ACCA AAA · Chapter 5
Money laundering
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Suspected laundering report internally and reassess audit
Money laundering
- Disguise or use proceeds of crime as apparently legitimate
- The proceeds are criminal property
Three stages
- Placement: introduce or convert proceeds, often through cash
- Layering: move funds to obscure their origin
- Integration: return funds as apparently legitimate assets
Client and ownership
- Cash-intensive business; complex or anonymous ownership
- Difficulty identifying beneficial owners; high-risk connections
Transactions and behaviour
- Unexplained transfers, third parties, currencies or cash
- Weak documents; no commercial purpose; secrecy or urgency
Threshold
- An unusual transaction alone does not establish suspicion
- Facts must give a reasonable basis; proof is not required
Follow the money
- Identify source, destination, parties and ultimate beneficiary
- Compare amount, currency and jurisdiction with normal activity
Test the explanation
- Assess commercial rationale and reliable supporting records
- Compare management’s account with other evidence
Consider indicators together
- Several linked indicators may support suspicion
- Make normal enquiries with scepticism within audit scope
- Do not seek to prove money laundering
Report promptly
- Knowledge, suspicion or reasonable grounds go to the MLRO
- Include parties, transactions, property, facts and reasons
- No financial statement materiality threshold applies
MLRO’s role
- Evaluates whether an external suspicious activity report is needed
- Engagement team follows the MLRO’s instructions
Avoid tipping off
- Avoid disclosure that could prejudice an investigation
- Restrict and tailor client enquiries
Protect evidence
- Consult MLRO before further enquiries if concerned
- Preserve records securely and restrict access
Reassess and decide
- Update risk assessment and CDD; enhance procedures if needed
- Reassess management integrity, representations and continuance
Tailored evidence
- Inspect contracts; trace funds through bank and accounting records
- Verify parties and source of funds independently
- Compare with normal activity; extend to similar transactions
Audit implications
- Consider fraud RoMM, controls, accounting and disclosures
- Consult MLRO before enquiries if suspicion has arisen
Auditor’s report
- Modify for uncorrected material misstatement
- Modify if sufficient appropriate audit evidence is unavailable
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