Money laundering

Will auditors become more like Tom Cruise in the future? Well, if I was to make a prediction…

Published on: 28 Feb 2013

Gone are the days when auditors were manually checking and ticking lots of pieces of paper. Today’s auditing techniques involve significant use of computers.

But how far can this computer use go? Will they be able to predict when accounting fraud is going to take place as opposed to tracking transactions that have already occurred?

The film Minority Report starring Tom Cruise was based around software that could predict when a crime was going to happen and the culprits would be arrested before they actually committed the crime. Although this film seemed well and truly within the realms of science fiction, two police forces in the UK have recently begun trials of a sophisticated computer software package which aims to predict where and when future crimes are likely to occur.

The software is known as Crush (Criminal Reduction Utilising Statistical History) and is used to identify potential crime hotspots based on a variety of data including crime reports, offender profiles and strangely enough even weather forecasts.

Once these upcoming crime hotspots have been identified then the police can allocate resources accordingly.

The system is produced by IBM and the UK tests are based on a successful roll out of the software in the US by the Memphis police force which resulted in a reduction of serious crime by 30%.

Back to auditing though and will the next step be predicting when a fraud is likely to occur using statistical analysis based on industry, profit movements, director’s personal life and spending habits (plus the weather of course)?

Given the reliability of some computers though, one thing for sure is that is if you happen to live in a town called “Syntax Error” then you may have a surprise visit from a Tom Cruise lookalike with a briefcase and a calculator.

Would you steal £30m from ING Bank?

Published on: 17 Jun 2011

How much would you try to steal from your employer if you work for ING bank and you’re an accountant?

Hopefully most of you would not try to steal anything from your employer but if you were a lady by the name of Rajina Rita Subramaniam who worked for ING in Sydney, Australia for 20 years then the temptation was just too much.

So what did she steal?

A few pens? Maybe some yellow post-it stickers?

Nope, not even close.

According to press reports in Australia Rajina is about to plead guilty to defrauding ING of an astonishing AUS $45 million (approx. £30 million).

The sharp eyed amongst you will probably guess that she didn’t take if from the petty cash til.

She allegedly siphoned off millions of dollars from the company into a number of private accounts.

Rather than hold on to the stolen money for a rainy day she spent the money on a variety of items including beachside apartments and diamond jewellery (oh, and rather bizarrely some Michael Jackson memorabilia).

Even ignoring the items such as luxury properties she had outside her office, Police allege that she had over 600 pieces of jewellery as well as 200 perfume and make-up items in her office at the ING building where she worked.

Whilst Ms Subramaniam was temporarily one of the wealthiest people in Australia I don’t think she was one of the brightest. Surely it must have been obvious that when a normal bank employee started having the lifestyle of a Saudi Prince there would be certain suspicions raised.

After all, how many of her colleagues also had luxury properties looking over Bondi Beach and wore a Bulgari diamond necklace worth nearly £1 million.

According to prosecutors, the thefts came to light when staff at Bulgari saw that the accountant was paying for luxury items via direct transfers from ING accounts.

It’s not clear from the reports whether Ms Subramaniam wore a Michael Jackson diamond studded single glove to meetings in the office.

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Who can really be trusted to keep a secret? Accountants or lawyers?

Published on: 01 Nov 2010

When you speak with your lawyer, you can say almost anything and be confident in the knowledge that the lawyer will be able to preserve the confidentiality of your discussion.

Most people probably assume the same thing when having discussions with their accountant, especially in the context of discussing tax planning opportunities with a tax advisor.

Unfortunately, English readers should pay careful attention to the decision in a recent case, R (on the application of Prudential PLC) v HMRC, EWCA Civ 1094 if you would like the full legal citation.

This Court of Appeal decision stated that client privilege only extends between a lawyer and a client.  This means that any discussion between a client and an accountant cannot be guaranteed to be confidential.

This is an English legal case, which is binding in England and Wales only, but the judgment is based on common law, so is likely to be highly influential in jurisdictions based on the English system globally.

As the accountancy and legal professions increasingly compete, especially in the area of tax advice, this gives a significant advantage to the legal profession over the accountancy profession.

