Agile money laundering personas

Mike Yo-Yo

Mike attends your office to meet you. Mike is quiet but pleasant, a little bit scatty and unsure what he is doing. He would just like to liquidate his company and he would normally use the IP his accountant recommends but would like to save some costs and saw your website advert. He is a little bit concerned and nervous about the process. He keeps asking about costs and where he pays as he is trying to get this all sorted before he goes on holiday. His wife normally does all this but she has passed away recently.

You mention a fee of £5,000 and Mike accepts the cost without any issue.

All the relevant AML documentation has been received and looks clear, so you send the engagement letter and Mike pays the fee immediately. Mike looks like a perfect client. He is a little bit slow to respond to signing the engagement letter, but says he’ll do it when he gets back from holiday.

Mike contacts you a while later after returning from holiday. He is sorry but has had a change of heart. His sons are now back talking to one another and want to help out. It’s been a difficult period with his wife passing.  But you’re busy, no need to explain and go ahead and pay the funds back. How annoying a good client has been lost, but at least he will be happy he got his money back quickly and hopefully he will use the firm again if he changes his mind.

AML risks

Mike is unlikely to be returning. If he does, maybe it was just another internet banking problem. He just selected the wrong payee. Maybe in a few months your cashier might get another strange payment into the account.  Mike Yo-Yo just puts his money in and asks for it back, cleaning the dirty money through your account. He will travel around firms trying his luck, maybe it was just an internet referral or maybe he is a friend of a friend you did an MVL for years ago he recommends you. After a few attempts, he gets a name you vaguely recognise (Prior MVL appointments are all available to search on the Gazette and Companies House)  

Action points to minimise risks

Submit a SAR and defence against money laundering (DAML). Review your firm’s risk assessment and AML procedures.  Check at what stage new clients are given your banking details.  Check where funds were paid from. Maybe time to review your cashiering risk safeguards under SIP 11 and your AML risk assessment.

Georgina Cloney

Georgina approaches you for help. She is the sole director of a small service business and advises that the main client has now switched suppliers and the business is no longer viable. You check Companies House, and this indicates the business has only been trading for 2 years but there is a set of accounts filed. Georgina advises that all the employees are owed money, and she is also an employee of the company and will be submitting a claim via the RPO.  

The AML client due diligence is a little difficult to gather, but you have a driver’s licence and  a copy of a utility bill and some basic company records, so you proceed with the case.

Employee claims arrive and Georgina submits her claim. You have asked for some employee records or payroll records, but these are not being provided, and employees are calling you to ask where their funds are. You process the redundancy forms and send to the RPO for payment to be made.

AML risks

As you would expect, Georgina is very smooth and looks to be as helpful as she can be to have the company put into Liquidation and employee claims lodged. What you won’t realise without extra due diligence is that Georgina’s business is a clone. You think yours is unique but actually Georgina has a number of other companies all incorporated around the same time with different names which all have employee claims but little or no employee records. What you won’t realise without effective due diligence is that all the filed accounts look remarkably similar or even the same. It might be worth another look at the information supplied.

Action points to minimise risks

Regulation 28 requires Insolvency Practitioners to apply customer due diligence measures.  Most people know that you need verify and be satisfied with the identity of a new client and verify beneficial owners. What is a key factor missing is Regulation 28 (12) which requires an assessment of risks in line with a firm’s risk assessment under Regulation 18 and also an assessment of the level of risk arising from any particular case. As per Case 1, you will need to submit a SAR , review your AML risk assessment and check your policies, controls and procedures under Regulation 20. You also need to revisit your staff training to make sure they know how your electronic due diligence works, they know the different types of identity that exist and how to verify ID if there is a concern.

Also, where there are employee claims being lodged, do you have any payroll records to indicate that the claims received seem right, and where a director is making a claim, do the records satisfy you that the director had employee status?

Nicki Launder

Nicki appears to be a successful businesswoman. She is known for her purchase of a property portfolio and has branched out into buying works of art. She comes to you as she says she has had a falling out with a former business partner on a sale of a property and there is a bankruptcy petition hanging over her.

You agree to act for her in resolving the issue and it is agreed that two works of art will be sold, the former business partner is paid in full, a small amount of CGT is paid to HM Revenue & Customs and Nicki agrees a fee of £7,500 for you for helping her.

