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the
directors
make the report. If the directors do not do so, or if the fraud casts doubt on the integrity of the
directors, the auditors should make the report themselves.
If the auditors take the view that the financial statements are affected by fraud or error, they should
qualify their report accordingly.
It is the responsibility of the
directors
to take reasonable steps to detect and prevent fraud and error.
6
Money laundering
The growth of globalisation has created more opportunities for money laundering which governments
and international bodies are trying to combat with legislation.
One of the side effects of globalisation and the free movement of capital has been the growth in
money
laundering
.
Money laundering
constitutes any financial transactions whose purpose is to conceal the origins of the
proceeds of criminal activity.
Money laundering
is used by organised crime and terrorist organisations but it is also used in order to
avoid the payment of taxes or to distort accounting information. Money laundering involves therefore a
number of agents and entities from criminals and terrorists to companies and corrupt officials or states
as well as tax havens.
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CHAPTER 10
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IDENTIFYING AND PREVENTING FRAUD
283
6.1 Risks associated with a company's products and services
Some businesses are at higher risk than others of money laundering. For example, businesses dealing in
luxury items of high value can be at risk of the products being resold through the black market or
returned to the retailer in exchange for a legitimate cheque from them.
The increasing complexity of financial crime and its increase has prompted national governments and
the European Union to legislate and regulate the conduct of transactions.
6.2 The effects of regulation
The following information relates specifically to European companies but similar regulations exist in
other countries.
Affected companies must assess the risk of money laundering in their business and take necessary
action to alleviate this risk.
6.2.1 Assessing risk – the risk-based approach
The risk-based approach consists of a number of steps.
Identifying the money laundering risks that are relevant to the business
Carrying out a detailed risk assessment on such areas as customer behaviour and delivery
channels
Designing and implementing controls to manage and reduce any identified risks
Monitor the effectiveness of these controls and make improvements where necessary
Maintain records of actions taken and reasons for these actions
The time and cost of carrying out such assessments will depend on the size and complexity of the
business but will require considerable effort to ensure compliance with regulations.
6.2.2 Assessing the customer base
Businesses with certain types of customers are more at risk of money laundering activities and will
therefore be required to take more stringent action to protect themselves. Types of customers that pose a
risk include the following.
New customers carrying out large, one-off transactions
Customers who have been introduced by a third party who may not have assessed their risk
potential thoroughly
Customers who aren't local
Customers whose businesses handle large amounts of cash
Other customers who might pose a risk include those who are unwilling to provide identification and
who enter into transactions that do not make commercial sense. Before companies commence business
dealings with a customer, they should conduct suitable customer due diligence.
6.2.3 Customer due diligence
This is an official term for taking steps to check that customers are who they say they are. In practice,
the best and easiest way to do this is to ask for official documents or details from these, for example
company registration details. For individuals a passport or driving licence, together with utility bills and
bank statements, would suffice.
If customers are acting on behalf of a third party, it is important to identify who the third party is.
6.2.4 Applying customer due diligence
Businesses should apply customer due diligence whenever they feel it necessary but as a minimum in
any of the following circumstances.
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