Who would you rather seek advice from: a lawyer who you are confident cannot be compelled to reveal the content of your discussion, or an expert accountant who is unable to promise confidentiality?

If you talk to a lawyer about this then they may well say they were pleased that they had this advantage over accountants.

Note of course though that if they felt like it they wouldn’t have to disclose what was said in your conversation…

Look out for two prostitutes, £3.7 million of stolen cash and a 58 year old accountant at your local Toys R Us store.

Published on: 06 Sep 2010

Toys R Us is one of the largest toy store chains in the world.

It’s very successful and has nearly 1,300 stores around the world. What it didn’t have though was a strong internal control system in their UK purchase ledger department.

Between 2006 and 2008, married father of two and accounts payable manager Paul Hopes made over 20 illegal payments ranging from £100,000 to £300,000 to bank accounts of fictitious toy suppliers in the Far East which he had set up himself.

The £3.7 million of illicit money was then spent on various items. One of Mr Hopes favourite methods of spending the money was on Wednesday nights when he would regularly entertain 2 prostitutes at luxury hotel suites.

As well as paying for their time and energy he also bought them a string of luxury cars including a Bentley, Toyota Land Cruiser and a BMW M3 (incidentally, his wife was at the time driving the family Ford Mondeo).

In total he spent nearly £2.5 million on the two prostitutes.

It all came to a sticky ending for Mr Hopes though as he was sentenced to 7 years in jail.

What is interesting about the sentencing is that under the Proceeds of Crime Act the Judge ordered Mr Hopes to repay £3.4 million of the £3.7 million stolen. If he fails to repay the £3.4 million then an additional 10 years will be added to his 7 year sentence. At the end of the 17 year sentence he will still be obliged to repay the £3.4 million.

Now, remember that Mr Hopes is an Accountant so I’m sure he’s an expert in double entry but even the best bookkeeping skills won’t be able to make “income” of £3.7 million minus “expenses” of £2.5 million equal a balance of £3.4 million.

I guess he’s hoping that these two particular ladies are now desperately trying to find him every Wednesday evening to give him the money back.

How can you make a salary of £26,000 stretch to buying a horse riding business, a holiday home, luxury holidays and a Range Rover costing £45,000?

Published on: 23 Jul 2010

It seems that not all accountants are 100% honest.

Whilst the vast majority of accountants are  trustworthy there were two court cases in the UK this week that resulted in jail sentences for accountants.

Gary Gordon, who previously worked for the Big 4 firm PricewaterhouseCoopers, stole £45,000 from his employer UK Mission Enterprises. He rather unimaginatively simple diverted the cash into his own accounts.

He apparently had a gambling habit and didn’t appreciate the amount of money that he had stolen. He’s been jailed for 16 months.

£45,000 however pales into insignificance when compared with £1.3 million which was the amount that Tracey Laws stole from her employer Inchcape Limited.

Inchcape Limited is the parent company of a number of motor trading companies in the UK and for nearly 10 years Laws wrote 75 fraudulent cheques totaling £750,000 to her own horse riding school (which she had set up with money that she had already been stolen from her employers). She had also fraudulently transferred over £500,000 to her husband’s decorating company.

Despite having a maximum annual salary of £26,000 during her time with Inchcape she managed to buy a horse riding school, a holiday home, luxury holidays and a brand new Range Rover.

It wasn’t these mis-matched spending habits that caught her out though. Her crime was uncovered by accident when one of the motor trading companies was changing payment systems and two employees noticed a cheque made out to West Acres Stables (the stables owned by Laws).

These two observant individuals noticed that the handwriting looked very much like the handwriting of Tracey Laws. It turned out that it was her hand writing and the end result was that Laws was jailed for four years last week.

No doubt there are new internal controls in place at Inchcape and looking on the bright side for Laws she will at least save her annual accountancy membership fees going forward and she will also have her bed and breakfast supplied free of charge by Her Majesty’s Government for the next few years.

The “Princess and the Pea” is a famous fairy tale but should there be a new version called the “Princess and the Pound Notes”?

