Money laundering is a crime in almost every country in the world. The term refers to the practice of moving money (or "washing" it) from illegitimate sources into legitimate ones. This is usually, but not always, done to hide income from drugs, gambling, or other criminal enterprises. Because this is largely a crime committed by moving money around, accountants like you are especially vulnerable if one of your clients is doing this. For that reason alone, it’s important to know the signs of money laundering and what to do if you suspect a client is involved.
First off, there’s no one single red flag for money laundering. Because criminals rarely announce what they’re doing, your suspicions probably have to remain just that, suspicions, until the authorities get on the case. Alert the authorities if you see the following:
- False or misleading information: Criminal enterprises often use fictitious identities to conduct their transactions, or they make up backstories that don’t match the facts. There is never a good reason to lie to an accountant who’s under a nondisclosure agreement, so dishonesty from a client is a good warning sign.
- Multiple accounts: Some clients’ financial needs involve having multiple bank or investment accounts. But laundering operations do too. If one of your clients has several accounts of roughly similar type, especially if they frequently move money around in them to no obvious purpose, this can be a sign the client is creating a confusing paper trail.
- Frequent cash deposits: Illegal activity is often done using cash. Seeing lots of small deposits with no obvious source can be a sign the money is coming from something off the books.
- Small- or medium-sized withdrawals: Banks report cash transactions over $10,000 to the government. This goes for single transactions over that limit, as well as smaller transactions totalling $10,000 in 24 consecutive hours. If you have a client who makes something like $9,900 worth of transactions per 24-hour period, you may have someone trying to avoid notice.
If you suspect a client may be involved in something dishonest, such as money laundering, it’s always in your best interest to alert the authorities. At the very least, prompt action on your part can deflect suspicion away from your firm when the crime is discovered.