Money Laundering Answers

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2B (i) June, 2014 Answer:

EXPLAIN THE STAGES OF THE MONEY LAUNDERING AND HOW THE WATERS CO IS A HIGH RISK CO:

1) DEFINITION OF THE MONEY LAUNDERING

The money laundering is the process of making the 'dirty money' look like legal legitimate money related to the relevant party, in order to hide the original source of the illegitimate funds. The illegally gathered money is then needed to be hidden in order to avoid criminal repercussions, therefore those companies involved in the criminal put a great deal of effort to hide the details of such transactions.

2) STAGES OF MONEY LAUNDERING/

Typically money is laundered with a cArefully thought out approach and planning, which is why it is always challenging for auditors to detect the act. As part of careful planning the funds are first introduced in to the system through bank transaction with minimum of details, for instance usually the transactions are made through foreign banks. Usually businesses having cash resources and cash inflows are the ones which are vulnerable to the offense of money laundering.

[ placement, layering, integration ]

Followed by passing the funds through multiple layers of transactions such that it becomes difficult to trace the transaction back to its origin. Such is the act of layering, for instance investing the initially transferred funds in to various businesses or provide it to other businesses, which have frequent cash inflows and outflows, as a form of financing. In case of Waters Co, it needs to make capital expenditure which will p[artially be financed through company's cash reserves and partially through the bank loan. The total required investment amounts to the sixteen million dollars. And the company's draft financial statements present a PBT of $5.08 million. It is questionable that Waters Co has more cash in its reserves than its current year's profit before tax. It is an indicator that Waters Co is a high risk company with regard to the suspicion of money laundering.

The third stage of money laundering is called Integration whereby entity integrates the money back in to the business by for instance Wates Co has decided to overhaul its capital assets through the internal financing along with the debt financing. It is the final stage of making black money look like white money through Money laundering.

Money Laundering is a legal offense with legal consequences for the parties involved in it. The professional accountants have duty as well regarding the reporting of offense to the appropriate authorities such as Money Laundering Reporting Officer MLRO as soon as possible. Care has to be taken in case of public interest entities.

ANSWER 2B (II) June, 2014

Recommended Four Elements of Anti-Money Laundering Programme at Hunt Co:

As per the legal requirements in the UK, the professional accountants awe a legal duty to report the offense of money laundering at the appopriate time, in case failing to do so would mean that the accountants will be implicated in leagal case. Therefore individuals as well as firms are required to implements Anti-Money Laundering Program. Which helps the accountants to identify the clients and any related issue of money laundering. Following are the basic four elemnts of the program explained.

APPOINT THE MONEY LAUNDERING REPORTING OFFICER:

The MLRO is an officer who is reported on suspected offense of money launering by the individuals including the professional accountant. The firms should have appropriate personnel for the role of MLRO with appropriate set of skills and knowlege and seniority level. Who should be reported as soon as possible, consequently who reports to the NCA the relevant authority.

2.ESTABLISH THE INTERNAL POLICIES AND PROCEDURES:

The firm needs to establish the internal policies and procedures regarding how to report the offense and to whom it should be reported as per the relevant legal framework. There shoukld be suitable training opportunities for the emloyees related to the money laundering reporting.

There should be appropriate risk factors identification and use the available information technology.

3.MANAGEMENT SUPPORT AND TONE OF THE DISCIPLINE:

The mangemnt of the company should promote the culture of the adhering to the laws and encourage the individuals to promote the duty of reporting by creating awareness and trsaining programmes.

4.REVIEW THE PROGRAMME:

The firm's anti money laundering programme should include the constant monitoring and view of the system to ensure that the programme is an operating efficiently, accompanied by the assessment of the programme.

5. COMPREHENSIVE COVERAGE:

The programme shoukd include the comprehensive coverage especially where the customers contracts are involved. The partieds invoplved shoukd be verified through the governmant's list of people or susupected people who are involved in the terrorism and such history.

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2C(i) December, 2009 ANSWER:

EXPLAIN THE TERM MONEY LAUNDERING, ILLUSTRAIING THE EXAMPLES OF OFFENCE COMMMITTED BY THE PROFESSIONAL ACCOUNTANT:

Money laundering is the process of the concealing the origin and true ownership of the money earned from criminal activity, to mINTAIN THE CONTROL OF THE recepits of the illegal money and ultimately separating the ownership and origin of the money.

