The following report sets out AIA's monitoring and supervisory activities between 6 April 2021 and 5 April 2022 in the United Kingdom and Republic of Ireland.
AIA continues to take its role as an anti-money laundering PBS for accountants extremely seriously.
Our role as a PBS includes both enforcing compliance where breaches are detected in the course of monitoring and supervision and educating members on their AML obligations.
AIA's Regulatory Oversight Committee forms part of an effective governance framework, overseeing and scrutinising the work AIA undertakes as a professional body supervisor (PBS) to ensure we continue to meet the requirements and comply with the regulations.
The accountancy sector plays a key role in preventing economic crime and reporting suspicious activity. AIA's commitment to working in the public interest to tackle money laundering and economic crime remains undimmed and we will continue to work with our members to prevent criminals taking advantage of the professional services offered by accountants.
In this reporting year we have seen key activities relating to educating members on new requirements resulting from sanctions imposed by governments in the UK and across the EU on Russia following the illegal invasion of Ukraine in February 2022.
Building on our previous year's activities we have invested in staff training, undertaken a review of supervised Trust or Company Service Providers and a specific data request relating to sanctions compliance and delivered high-quality training and guidance to members from webinars to specific guidance, including the delivery of updated AML Guidance for the Accountancy Sector.
In 2022-23 AIA will focus on overhauling its monitoring and supervision activity to leverage the power of technology and strengthen its enforcement powers with bespoke training for Disciplinary Committees.
George Josephakis, Chair, AIA Regulatory Oversight Committee
The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act; criminals employ a range of techniques to clean their 'dirty money'.
Money laundering is the processing of these criminal proceeds to disguise their illegal origin and to make them appear legitimate, allowing criminals to enjoy these profits without jeopardising their source of income. Criminals do this by disguising the sources, changing the form, or moving the funds to a place where they are less likely to attract attention.
Illegal arms sales, smuggling, and the activities of organised crime, including for example drug trafficking and prostitution rings, can generate huge amounts of proceeds.
Money laundering is not only a crime itself, but also a key enabler of other serious crimes such as modern slavery, drugs trafficking, fraud, corruption, and even terrorism.
Professionals working in the accountancy, legal and property sectors are targeted because of their expert skills and services (National Risk Assessment 2020), which can give a cloak of legitimacy to illicit cash. This gives professionals a crucial role to play in protecting the UK’s economy, and wider society by reporting suspicious activity.
While money laundering isn’t always obvious, the consequences are severe. Even accidental involvement in money laundering could mean accountants losing their licence, receiving a fine, or facing criminal prosecution.
See more information on what money laundering is and key obligations for accountants.
Accountancy services are attractive to criminals due to the ability to use them to help their funds gain legitimacy and respectability, as implied by accountants' professionally qualified status. Those providing accountancy services remain at risk of being exploited or abused by criminals, especially if accountants become complacent in their regulatory obligations under the MLRs or willingly facilitate money laundering.
The accountancy services considered most at risk of exploitation include:
Most accountants work hard to prevent and spot money laundering and take necessary action, however some do unknowingly become involved. The key factors behind unwitting involvement continue to be failing to carry out proper due diligence and adequately train staff so they recognise and report potential money laundering concerns.
A very small number of accountants may knowingly cooperate with criminals to launder money.
AIA supervises its practising members for the purposes of the United Kingdom Money Laundering Regulations 2017 (amended 2019), where AIA is listed in schedule 1 as an approved supervisory body. In the Republic of Ireland AIA is a designated body under the Criminal Justice (Money Laundering and Terrorist Financing) Act.
Our work is overseen by HM Treasury, the Office for Professional Body AML Supervision (OPBAS) and the Republic of Ireland Departments of Finance and Justice.
We monitor our supervised population and take measures where necessary to ensure compliance, including:
We take appropriate measures to ensure we review:
We enforce the money laundering regulations and carry out our work as an AML supervisor through:
We work with other professional body supervisors, law enforcement, and regulators in the UK through:
We work with other professional body supervisors, law enforcement, and regulators in the ROI through:
AIA operates a risk-based approach to AML supervision. When applying for a practising certificate, applicants agree to co-operate with AIA in our Quality Assurance and Practice Monitoring process.
AIA's monitoring and supervision work ensures compliance with the AIA Constitution, Public Practice Regulations and legal and regulatory requirements such as the Money Laundering Regulations.
The following tools are used to ascertain members' compliance:
Where members are found to be non-compliant with the MLRs, depending on the impact and severity of non-compliance, an Action Plan is agreed to achieve compliance.
Where members exhibit serious non-compliance, act contrary to the AIA Constitution or fail to make adequate progress to achieve compliance following the creation of an Action Plan, AIA's Practice Compliance Committee and Disciplinary Committees may sanction an individual or firm in line with the AIA Constitution and Sanctions Handbook:
AIA's supervised population is made up of a subset of its overall Members in Practice population.
