Fraud


U.S. Wants CPAs to Help Fight Money Laundering

A federal government report issued in March shed light on how federal agencies battling money laundering think CPAs may, in the future, help prevent criminals from converting their illicit gains into cash or goods that can be used legitimately. The National Money Laundering Strategy for 2000 outlines a broad government campaign, which is being undertaken in conjunction with other nations, to fight money laundering. The Treasury and the Justice Department jointly issued the strategy report, the second of five annual reports required by Congress, to present the federal government’s plan and its current assessment of the fight against global money laundering.

The report advocates better enforcement of existing laws against money laundering and greater cooperation between the public and private sectors and among federal, state and local governments and the international community. It also calls for a study group, made up of representatives of the IRS, the SEC, the Commodities Futures Trading Commission and the FDIC, as well as the Treasury and the Justice Department, to examine how accountants and auditors could best help detect and deter money laundering.

The illicit funds problem is of no small proportion. Michel Camdessus, former managing director of the International Monetary Fund, said the annual global volume of money laundering is at least $600 billion—2% of the world’s gross domestic product—and that it could be as much as $1 trillion. How do money launderers get such vast sums past the watchful eyes of regulators? By sophisticated concealment of fraudulent transactions in the vast flow of international financial traffic passing through communications networks. Just as legitimate businesses take advantage of the speed and voluminous capacity of these systems, criminal groups exploit them to disguise illegal proceeds and finance their ongoing activities.

The federal government requested the cooperation of industry and professional groups, including the AICPA. In January, AICPA representatives met with members of the federal study group to discuss the role and responsibilities of CPAs and ways the AICPA can work with federal agencies to provide more communications and training to members.

The federal study group’s goal in the year 2000 is to heighten auditor awareness of possible money laundering and develop additional guidance, training and educational materials that address money laundering vulnerabilities. In addition, the study group wants to continue monitoring various measures undertaken by the accounting profession in other countries to determine their applicability in the United States.

Under GAAS, independent auditors consider money laundering as having an “indirect” effect on financial statements that, if detected by an auditor, must be communicated to management. The 1999 AICPA Audit Risk Alerts, issued for auditors of the banking, securities brokerage, investment company and insurance industries, included segments on money laundering.

By September 2000, the Director of the Treasury’s Financial Crimes Enforcement Network (FinCEN) intends to report on progress in developing additional responses to money laundering that can be integrated into the work of both internal and external accounting professionals. The study group also plans to review the professional responsibilities of lawyers and accountants with regard to money laundering and make recommendations—ranging from enhanced professional education, standards or rules to legislation—as necessary.

Also in March, a House bill (HR 3886, the International Counter-Money-Laundering Act of 2000) was introduced with provisions that affect independent auditors (for example, safe harbor for those who report suspicious activity to the authorities and a prohibition against informing suspects such activity has been reported), but the bill does not explicitly require independent auditors to report suspicious activities. The bill’s congressional sponsors are James A. Leach (R-Iowa), John J. LaFalce (D-N.Y.), Marge Roukema (R-N.J.) and Bruce F. Vento (D-Minn.), who referred it to the House Banking and Financial Services Committee. The committee may chose to amend the bill and submit it for a vote by the entire House.

Sources on Capitol Hill say it’s too late in this session of Congress for anti-money-laundering legislation to have more than a slim chance of passing. But the bill’s bipartisan support is evidence of the seriousness with which both sides of the aisle view financial crime. “It’s an issue that won’t go away, regardless of which party wins the presidential election,” said one observer.

Financial institutions already must comply with two requirements of which CPAs should be aware. One is a long-standing provision of the Bank Secrecy Act of 1970 that financial institutions must report cash transactions over $10,000. The other is a newer requirement that, so far, applies to banks only. If a bank’s management observes suspicious activity, which the requirement defines, it must report the activity to the Treasury. Industry sources estimate there are hundreds of thousands of such reports each year, with companies like Citigroup filing approximately 6,000 of them. Sources also note that if the government expands the reporting requirement to dealers, brokers, casinos and other organizations as has been rumored, CPAs will be responsible for reporting suspicious activity in a greater variety of settings.

Following the revelation in 1999 that $7 billion, possibly originating in the Russian underworld, had passed through the Bank of New York, the Clinton administration began a high-profile war against international financial crime. U.S. regulators, working in conjunction with their counterparts in the G-7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) and representatives from the Organization for Economic Cooperation and Development (OECD), established a “gatekeepers” working group to strengthen and coordinate measures against money laundering. Each member state of the European Union currently does, or soon will, require accountants and auditors to report suspicious financial activity; Italy and the Netherlands do not.

The National Money Laundering Strategy for 2000 is available at the Treasury’s Web site ( www.treas.gov/press/releases/docs/ml2000.pdf ).

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