The CPA's Role in Fighting Money Laundering

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EXECUTIVE SUMMARY

* MONEY LAUNDERING HELPS ILLICIT ORGANIZATIONS by lowering their cost of capital, giving them a competitive advantage over legitimate businesses.

* NEITHER GOVERNMENT OFFICIALS NOR THE BUSINESS community alone has the resources to counter international money laundering by drug cartels and other organized criminal groups.

* ACCOUNTANTS ACTING IN A NUMBER OF PROFESSIONAL capacities have contributed their expertise in implementing and monitoring controls that hinder money laundering and in identifying warning signs of possible illegal activity.

* THE PROFESSION WILL BE CALLED UPON for continued help in creating controls that are effective in fighting the growth in money laundering.

* MANY NON-AUDITING PRACTITIONERS MAY BE SURPRISED to find they have certain responsibilities in the war against money laundering.

* FEDERAL LEGISLATION AND RELATED REGULATIONS applying to money laundering have been in effect since 1970 and they have increased in number and scope over the years.

* THE INTERNATIONAL COMMUNITY SEEKS to improve controls in laxly regulated jurisdictions where money launderers base their operations.

All practitioners--not just auditors--need to understand how regulators expect them to help.

Until approximately 10 years ago, law enforcement officials in the United States and around the world waged the battle against money laundering without support from the business community or other branches of government. At the time, few of the world's governments had passed laws making money laundering itself a crime. Instead, they focused on activities--such as drug trafficking--that led up to it. Because this strategy didn't address all aspects of the growing problem, however, it was only partly effective.

CPAs entered the picture in the early 1990s when, in response to government requests for their help, forensic accountants scoured financial institutions' records for signs of money laundering activity. The evidence they accumulated helped prosecute offenders and contributed to the fight against further offenses.

Now in recognition of accountants' expertise in devising controls that make it more difficult to launder illicit proceeds, government and the business community are asking the profession to come up with recommendations on now to deny money launderers and their accomplices in organized crime opportunities to legitimize their illegal gains. Meanwhile, many nations have supported these undertakings by classifying money laundering as a severely punishable felony.

Independent auditors and other accounting practitioners have a role to play in ongoing public and private-sector efforts to prevent money laundering. The following information on U.S. and international regulatory and legal initiatives to combat money laundering explores the details of that function.

THE LAW OF THE LAND

To fully understand their part in the fight against money laundering, CPAs should familiarize themselves with the provisions of the Bank Secrecy Act (BSA, Titles I and II of Public Law 91-508) and related regulations (31 CFR Part 103), the federal "Money Laundering Laws" (18 U.S.C. 1956-1960) and the rules and regulations issued by the federal bank supervisory agencies, the SEC and securities industry self-regulatory organizations and the U.S. Department of the Treasury. These provisions govern most of the registration, recordkeeping, reporting and control obligations financial institutions and individuals have with respect to money laundering. They also establish civil and criminal penalties for failure to meet related obligations.

The BSA (31 U.S.C. 5312(a)(2)) defines only certain kinds of businesses as "financial institutions" (See "Who Has to Care About the BSA and Why") and requires them to report to the Treasury signs of potential money laundering or any other suspicious activity. …