Some Members in Practice are supervised by other professional body supervisors (PBS) where joint membership is held and this has been agreed with another PBS.
As a professional body supervisor, we make sure that the relevant firms and individuals we supervise comply with the regulations and have appropriate controls in place to prevent money laundering.
Relevant supervised population (those supervised for AML purposes only)
United Kingdom
| Supervised Firms | 229 |
| Supervised Sole Practitioners | 85 |
| Total Supervised Population | 314 |
Republic of Ireland
| Supervised Firms | 13 |
| Supervised Sole Practitioners | 9 |
| Total Supervised Population | 22 |
Relevant supervised population acting as Trust or Company Service Providers
A proportion of AIA supervised members undertake Trust or Company Service work. A Trust or Company Service Provider (TCSP) is any firm or sole practitioner whose business is to:
A person is still considered to be a TCSP provider even if these services are provided incidentally to other accountancy services, or they are provided infrequently or on a one-off basis.
United Kingdom
| Supervised TCSP Firms | 117 |
| Supervised TCSP Sole Practitioners | 29 |
| Total Supervised TCSP Population | 146 |
Republic of Ireland
| Supervised TCSP Firms | 2 |
| Supervised TCSP Sole Practitioners | 1 |
| Total Supervised TCSP Population | 3 |
The money laundering regulations require that professional body supervisors create risk profiles for all regulated firms and individuals - High, Medium and Low. We use these profiles to identify money laundering risk and prioritise our monitoring and supervision.
Our risk-based approach methodology is controlled by a policy independently scrutinised by the Regulatory Oversight Committee and looks at a range of factors to determine risk, including regulatory history, size, clients and services provided. It also considers mitigation such as AML controls and compliance history.
We take monitoring and supervision action and review firms of all risk levels, prioritising higher-risk firms, as part of our risk-based approach.
Low AML risk does not mean no AML risk.
The MLRs require all beneficial owners, officers and managers (BOOMs) acting in an AIA supervised firm to be approved by us. They must get a Disclosure and Barring Service check and submit it to us when they first become a BOOM or take on a new role. This ensures that at the time of application the individual has no convictions for a 'relevant offence' as defined in Schedule 3 of the MLRs.
In the reporting period AIA authorised a total of 474 BOOMs.
We undertook 18 Desktop Monitoring or AML Compliance Reviews in the reporting period. This monitoring and supervision was conducted alongside thematic review, desk-based monitoring and individual requests made to members.
During a Desktop Monitoring or AML Compliance Review we:
AIA operates a continuous improvement strategy in order to continue to deliver effective supervision. Improvements during the reporting period included:
Our visits found the following levels of compliance with the MLRs among the supervised firms we reviewed as part of our monitoring and supervision activity:
| Compliant | 0 |
| Generally Compliant | 16 |
| Non-Compliant | 2 |
The most common forms of non-compliance with AML/CTF obligations identified throughout AIA’s supervisory activities include:
Three supervised members were referred to the Practice Compliance Committee for failure to comply with the monitoring process.
Following the monitoring and supervision action in the reporting period AIA undertook 16 informal actions (implementing an Action Plan for compliance for members and enforcing compliance) and 2 formal actions (including revoking practising certificates and excluding members). 21 fines were levied in the reporting period totalling £10,250 (Previous reporting year: £2,900).
Case Study
| A member was selected for a Desktop Monitoring Review in April 2021 and was listed as ‘High Risk’ on using AIA’s risk assessment methodology. The member was selected for review following receipt of internal AIA intelligence. Member Profile The member had held a Practising Certificate with AIA since 2014 and operated a Limited Company in the south of England. The firm had two Beneficial Owners which included one AIA member being the majority shareholder and Personal of Significant Control (PSC). The approximate Annual Gross Practice Fee Income was £375,000, which was gained through work for 180 clients (5 of which were high risk). The firm had 4 full time employees, including the AIA Member in Practice. The services provided by the firm were commonplace and 2% of the firm’s services included payroll for clients. The firm also undertook Trust or Company Service work and had formed 15 companies in the preceding 12 months, whilst acting as a registered office for 150 of its clients. The firm also held approximately £50,000 of client money for payroll and prepaid professional fees in a designated client account. The Practice MLRO was registered as the AIA Member and the firm had submitted 3 SARs. The member also held a Practising Certificate with another professional body supervisor. The Monitoring Review The AIA Reviewer assessed pre-requested practice documents including the contents of 6 client files which were made available to AIA via a secure file transfer system and followed this up with a Microsoft Teams meeting with the member. Outcome The AIA Reviewer conducted a thorough assessment of the firm, including the AML software used, and identified five Non-Compliant issues which required addressing. The member was then provided an Action Plan of required action to achieve compliance. Following the successful submission of evidence requested in the Findings Report it was concluded that the firm now had the appropriate procedures in place to manage the money laundering risks arising from its high-risk clients and the services it provided. The ML risk allocation of the firm remains High due to the nature of services provided and the client profile. |
During the reporting period we undertook two targeted thematic reviews:
The imposition of new sanctions on the Russian Federation since February 2022, including on individuals, and companies, meant an increased focus on the way in which AIA members conduct due diligence and how AIA supervises its population.