You receive the CDD documentation, and a letter of engagement is signed. Nicki introduces her agent who arranges a private sale of the paintings and deposits the funds with you. You make the payments to HMRC, the partner and draw your fee before sending the residual funds back to Nicki. A job well done!

AML risks

Nicki looks the part of a successful businesswoman who has hit a ‘bump in the road’ and needs some help to get through this and move forward with her life and career.

What the CDD checks failed to show was that the property and art were purchased with criminal funds sent to Nicki from Russia. The sale of the artwork was dealt with by her agent who is in on the position and is paid for his trouble. The partner was also a part of the scheme, and all have now gone missing. The only person left is you who now realises that you have laundered money through your account, and which is now back in Russia.

Action points to minimise risks

Due diligence measures on the person/company are of vital importance. But it is also important that where there is a significant asset that appears in an estate you are dealing with, you understand how the purchase was funded and where the funds originated. Make sure you have clear evidence of the purchase and where an agent is recommended to you. Do some background checks if you do not know of them. Has anyone else worked with them? If in doubt, advise you want to use your own, known agents. If Nicki was legitimate, this should not be a problem.

Jonathan Cash

Jonathan has appeared to run a successful local company which runs two take-away business. Jonathan approached your firm as he has received a large tax bill which he says was ‘out of the blue’ and which, from company records he provides from his accountant, cannot be paid.

You agree to place the company into a Creditors Voluntary Liquidation. The take-on work – ethics review, CDD checks, engagement letter, as well as the formal placing of the company into Liquidation – goes smoothly. Plus, Jonathan paid you a £3,000 fee for pre-appointment costs without any hassle, and there was a quick sale of assets to a third party Jonathan introduced that provided over £10,000 to the case account. This looks like a good, quick, simple job!

You start your investigations under SIP 2, and alarm bells start to ring. From being so helpful, Jonathan is not responding to messages and emails, and the ‘accountant’ who provided records (via Jonathan) has also stopped responding to messages. You check Companies House, there are no accounts filed for the last 2 years.

Then the bombshell hits – the bank whom you were advised and for which you saw a statement advise that the company has never banked with them. You know you received a personal statement from Jonathan as part of the CDD work. You contact that bank and note that all the banking is through Jonathan’s personal accounts, and there are hundreds of deposits being made, transfers to overseas accounts and significant withdrawals since the Liquidation process started, so the account now has a nil balance and is being closed. You also see that the £3,000 fee came from this account, was paid to the accountant who paid you, and £10,000 went to the third party who then paid for assets.

AML Risks

Whilst everything seemed OK at first glance, you now realise the business was a money laundering front for county line drugs dealing. The main risk is that you now have tainted funds in your case account. You also received and drew a fee from tainted funds. Jonathan, his ‘accountant’ and the third party have disappeared. Did the accountant and third party exist?

Potentially you could be paying a dividend from tainted funds, and are you content that the creditors in the estate are all legitimate?

Action Points to Minimise Risks

Everything looked fine on the CDD review, but better checks on the Companies House filings may have raised an alarm that you could have raised pre-appointment? Plus, did you actually ever speak to or receive a direct email from the ‘accountant’? Is there any presence of this person online? Are they listed on the ICAEW website as a licensed member? Did you carry out any checks on the third party and ask for evidence of where the £10,000 funds originated?

Do not distribute the funds you hold. Make sure that you either repay the £3,000 drawn back to the estate, or transfer the funds to a separate ring-fenced account and report the position to the National Crime Agency (NCA) via a SAR. You should also make a DAML request for the drawing of the fee.

Check the creditors – it is likely that the creditors will be legitimate. The main creditors will likely be suppliers and a very large unpaid tax claim from HM Revenue & Customs – a further sign of possible criminal/money laundering activity. If you are content that the creditors are legitimate, again issue a DAML request to the NCA to distribute funds.

If you are not content that all the creditors are legitimate, carry out the usual checks and reviews of claims. If the claim cannot be evidenced, reject. At this stage, the dodgy creditor will not pursue this to an appeal. But prior to distributing, make the DAML request as you are still looking to distribute tainted funds.