The Proceeds of Crime Act 76 of 1996 (the Act) provides inter alia an obligation to report suspicions of money laundering to the Commercial Crime Unit of the SA Police Service. This duty to report also applies to accountants who receive funds from clients in the course of their business for the purpose of deposit or investment. Failure to report could lead to a sentence of up to 30 years’ imprisonment, if convicted.

Paragraph .01 of section 16 of the Institute’s Code of Professional Conduct prohibits a member or associate in public practice from holding clients’ monies if there is reason to believe that they were obtained from, or are to be used for, illegal activities.

Defining money laundering

Money laundering is the recirculation of money acquired through illegal activities in the legal economy. There are three main stages in this process:

• Placement: the actual disposal of the cash from an illegitimate activity
• Layering: the removal of the cash from its origin by the creation of complex layers of financial transactions, each of which is designed to disguise the cash source
• Integration: the conversion of criminal wealth to apparent legitimacy.

What to watch for

A study of money laundering schemes conducted in Canada in 1994 indicated that launderers need white-collar professionals, especially accountants and lawyers, for their financial expertise. Money laundering makes use of techniques developed for legitimate business purposes and in the process uses those servicing the needs of legitimate businesses. The client who appears to be running a respectable business might actually be laundering drug money and using the accountant’s advice to help him/her do so efficiently.

The National Crime Authority in Australia identified several ways in which accountants have been used for money laundering purposes, including:

• establishing trust or nominee companies, locally or abroad, to facilitate a money laundering scheme
• establishing complex company structures to conduct transactions on behalf of an offender which effectively obscures the money trail
• purchasing or establishing legitimate companies in which to invest concealed proceeds of crime
• arranging for ‘back to back’ loans for offenders, often arranged through banks or companies incorporated in tax havens
• creating identification for offenders, for example through tax returns in a different name to that of the offender, or false tax file numbers that can be used when undertaking transactions with proceeds of crime.

Jean van Rensburg from the Department of Justice, in his article, Really Dirty Money, published in volume 5 part 3 of Juta’s Business Law, warns businesses, which hold clients’ monies in trust accounts, against the client or prospective client who requests the trust account number of the business in order to make a direct deposit into the trust account for a future transaction or one still to be concluded. The transaction usually falls through and tainted money is replaced with a trust account cheque.

Policies, procedures and controls

From the above, it is clear that accountants should establish clear responsibilities and accountabilities to ensure that policies, procedures and controls are introduced and maintained which deter criminals from using their facilities for money laundering. The following should be kept in mind when doing so.

Client identification

• Formal identification evidence of all clients should be obtained and recorded
• Where companies are being set up or transferred, identification should be obtained and recorded with regard to all directors and shareholders
• Where trusts are being set up, a record should be kept of the trustees, beneficiaries and any donors to the trust
• Where the client is merely an intermediary, verification of the identity of the beneficiary should be conducted with the same diligence as for the client himself/herself

The accountant would normally have a good working knowledge of an existing client’s business and financial background. This could provide sufficient evidence of identity. However, in any activity where money laundering could conceivably be involved, the adequacy of this evidence should be reviewed.

An introduction from a known source may be taken into account in establishing whether proof of identity has been adequately achieved, but should not necessarily be regarded as conclusive. In cases where a less close relationship is envisaged, or where unusual transactions have taken place, the accountant should have more specific proof of identity.

Record keeping

The client identification evidence and evidence of transactions with clients should be kept, in a form admissible in a criminal court, for at least five years after the end of the relationship with the client.

Staff training

Staff should be trained in the requirements of money laundering legislation, how their employer has addressed them and how to identify and deal with potential money laundering transactions.

Protection for whistle-blowers

Any suspicion that money coming into an accountant’s possession may be the proceeds of crime should be reported to the Commercial Crime Unit of the SA Police Service.

There is no single definition of a suspicious transaction that could be used by a money launderer; indeed the options are almost unlimited. But having said that, suspicion is bound to be aroused if an activity is not consistent with a person’s or an organisation’s declared activities.

In terms of the Act, no obligation of secrecy or other restriction on the disclosure of information (whether imposed by any law or agreement) affects the duty to report. The Act specifically excludes any liability, which the business carrying out the duty to report may incur on the basis of the breach of an obligation of secrecy or of a restriction on the disclosure of information.

Accountants are usually in a fiduciary relationship with their clients - they are under a duty to act in the interests of the client and in good faith. This duty implies that the accountant will not disclose confidential information acquired from or about the client, and especially not to disclose that information contrary to the client’s orders or interest. However, an accountant’s duty of confidentiality is overridden by a legal or professional duty to disclose, such as that provided in the Act.

Cost of compliance

As is often the case, the proposed money laundering legislation mostly involves obligations placed on law-abiding citizens in an attempt to get to the villains. Accountants may argue that the cost of compliance with the above mentioned requirements may be too high. However, the cost of non-compliance in terms of being publicly displayed as an, albeit unwitting, conduit of dirty money, let alone prosecution, will be much higher.

In conclusion

The Act obliges businesses to report suspicions of money laundering. The fact that the Money Laundering Control Bill, creating the related control measures and administrative infrastructure, has not yet been enacted by Parliament, should not affect compliance with the requirements of the Act. Accountants who do not report such suspicions will be contravening the Act as well as the Institute’s Code of Professional Conduct.