AML-CFT Global Requirements for DNFBPs

The Financial Action Task Force (FATF) and the Asia Pacific Group on Anti Money Laundering (APG) have outlined several basic guidelines related to AML-CFT for DNFBPs. The following recommendations have been proposed: (1) member countries to comply to all relevant requirements imposed on DNFBPs; (2) Member countries to carry out due diligence and record-keeping requirements (3) lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities; (4) designated non-financial businesses and professions should be subject to regulatory and supervisory measures and the competent authorities (In Malaysi, this is the Financial Intelligence Unit of Bank Negara Malaysia.should establish guidelines, and provide feedback which will assist financial institutions and designated non-financial businesses and professions in applying national measures to AML/CFT, and in particular, in detecting and reporting suspicious transactions. Research to explore awareness and actual implementation is encouraged...

AML CFT Risks for Other DNFBPs

Three other large groups of DNFBPs are Real Estate Agents, Precious Stone Dealers and Casinos. Listed below are common fraud risk factors that should be considered. Real Estate Agents may be involved in the following activities: (1) engaging in a series of transactions designed to conceal the illicit source of funds; these transactions may be classified as of the layering phase; (2) investing in tourist complexes in order to acquire a legitimate appearance (integration phase); (3) buying and selling of real estate properties in fictitious names. Dealers in Precious Stones may may be involved with the risks of misusing the dealers in precious stones and metals are due to the fact that precious metals, particularly gold, attracts money launderers, as it has a high actual value and can be found in relatively small sizes, thus facilitating its transport, purchase and sale in several regions around the world. Gold also preserves its value regardless of its form whether it comes in the form of bullions or golden articles. Dealers are often interested in gold more than gems as it may be melted to change its form while preserving its value. Casino operators may be a party to ML/TF activities. Usually, gambling in Casino takes place in cash, which encompasses high risks that gamblers may use them in ML since they give money launderers a ready justification for obtaining a fortune with no legitimate source. Casinos are misused in ML operations in the first phase of ML (placement) where the funds intended to be laundered are transformed from cash money into cheques by the money launderer purchasing chips with the proceeds of a crime. The money launderer will later request repayment through a cheque drawn on the account of the casino. Again research to explore the awareness of these DNFBPs is greatly needed...

AML-CFT for DNFBPs - Accountants and Lawyers

As a result of stringent legislative frameworks to combat Money Laundering (ML) and Terrorist Financing (TF) in several countries, particularly those involving global financial institutions, money launderers have resorted to the nonfinancial sector to try to conceal laundered proceeds and revenues of crimes. Thus, the risks related to this sector lie in the potential misuse for Money Laundering and Terrorism Financing. They found that these businesses and professions comprise real estate agents, accountants, lawyers, casinos, dealers in automobiles and boats and horse races. Non-financial businesses and professions (DNFBPs)designated were: casinos, real estate agents, dealers in precious metals, dealers in precious stones, lawyers, notaries, other independent legal professionals and accountants, trusts and company service providers. Some of the risks involved may include accountants and lawyers involved in the following activities: (1) the establishment of companies or other complex legal arrangements (like trusts), as such services may conceal the link between the proceeds of the crimes and the criminals; (2) buying and selling of real estates, as the transfer of the real estate ownership is used to cover the illicit funds transfer (layering phase of ML)2 or the final investment of the proceeds passed through laundering operations (integration phase); (3) execution of financial operations on behalf of customers, like cash deposit or withdrawal, foreign currency exchange operations, sale and purchase of shares, sending and receiving international money transfers and (4) filing of fictitious lawsuits to obtain a judgment to legitimize the funds. Research to measure the level of awareness of these DNFBPs towards AML-CFT risks is needed...

Tax Evasion

In February 2012, the international Financial Action Task Force (FATF) has issued substantially revised guidance on money laundering legislation. One of the aims of the new FATF recommendations is "improved transparency", specifically requiring that there is reliable information available about the beneficial ownership and control of companies, trusts, and other legal persons or legal arrangements. For the first time tax evasion is recognised by FATF as a predicate offence for money laundering. As expected, FATF has also added tax crimes to the list of predicate offences for money laundering - a development welcomed by most countries. It will bring the proceeds of tax fraud within the scope of the powers and authorities used to investigate money laundering - which are typically far more extensive and intrusive than those used to investigate "ordinary" crime. The new guidance also suggests a risk-based approach to anti-money-laundering (AML) legislation, in which more stringent measures will be mandated where the risks are higher, with the option of simplified measures where the risks are lower. The 180 governments affiliated to FATF will now be expected to amend their AML legislation to conform to the new guidance. FATF will begin a new round of peer review evaluations of its member countries in 2013, focussing more intensively on assessing how effectively countries have implemented the standards. New research is needed to explore fraud risk indicators to recognise symptoms of tax evasion.

Professorial Lecture - Synopsis

The ACFE 2012’s Global Fraud Study 2012 reveals that financial statement fraud represents one of the most costly forms of occupational fraud in the new millennium. It is also one of the most difficult to trace. Although the final responsibility for ensuring the integrity of the financial statements of an organization lies with the board of directors, financial auditors have a very important role to play in mitigating and detecting financial statement fraud. At the professional level, various standards have been formulated and issued by accounting professional bodies to assist auditors. Two important standards that are used by auditors globally (when auditing financial statements) are the Statement on Auditing Standards No 99 (SAS 99) and the International Standards on Auditing 240 (ISA 240).

The “rule-based” SAS 99 was issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) in October 2002 and the “principle-based” ISA 240 was issued by the International Federation of Accountants (IFAC) in 2009. Basically, these standards were issued partly in response to various infamous accounting scandals involving Enron, WorldCom, Adelphia, and Tyco. This monograph is presented in five segments. First, an explanation of the basic definitions and concepts underlying financial statement fraud is given. Second, the monograph discusses two financial audit guidelines, SAS 99 & ISA 240 and their implications for auditors and management. In the third segment, relevant fraud theories are discussed to facilitate the development of fraud risk indicators. The fourth segment is premised on the framework underpinning the Fraud Diamond Theory and presents the empirical findings of a Malaysian study involving three groups of auditors, external, internal and government, and how they perceive the importance and usage of fraud risk indicators when auditing financial statements. While the results concerning the importance of risk indicators are fairly positive, there is a gap concerning their usage. Respondents emphasized their need for specialized training in financial fraud detection techniques. The final segment elaborates on the managerial and professional implications of the financial statement fraud on Corporate Malaysia.