Accountants, Corruption, and Money Laundering
Larson, Robert K., Herz, Paul J., The CPA Journal
Corruption, particularly in the form of money laundering, has received renewed attention since the events of September 11, 2001. In October 2001, President Bush signed into law the USA Patriot Act (USAPA), which, among other provisions, targets money-laundering activities. The U.S. Department of the Treasury is in the process of issuing a series of rules for the implementation of the act. It is important for businesses, business advisers, investors, and investment advisers dealing in foreign countries and with foreign corporations to be aware of this continuing global problem. While accountants have long been involved in the fight against corruption, their role is more important than ever.
Accountants' Fight Against Corruption
In response to a rash of widely publicized corporate bribery cases in the 1970s, the U.S. Congress passed the Foreign Corrupt Practices Act (FCPA) of 1977, which was amended in 1988 and 1998. The FCPA clearly states that U.S. businesses must not engage in illegal bribery and must have systems of internal controls to detect and prevent illegal payments. The 1988 amendments to the FCPA increased already harsh penalties for noncompliance (now up to $2 million for organizations, and $100,000 or five years in jail for individuals).
The International Federation of Accountants (IFAC) is also lighting corruption. IFAC's membership consists of 155 professional accounting associations, including the AICPA, representing 113 countries. IFAC issued a discussion paper on anti-money laundering in January 2002. IFAC views corruption broadly and includes "bribery, fraud, illegal payments, money laundering, smuggling and as many other forms as criminal minds may devise." For more information, or to view the discussion paper, visit www.ifac.org.
USA Patriot Act
The USAPA was intended to strengthen the federal government's ability to combat terrorism and to prevent, detect, and stop money-laundering activities. In September 2002, Jimmy Gurule, undersecretary of enforcement in the Treasury Department, announced:
We have been successful to date in forging an international coalition against terrorist financing. Since September, we have designated 236 individuals and entities who are supporters of terrorism and have blocked their assets and the channels that these terrorists use to move money. Worldwide, we have blocked over $112 million and have deterred donors and supporters from providing financial aid to terrorist groups. We are making a difference by making it risky and harder for terrorists to raise and move money.
The USAPA and its new money-laundering regulations affect a broad range of "financial institutions." As defined by the act, financial institutions include banks, securities firms, credit-card companies, insurance companies, mutual funds, hedge funds, wire-transfer firms, casinos, and commodity dealers.
The USAPA has a number of provisions intended to stop terrorists and others involved in money-laundering activities. Probably the most important is the requirement for comprehensive money-laundering compliance programs. The USAPA modifies 31 USC 3158(h) to read as follows:
(h) Anti-Money Laundering Programs.
(1) In General-In order to guard against money laundering through financial institutions, each financial institution shall establish anti-money laundering programs, including, at a minimum
(A) the development of internal policies, procedures and controls;
(B) the designation of a compliance officer;
(C) an ongoing employee training program; and
(D) an independent audit function to test programs.
The act specifies requirements for recordkeeping and reporting of certain financial transactions. For example, section 311 of the act states that if the Secretary of the Treasury is concerned about money laundering, the secretary "may require any domestic financial institution or financial agency to maintain records, file reports, or both, concerning the aggregate amount of transactions, or concerning each transaction. …