Published on: 31 May 2010

Sarah Ferguson, the Duchess of York and former wife of Prince Andrew, has been in the news for all the wrong reasons.

Evidence came to light last week of the former member of the British royal family accepting money in used bank notes to arrange access to her husband ($40,000 as an initial payment of an agreed total of £500,000). Many people were shocked as taking money to arrange access to people in influence could look like corruption.

The Duchess of York (no longer referred to as “Her Royal Highness” following previous run ins with the more senior royals) may be in greater trouble than the public relations mire and financial trouble that she admits to being in.

If the Duchess was not planning to include full and frank disclosure of the cash received (or what some people may call “bribes”), she appears to have been engaging in activity that could look like money laundering. Accepting payment in notes and coins is often fairly good evidence of wanting to disguise the origin of the funds.

Now whilst money laundering shouldn’t normally be an issue for an ex-Princess, money laundering is big news for professionals, especially professionals practising in the European Union.  The EU’s third Directive on money laundering requires that all accountants and tax advisors are effectively trained in detection of money laundering.

Penalties for non-compliance with this can be severe. Money laundering, or facilitating money laundering, under UK law can carry a criminal sanction of two years’ jail time.

This could be an interesting bit of gossip to follow for students!  Maybe the Duchess should use some of those used bank notes to engage the services of a good lawyer?

Do you have a €500 note on you? If you do then there’s a 90% chance you…

Published on: 21 May 2010

The UK doesn’t officially use the euro, though there are a fair few shops that choose to accept it voluntarily, and normally at a rather unattractive rate of exchange.

This means that although not legal tender, euro bank notes are not an unusual sight on the streets and in the exchange booths of the UK.

One that you won’t find from now on, however, is the €500 note.  This rare beast of considerable value is fairly commonly seen in Germany, where it’s culturally normal to pay for even large purchases in cash.  The other place that it’s found is in the hands of criminals and money launderers.

Proceeds from serious crime (eg people trafficking) are not much use unless they can get into the banking system and from there used to buy nice things like expensive cars and villas in some nice, warm place.  Getting dirty money into the apparently clean banking system often involves having a “friendly” bank somewhere that will turn a blind eye to where the funds are coming from.  This does, however, give a logistical challenge to the UK based serious criminal.  If one wishes to transport £500,000 from London to a “friendly” bank abroad, it’s necessary to fly and go through pesky things like X-ray machines and customs declarations.  Airport security staff are trained to spot the metal strips in bank notes in X-ray machines and alert police to what is likely to be proceeds of crime being moved.  The logic is that if the flow of money out can be stopped, the flow of illicit activity in will also dry up.

Enter the 500 euro note. This wee beast is compact enough that €20,000 can be rolled into the inside of a cigarette packet, which conveniently is wrapped in metal, thus becoming invisible on X-ray machines.  It’s about 20 times more compact than the £20 bank note.

The UK government estimates that a full 90% of €500 notes in the UK are used to service serious crime.  Thus they can no longer legally be sold in Britain.

If Britain ever adopts the euro as its official currency, this may require something of a rethink!

G-20 conference requests public listing of money laundering territories

Published on: 08 Nov 2009

The examiner clearly reads a good newspaper on a regular basis and perhaps gets inspiration for future examination questions.

Which newspaper do you read?

In her article ‘Examiner’s approach to Paper P7 (ACCA)’, which appeared in the January 2007 edition of Student Accountant, Lisa Weaver made the following comments:

“A note on current issues – there is likely to be at least one requirement per exam dealing with a current issues topic.”

“Candidates should appreciate that they are expected to read around current issues and not rely on manuals from tuition providers. Good quality newspapers, professional journals, as well as ACCA’s website, provide sources of information on current developments in audit and assurance.”

I recalled the examiner’s comments when reading in the Sunday newspapers about the G20 conference earlier this year. I also recalled that since 2005, candidates sitting for the advanced level auditing paper have had to be familiar with the international anti-money laundering standard and know the implications of its recommendations.

Have you read a good newspaper today yet? Nothing wrong with starting with sports section, my personal preference, but make sure you read the rest of it as well!

The ExP Group