Money Laundering is the offense often times very difficult to prevent and detect, as it involves systematic concealment of the illigitimate money. IT especially becomes difficult for the auditors when it is the accountants who are involved in colluding the offense, which is an offense. The professional accountants are said to be involved in the crime when they donot report the criminal activity of money laundering when they are aware or suspicious of such instance.

The professional Accountants hav ea duty to report, in case of falling unable to report they are said tohave committed the illegal act of money laundering. Tippping off is the another example of criminal activity where the accountant or auditors hints the managemnt and those involved in suspected crime of mney laundering while reporting the suspectd criminal activity.

2C(ii)

The professional accougtants have some obligations regarding the money laundering, they need keep track of the cients and their business.

Individuals as well as firms need have a lagl duty to report the offense when it is suspected to have taken place to the relevant authority such as MLRO as part of Anti-Money Laundering Programme which comprises of policies and procedures on identifying risk factors of money laundering.

ESTABLISHING THE INTERNAL POLICIES AND PROCEDURES ON MONEY LAUNDERING;

The firms should make use of available technology and procedures on identifying risks related to the organisation of money laundering. A client is said to be high risk client if its business has high cash turnover.

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ANSWER 3b,2016:

EVALUATION FOR IMPLICATIONS OF AUDIT OF YORK CO.:

CASH TRANSFER

1) ANALYZING THE FACTS:

The York co is a multi chain business of oping clubs. The York co is being audited, and during the course of auditing is found to have incurred a transaction without supportive documents. The transaction is coupled with anotber of similar amount, creating a trail through a foreign bank account. The business of York co is sole propriership managed by owner Phil Smith.

2) HOW AFFECTING THE AUDIT/ CONSEQUENCES ON AUDIT REPORT/DIRECTION OF EVIDENCES PERSUADING THE AUDITOR/IF IT'S SUSPICIOUSLY A MONEY LAUNDERING INSTANCE THEN WHAT ARE IMPLICATIONS ON AUDITOR REGARDING REPORTING IT/ WHAT IT'S INDICATING REGARDING THE CLIENT/ WHAT IT SHOWS REGARDING THE CLIENT AND THEIR RESPONSIBILITIES;

Given the facts in scenario of York co, the indicators suggest the likelihood of York co having committed the offense of money laundering by making transfer of funds of same amount in to the business. The auditors need to understand the nature and purpose of transaction by inquiring the management and obtaining the documents of transaction and contract between the parties for making the transfer into the entity. While the York Co apparently fails to produce the documentary evidences on time, further confirming the suspicions of the auditors.

As the auditors of York co, we have certain responsibilities while suspecting the offense of money laundering, including the duty to report. The auditors and professional accountants have a responsibility to protect the information of their client under the Duty of Confidence, however it is overcome by statutory obligation to breach the duty when it is in public interest to disclose the information in case such as money laundering. We need to report the criminal act of money laundering to the MLRO, in case it is appointed, or else report the crime to relevant national body such as National Crime Agency as soon as possible.

The York co. has already 'placed' the potentially dirty money in to the business, care has to be taken that not to tip off the management of company while reporting the offense, which is itself an offense.

LEGAL DISPUTE

1) ANALYZING THE FACTS:

The York Co has been involved in a legal conflict with an ex-employee, for which it initially created a provision equivalent to the 6.8% of PBT in value, which is a material amount. The York Co. has reversed the provision merely on the basis that the proprietor of the business thinks it likely that the York Co will no longer need to pay the ex-employee.

2) AUDIT IMPLICATIONS/ RECOMMENDED PROCEDURES

The previously recorded amount of provision represents 6.8% of PBT, which is a material amount. The York Co's course of action places question whether it is appropriate to write off the provision. It needs to be assured that York Co has applied the ps of relevant IAS 37 which require that a provision is recognized when it is probable that outflow of economic benefit will take place. Therefore it is recommended that York Co should be enquired regarding the reason for reversing the provision.

Additionally the auditors of York Co need to enquire the in-house legal council of client regarding the likelihood of outcome of lawsuit. Whether it is likely that company will not have to pay the lawsuit claims. The auditors of York Co should obtain written representation of the management regarding the litigation result.

If it is established that provision cannot be written off then then the auditor should discuss the matter with the management of the York Co and the matter correction. where as in case of failure to get the matter in financial statements corrected, the auditor should issue a modified audit report with a qualified opinion stating that 'except for' the financial statements provide a true and fair view on financial statements.