Money Laundering: Ring around the White Collar: How Hide-and-Seek Becomes a Game for Auditors
2003; American Institute of Certified Public Accountants; Volume: 195; Issue: 6 Linguagem: Inglês
ISSN
0021-8448
Autores Tópico(s)Crime, Illicit Activities, and Governance
ResumoMoney laundering is so widespread CPAs are likely to encounter it at some point in their work. It is an essential element of the underground economy which, worldwide, amounts to trillions of dollars. An independent auditor's responsibilities in the area of money laundering, because it is a criminal act, are governed by Statement on Auditing Standards no. 54, Illegal Acts by Clients, which requires CPAs to be familiar with the types of illegal behaviors that could have a direct and material impact on financial statements. The new fraud standard, SAS no. 99, Consideration of Fraud in Financial Statements, requires independent auditors to assess the risk that fraud could materially misstate the financials. Eddie Antar, the president and CEO of Crazy Eddie's Electronics, a nationwide chain, and architect of a classic money-laundering scheme recounted here, shared a common problem with everyone else who has ever accumulated illegal loot: where to hide it. In this article CPAs will learn the basics of money laundering--what it is, how it is accomplished, ways to detect it and how thieves hide the money. In money laundering the fraudster disguises the existence, nature, source, ownership, location and disposition of property derived from criminal activity. Currency is a popular commodity in criminal activity; it is fungible--one dollar looks just like another--and further loses its identity when entering the economic stream. The downside is that currency is bulky and vulnerable to discovery, especially with today's heightened security. Also, the launderer is hardly in a position to complain to the authorities if it is stolen. The trick for money launderers--from dishonest businessmen to the drug kingpins--is to deposit currency into financial institutions without drawing attention. If they succeed at this, they greatly reduce their chances of being discovered and can use the money for a variety of purposes. If, on the other hand, alert CPAs recognize the signs of criminal activity, their plans will be foiled. LEGITIMATE BUSINESS/ILLEGAL MONEY Fraudsters use two methods to launder funds in a legitimate business. Overstatement of reported revenues means that illegal money is mixed with legitimate money, thereby boosting total revenues. The downside of this method is the perpetrator must pay taxes on the money. To avoid this, many launderers make extra payments to themselves in the form of disguised consulting fees, salaries and the like. Balance sheet laundering occurs when the thief parks the money in the company bank account. The problem with this method is that it is easily detected; the company bank accounts would be overstated by the same amount when compared with the financial statements. However, balance-sheet laundering provides one major benefit to the miscreant: The illegal loot is safely locked away in a bank. ON THE ALERT There are common threads that CPAs should be aware of that have emerged from studying money-laundering schemes. * Small companies--which typically have fewer employees and less stringent internal controls--are most likely to be used as vehicles for money laundering. Attempting to deposit ill-gotten gains to a large entity, although not impossible, usually requires too many conspirators inside the company. * Certain types of businesses--especially those that deal in currency--have historically been favored for concealing dirty money. These include bars, restaurants and nightclubs. * The most obvious clue to the use of a legitimate business to launder money is in the company's profit margin. Money launderers sometimes prefer to pay taxes on their ill-gotten gains, as it legitimizes the transaction. CPAs should be suspicious when profits are well beyond industry norms. * Similarly, the owners of a small business used as a money-laundering front are likely to be extremely well-compensated. Ostentatious displays of wealth by the owners or employees are a red flag that something crooked may be afoot. …
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