As per current regulatory requirements AIA members must screen new and existing clients against the consolidated sanctions listings including those maintained by the United Kingdom and European Union. This requirement has not been amended, however the range of sanctions and fast-moving nature of events means that it is important members are up to date in their knowledge and application of restrictions.
In response to Russia's illegal invasion of Ukraine AIA held meetings and intelligence-finding discussions with:
Contact with Members
We also contacted members to confirm our supervisory expectations during this time and into the future regarding sanctions, including signposting key guidance and regulatory requirements.
We noted that the recent imposition of further sanctions on Russia and named individuals and entities increased the potential risk of money laundering as individuals and business may seek to evade these respective sanctions regimes. Recent developments in Russia and Ukraine may also potentially impact on the classification of new and existing clients and cause them to fall within the definition of Politically Exposed Persons (“PEP”).
Members in Practice were reminded of their obligation under the UK Money Laundering Regulations 2017 and the Republic of Ireland Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) respectively, to conduct risk assessments and to perform Enhanced Due Diligence checks where required. In particular, Members should ensure that they fully understand the source of funds and wealth in relation to their clients identified as high-risk.
Since many of those who are subject to sanctions may also be PEPs, Members were reminded of their obligation to ensure that they have adequate and up to date procedures in place to identify whether a client, or the beneficial owner of a client, is a PEP or a family member or known close associate of a PEP.
Firms were also reminded to be aware that sanctions are subject to change and that they should maintain up to date screening processes.
Regulatory Activity
AIA conducted bulk searches using the Shared Intelligence Service (SIS) database using the search criteria of both individuals and firms against consolidated sanctions lists from the UK, EU, and UN. No exposure was identified. As a matter of AIA policy when individuals make an application for Membership or a Practising Certificate, in the United Kingdom and Republic of Ireland, applicants undergo sanctions screening.
We then initiated a data request to our supervised firms across the UK and Republic of Ireland. We requested information to inform our members’ exposure to sanctions, including:
AIA reviewed the returns supplied by members and undertook the following interventions:
A copy of AIA's Sanctions review was provided to AIA’s Council and Regulatory Oversight Committee.
Ongoing Monitoring
The situation is likely to continue to evolve–including the potential to expand beyond sanctions related to Russia and Belarus – and AIA will continue to engage with regulators to determine its sanctions risk and that of its members, promoting guidance and resources in response to changes.
AIA will also continue to use its monitoring and supervision activity to determine its members compliance with sanctions regimes and the appropriate application of client due diligence at onboarding and as part of an ongoing relationship.
Guidance
Whether in practice or in business, Members must comply fully with their legal and professional obligations relating to the Sanctions regimes in their respective jurisdictions; AIA expects that they will be willing to play their part in helping companies across the economy cope with any consequent disruptions.
We provide regularly updated guidance for members in the United Kingdom and Republic of Ireland to assist with the changing situation regarding sanctions.
In conjunction with OFSI, the JMLIT+ Sanctions Facilitators Cell, law enforcement, private industry and regulators, the National Crime Agency (NCA) have issued a 'Red Alert' on financial sanctions evasion typologies by Russian elites and enablers. AIA issued this to its members to provide information from law enforcement and the legal and financial services sectors on some of the common techniques designated persons and their UK enablers are suspected to be using to evade financial sanctions.
51% of our supervised firms offer trust or company services to clients and are small or medium sized practices. We monitor our supervised population and take measures where necessary to ensure compliance.
The National Risk Assessment (2020) has highlighted trust and company service providers (TCSPs) are at a higher risk of being used by criminals to facilitate money laundering.
Within the Republic of Ireland AIA contributed to the update of Ireland's National AML/CFT Risk Assessment related to the treatment of Trust of Company Services the significant risk of firms acting as TCSPs.
Our supervised firms are required by law to:
We undertook a thematic review to assess the nature of the TCSP services offered by the firms we supervise and to explore the risk that these services may be used to facilitate money laundering.
Methodology
We surveyed a sample of firms about the TCSP services they provide and whether those services are in conjunction with accountancy services. We also asked them to describe their assessment of the risks that TCSP services present, how they adapt their procedures to mitigate those risks and the number of Suspicious Activity Reports (SARs) they had submitted.
We selected firms with a range of risk profiles considering factors such as the client base and services they provide. The factors are linked to the National Risk Assessment, which defines higher risk services and client typologies. All the firms selected provide TCSP services.
