1. Case study on Money laundering

A firm of forensic accountants in the UK adopted with significant anti-money laundering an aggressive foreign expansion strategy in order to increase its market share and profitability especially in the international market. Based on this new strategy, the firm established alliances/pacts with a number of small to medium sized fast-growing law firms, primarily with countries within Eastern Europe as well as other EU member States. These law firms are not part of any international network of lawyers, but they share the same willingness to expand their businesses.  

The forensic accounting firm has appointed a Compliance Officer with limited anti-money laundering and compliance experience. The assistance to the Compliance Officer is a junior employee without any experience in compliance.    

The firm’s acceptance policy operates on a risk point’s basis. The riskiness of clients is determined based on just two factors:

 Whether the client is a Politically Exposed Person (PEP), (this criterion carries most of the risk points). PEP’s are identified using a reputable web check platform; and

 What the client discloses as being his business activity.  

All clients that are not PEPs are usually classified as normal risk clients. Work referred to the firm by the foreign law firms is assessed as normal because the company has a policy of relying on their client due diligence (CDD) policies and procedures for its clientele because they are regulated firms and it considers the referrers as trusted associates. 

The firm’s management requested from the compliance team to ensure that their work contributes towards the firm’s strategic decision for growth and expansion in foreign markets. It now transpires that one of the accounting firm’s international clients, referred to by a law firm in Eastern Europe, is on that country’s Ministry of Works and Pension List for Corruption and Fraud  and the Forensic accounting firm is now considering its options.

a. Identify the critical issues and potential risks that this forensic accounting firm could face.

b. What KYC/Due Diligence procedures should the forensic accounting firm have implemented?