Laundering and the CPA
2006 - In the ongoing battle to prevent money laundering,
perhaps no professional has more at stake than the CPA.
The reason is simple: Money laundering usually involves
fraudulent financial transactions, and a major component
of the CPA’s job is reporting on financial transactions.
As a result, whenever money laundering is discovered, you
can bet that both the public and the government will be
taking a cold, hard look at the work of the CPAs involved.
Fighting Apathy and Nonchalance
laundering—the process of making ill-gotten gains
appear legal by filtering them through legitimate sources—is
a much bigger problem than most people realize. According
to the International Monetary Fund, between $600 billion
and $1.5 trillion of illicit money is laundered annually,
equal to 2% to 5% of global economic output. For the criminally
minded, it’s no wonder why: Making dirty money appear
legal allows terrorists, drug traffickers, and other criminals
to spend freely and to finance more crime.
Dangers of Inaction and Ignorance
might be surprised to learn that, when it comes to money
laundering, inaction or ignorance can be just as damning
as complicity. Take, for example, the recent, true story
of a CPA who was asked by an old friend for help in establishing
a nonprofit organization. Because the CPA had known this
friend for more than 20 years, he helped to establish the
nonprofit with too few questions asked. But soon afterward,
the feds discovered that the CPA’s “friend”
was actually using the nonprofit to send money to Iraq in
violation of U.S. sanctions. The
perpetrator was subsequently tried, convicted, and thrown
in jail. And the CPA? He too was arrested and charged. In
this case, the path of least resistance—that is, not
performing due diligence and not asking sufficient questions—led
the CPA down the same road as the perpetrator: conviction.
moral of the story? CPAs have significant money-laundering
detection responsibilities, whether they know it or not.
The world is changing, and so is the role of the CPA. It
is no longer enough for a CPA to audit and certify financial
results. While the scope of a CPA’s involvement varies
with the nature of the engagement, these days a major component
of a CPA’s job must also be to ask questions and really
“know your client”—or risk the same fate
that befell the CPA in the story above.
our changing world is not only a harbinger of added responsibilities
for the CPA. It also brings forth new opportunities. Financial
scandals like Enron and WorldCom led to the Sarbanes-Oxley
Act and expanded duties for auditors. The increased financial
scrutiny arising from the war on terror has created lucrative
markets for CPAs to evaluate anti–money-laundering
programs for small and medium-sized businesses. Some CPA
firms are also paying other firms to evaluate anti–money-laundering
programs and to make sure that financial documents have
been appropriately filed.
the end, the money-laundering problem boils down to a simple
choice for CPAs: Allow apathy and nonchalance to potentially
facilitate money-laundering activities, or take advantage
of new opportunities in the anti–money-laundering
field, while proactively working to detect and report the
crime. I suggest the latter.
Publisher, The CPA Journal
Executive Director, NYSSCPA