Money Laundering and the CPA
Fighting Apathy and Nonchalance

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AUGUST 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.

Money 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.

The Dangers of Inaction and Ignorance

Some 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.

The 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.

But 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.

A Simple Choice

In 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.

Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA




















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