COMPLIANCE
Nikki Coles, deputy manager, compliance and professional standards, the Institute of Accountants and Bookkeepers (IAB), provides guidance in this area of utmost importance, to ensure smaller businesses are mitigating against the risks of money laundering activities undertaken by unscrupulous criminals How small businesses can protect themselves from money laundering criminals
M oney laundering has become a significant concern for businesses of all sizes, including small enterprises. Criminals have identified payroll services as a potential avenue for legitimising the proceeds of their illicit activities. The lack of adequate anti-money laundering (AML) training among payroll staff, along with poor mitigations, could result in a high risk of funds being laundered through these services. This article will delve into the indicators of such risks and provide effective strategies to mitigate them. Indicators of small businesses at risk of money laundering Staffing levels One indicator of a potential money laundering risk is when staffing levels aren’t proportionate to the size and nature of the business. If there are a substantial number of staff on the payroll of a client but the turnover is relatively small in comparison, or the output of the business doesn't warrant the staffing numbers of the client, then this should raise concerns.
caution when serving clients in these high- risk areas.
be a potential sign of money laundering. Criminals may manipulate payroll records to make their illicit funds blend in with legitimate income. Therefore, payroll providers should scrutinise any irregularities in payment patterns and investigate further if any suspicions arise. Discrepancy within wages of workforce Discrepancies within the wages of the workforce can also point towards potential money laundering activities. If certain employees are receiving significantly higher salaries compared to their counterparts without any justifiable reasons, it may indicate the presence of illicit transactions. Payroll providers should carefully review the wages of the entire workforce to identify any such disparities and report them promptly.
Unclear beneficial owner structure An unclear or complex beneficial
owner structure can also be an indicator of potential money laundering activities. Small businesses with convoluted ownership arrangements can present opportunities for criminals to obscure the origins of their funds. Payroll providers should thoroughly investigate and verify the ownership structure before taking on such clients to mitigate the risks associated with money laundering.
Low paid manual labour workforce A small business employing a predominantly low paid manual labour workforce can also be at risk.
Criminals may exploit vulnerable workers by paying them wages that are disproportionate to the value of their services. This discrepancy within the wages of the workforce can indicate the presence of money laundering activities. Payroll providers should exercise vigilance in such cases and consider conducting additional due diligence to ensure compliance with AML regulations. Consideration should also be given to whether modern slavery is at play. This would also need reporting as a suspected criminal offence. Irregular hours or pay If a small business operates long or irregular hours yet all employees receive the same pay, it could
Client in high-risk jurisdiction If a client is based in or conducts
business in a jurisdiction known for its high risk of money laundering, additional caution must be exercised. Such jurisdictions often have weaker AML regulations and monitoring systems, making them attractive to criminals. Payroll providers should conduct enhanced due diligence and closely monitor transactions associated with clients operating in these areas. Evasive or incomplete information When a client is evasive or provides only basic information when
Cash-intensive business Another red flag to watch out for is if the client operates a cash-
intensive business. Sectors such as nail salons, hairdressers and takeaways are particularly vulnerable due to their high cash transactions. Criminals may exploit these businesses to mix their illicit funds with legitimate revenues, making it difficult to identify the source of the money. Payroll providers should exercise extra
| Professional in Payroll, Pensions and Reward | February 2024 | Issue 97 22
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