Findings
The findings show that all the firms surveyed consider and assess the risk of providing TCSP services as lower when offered to existing clients with a clear business rationale for the service.
Most firms are clear that they do not offer registered office and/or company formation services without a business rationale and an ongoing service provision, that includes other accountancy services.
We grouped our findings into the following key categories:
This report sets out some of the qualitative and quantitative data and trends we observed from the responses to questionnaires we sent to firms offering TCSP services.
We have included a commentary on the responses, as well as our observations on what our firms are doing well and what can be improved.
Report
The report outlines the outcomes of a thematic review undertaken on AIA supervised firms which provide Trust or Company Services to their current or prospective clients.
READ THE FULL TCSP THEMATIC REVIEW REPORTWe have a dedicated money laundering reporting officer and deputy to meet our obligations to identify and report suspicions of money laundering.
AIA submits suspicious activity reports (SARs) to the National Crime Agency (NCA) if we identify a suspicion of money laundering through our monitoring and supervision.
To support this vital work we regularly train and update all relevant staff and reviewers to recognise the red flags of money laundering and how to report them.
Where we see trends in criminal activity or suspicious activity in the course of our monitoring and supervision we work with other professional bodies through the Intelligence Sharing Expert Working Group (ISEWG) to issue alerts to the profession and set out appropriate indicators.
AIA has a dedicated whistleblowing hotline and email address for money laundering disclosures.
This means we can be alerted by members of the public in a confidential way about occasions of non-compliance or potential involvement in money laundering or terrorist financing where AIA members are involved.
We remain committed to ensuring that these serious matters can be disclosed confidentially and we have strict policies in place to maintain anonymity.
Anyone who wishes to make a confidential report about an AIA member or firm can do so if it is known or suspected that they:
If members of the public wish to report an individual or firm whose supervisor for AML purposes is AIA they can report the matter confidentially to our team.
Threats and emerging risks relating to money laundering and terrorist financing activity are changing constantly. Updated information is provided to AIA Members in Practice through a variety of channels to mitigate these risks.
AIA assesses emerging risks through a range of sources, including:
Where we receive information on emerging risks (such as Chinese Underground Banking and Daigou, fraudulent claims of Coronavirus Job Retention Scheme payments or Payroll Company fraud) we provide structured alerts to AIA members to inform their training. AIA members are strongly recommended to read these alerts and take appropriate reporting action if they come across situations that involve the circumstances described.
We consider that current areas of emerging risk may include:
Further information
AIA’s AML Sector Risk Assessment for Money Laundering and Terrorist Financing in the United Kingdom and the Republic of Ireland sets out information on money laundering and terrorist financing risk that is considered relevant to those individuals and firms supervised by AIA and informs AIA’s risk-based approach to supervision.
In the coming year AIA will continue to support supervised firms and members to help them put strong controls in place to prevent them from being used by criminals. This includes providing updated member guidance, CPD events, intelligence alerts and updating information on emerging risks.
We will also continue to take robust action where our firms and members are found to be failing to protect themselves and the wider public in their responsibilities under MLR.
Whilst we have not yet returned to conducting onsite monitoring visits, we continue to leverage the flexibility of Desktop Monitoring Reviews and have further scheduled investment in technology to add additional functionality to these reviews. We aim to return to Onsite monitoring within the next reporting year.
In the coming year we intend to focus on:
Published by AIA:
AIA maintains extensive AML guidance for members, including sensitive AML alerts and emerging risks, templates and checklists, and events, within the members' area of the website.
Examples of guidance we provide include:
Regular AML updates are provided online to AIA Members who may watch recorded versions here. All past webinars are available for members on demand.
Updates delivered in the past year include:
AIA maintains a library of AML-related articles for members to access on demand, for example:
As part of an alerts sub-group of the Intelligence Sharing Expert Working Group (ISEWG) we issued 13 accountancy-specific money laundering alerts to Money Laundering Reporting Officers of our supervised firms and the wider sector:
TCSP GUIDANCE
This guidance was specially formulated for AIA Members in Practice offering Trust or Company Service work and is influenced by the outcome of AIA's 2022 Thematic Review into Money Laundering Risk for Small or Medium Sized Practices offering TCSP Work.
The guidance focusses on:
The guidance points to other specific areas of guidance provided by AIA for each section alongside areas of best practice and key examples, including key emerging risks such as misuse of registered offices.
Published by the National Crime Agency:
Published by Government:
Note: AIA’s responsibilities as a professional body supervisor under Schedule 1 of the Money Laundering Regulations 2017 involve the handling of sensitive intelligence and information which is used to combat the risk of money laundering and terrorist financing. This Annual Report does not include all aspects of AIA’s monitoring and supervision strategy and some information may not be disclosed to protect the public interest.
