affairs of a client with a proposed accountant will depend on the nature of the engagement and:

(a) Whether the existing or predecessor accountant has permission from the client for the discussion; and

(b) The legal and ethics requirements relating to such communications and disclosure, which might vary by jurisdiction.”

Therefore, in any situation it is key to ensure you have the client’s permission before speaking to the incoming accountant. In this situation, however, you have the complication of being aware of potential money laundering.

It is key that you do not “tip off” the client, meaning that you must not let them know that you have or are considering reporting them for potential money laundering. This is important as it may interfere with police investigations, and tipping off is specifically covered in many anti-money laundering regulations.

Therefore, when seeking the client’s permission to speak to the incoming accountant, you should not mention your suspicions and instead frame it as a general request to speak to the incoming accountant.

With regard to what you can pass on to the incoming accountant, members of supervised bodies in the UK such as CIMA are able to share suspicions of money laundering between each other. This is covered under the Proceeds of Crime Act 2002 Section 333C, Paragraph 2(d).

It would be important to check that the incoming accountant is a member of a professional body supervisor before sharing suspicions, as disclosing suspicions to someone who is not a member of a professional body supervisor would constitute tipping off. In other jurisdictions, you should check the relevant legislation before sharing your concerns with an incoming accountant.

An incoming accountant may threaten to report you to CIMA for misconduct if you do not answer questions posed. If this threat were to be followed through, you may be required to disclose to CIMA that you made or planned to make a Suspicious Activity Report. This would not be regarded as tipping off because you have provided this information to your supervisory authority.

Guidance on avoiding tipping off is available to CIMA members when logged in to MyCIMA. Whilst UK-specific, the guidance will be of assistance wherever you are based. Each instance is different, and you are expected to use your professional judgement when deciding what to share. Whatever you decide to do, it is important that you keep a record of your reasoning, decisions, and associated correspondence so that you are able to justify your action if challenged.