According to the United Nations Office on Drugs and Crime, an estimated 2% to 5% of the world’s GDP is laundered annually. This amounts to between $2.22 trillion and $5.54 trillion for 2024.
As trusted financial advisors, accountants play a key role in the fight against money and other types of financial crime. Anti-money laundering (AML) regulations are key to safeguarding accounting clients’ reputations as businesses and avoiding costly legal penalties.
In this article, we’ll explore accounting best practices for AML compliance and how to stay updated with legislation changes. Read on to learn more.
Comprehensive Risk Assessment is Key
First and foremost, accounting firms must evaluate their exposure to money laundering risks through a comprehensive risk assessment.
Examining factors like client demographics, types of services offered, operating locations, transaction volumes, and supply chains helps accountants identify and mitigate risks before they become an AML compliance issue.
Deploy Thorough Client Screening Protocols
Implementing robust Know Your Client (KYC) procedures ensures effective AML compliance. This involves verifying clients using reliable sources, diving deep into the nature of their business and assessing the purpose of business relationships across their supply chain.
It’s important to note that the client screening process shouldn’t end once a client is onboarded; ongoing KYC checks are essential. Ensure client information is always up-to-date, and incorporate automated screening tools to help accounting firms flag any discrepancies in documentation.
Maintain Accurate AML Compliance Records
Accounting best practices require firms to hold client identification and documentation for at least five years after the business relationship has ended.
Additionally, records of all transactions (including dates, amounts and descriptions) should be meticulously maintained.
Accountants must invest in streamlined document management systems to help simplify record-keeping and make it easily accessible during audits or law enforcement investigations.
Educate Teams on Reporting and Accounting Best Practices
Accounting firms have a legal obligation to report suspicious activities to relevant authorities. Therefore, firms should provide continual staff training on how to recognise AML compliance ‘red flags’ and the proper procedure for reporting illicit activities to your firm’s Money Laundering Reporting Officer (MRLO).
Additionally, your team must understand the legal implications of ‘tipping off’ clients about your firm’s Suspicious Activity Reports (SAR). Jeopardising investigations in any way may harm your company’s reputation and incur severe financial penalties.
Investing in AML compliance training programmes that include periodic assessments, real-life case studies, and clear guidance on accounting best practices helps foster a company culture in which all employees understand their AML responsibilities in fighting terrorist financing.
INAA: Staying Up-to-Date with Evolving AML Compliance Regulations
AML compliance is continually evolving in response to new threats and global regulations. Here at INAA, our network of accounting and audit professionals spans 50 countries and is committed to sharing resources and best practices to help all accountants and clients understand and keep up with AML risks.
If you would like to learn more about the benefits of joining INAA, read our member benefits page and sign up with us today.