As much as you’d like to think that every dollar your clients make is honest, there are tons of companies earning money in illegitimate ways. Once a company collects this illegal money, it comes across the issue of how to handle its "dirty money." These companies often go through a process called money laundering to clean the record on how they got the money. Although the money might not have been earned ethically, your client may go through lengths to make it look like it was.
The reason some of your clients launder money is to protect themselves. If they handle the cash in certain ways, law enforcement, regulatory agents, or external auditors may become suspicious. If the money was earned under the table, your client may have to pay taxes on it based on how it records the money. If it’s coming from another company, there may be additional taxes or import fees.
There’s a number of ways to launder money. Using a technique called structuring, your clients can break down a large sum of cash into smaller deposits. The goal of structuring is to avoid suspicion that may occur from a single huge deposit. Your client may also smuggle cash into an offshore bank. These institutions typically have less enforcement when compared to the rules of your client’s local bank. Trade-based laundering happens when your client intentionally overstates or understates invoices to strategically move money between companies.
As you handle your client’s records, look for suspicious bank activity. If you’re in an auditing function, confirm the legitimacy of invoices and test for reasonableness regarding how much is being paid or charged. Although you might not be able to check call logs, emails, or contact lists, be alert for suspicious activity if your client is in touch with foreign banking officials. If your client has set up multiple legal entities, keep an eye out for the legitimacy of operations for each company beyond just documentation.
Money laundering is real, and many individuals resort to these methods when they accept cash from unethical or illegal activities. By keeping an eye out for certain patterns and behaviours, you’ll be knowledgeable if your clients are doing business in ways they should not be.