Requirements for Preventing Money Laundering Affect Many Businesses
A variety of businesses, such as jewelers, travel agents, real estate brokers, and car dealers, have certain legal requirements under the Bank Secrecy Act of 1970 (BSA). The BSA also includes specific requirements mat can affect certain high-risk taxpayers and their tax preparers.
In order to limit risk exposure, even for firms whose business is limited solely to notfor-profit entities, it's crucial to have knowledge of BSA requirements. Not-for-profit entities have new BSA requirements focused on terrorist financing. No longer are BSA provisions important only to larger CPA firms mat audit banks and investment brokers. Even the smallest sole proprietor is likely to have clients affected by the BSA and subject to its Suspicious Activity Report (SAR) requirements.
CPAs should be concerned not just about protecting their clients, but also about protecting themselves. CPAs in both public and private practice need to be cognizant of the risks of indirectly supporting terrorism. Additionally, there's the risk of unwittingly being in violation of national and international law, thereby jeopardizing licensure. A variety of legislation in the past decades, including the Patriot Act as well as the BSA, changed the legal landscape for accountants. Anyone involved in audits, tax preparation, or financial reporting needs to become familiar with SAR and other reporting requirements, as well as the basics of money laundering practices. The carrot dangling from mis stick is the opportunity to develop specialized expertise and expand engagement services.
What Is Money Laundering?
When most people hear the phrase "money laundering," they think of drug dealers. The U.S. Drug Enforcement Administration estimates that Americans spend $65 billion per year on illegal drugs, of which only $1 billion is seized by all federal agencies combined. That leaves $64 billion to finance additional activities by drug trafficking organizations. A portion of those proceeds are used to pay suppliers and to support the infrastructure of these organizations, but a substantial amount remains available for other uses, including acquiring personal wealth, expanding into other illicit activities such as prostitution and human trafficking, and financing terrorist activities around the world.
This $65 billion is a drop in the bucket when money laundering is considered on a global scale. The intergovernmental Financial Action Task Force (FATF) estimates mat up to $1.46 trillion is laundered annually worldwide - more man the gross domestic product of the United Kingdom. The World Bank cautions that money laundering and terrorist financing are global crimes. It is difficult to determine whether any particular act is related to terrorism or to organized crime, simply because the two are often interrelated. Perpetrators internationalize their operations to make it hard to follow the money by adding layers of complexity, exploiting constraints of communication across national borders, and avoiding jurisdictions with strong regulation and law enforcement.
Historically, the objective of money laundering was to conceal the existence, illegal source, or ownership of proceeds derived from criminal activity - to make the illegal proceeds look legal. Terrorist financing has expanded the objective of money laundering to include activities intended to disguise the source of funds that will be used to carry out terrorist acts, even if the source does not involve illegal activities. Osama bin Laden began as a rich financier and gained power by building a financial network characterized by multiple layers that allow al Qaeda to raise funds from businesses worldwide operating under a cloak of legitimacy, as well as utilizing a foundation of intermediaries, banks, and other financial institutions. Over time, al Qaeda moved its funds through a global network of businesses and charities, the Islamic banking system, and other parts of the global financial system to distribute money to cells in the field. …