Cash And The Forensic Accountant’s Dilemma

Call me old fashioned if you like but I don’t like owing money and I do like a wallet full of cash! The credit driven economy and the ease of using plastic to pay must be one of the root causes of the boom or bust cycles that we see and probably also for the growing differentials between the super rich and the very poor. However, moving away from the cash based economy seems inevitable, and is a particularly important issue given the role of cash as the cornerstone of criminal activity.

Cash cannot be traced in the same way as electronic payments. It does not leave any form of audit trail unless users take the trouble to record the unique identification numbers on each note, something that is never done as a part of normal accounting practice.

When I examine a business that has dealt in substantial amounts of cash, it can be hard to know that the accounting records seen are complete and accurate. When a criminal’s bank statements are examined, it is sometimes difficult to see the full picture, if he has been dealing in cash also.

Anti money laundering frameworks

Anti-money laundering frameworks place obligations on businesses when dealing in cash sums of more than €10,000. These include ensuring that the source of any cash received has been checked to reduce the risk that the money has come from criminal activity. However, it is definitely not illegal to deal in cash.

The scale of money laundering is huge, representing the proceeds of crimes such as drug trafficking, extortion, people smuggling and other forms of racketeering. In addition, there is tax evasion and the black economy withholding vast sums of revenue that could be invested in public services or otherwise circulated legitimately.

These criminal funds are estimated to be £ trillions (yes that’s nine noughts!) moving around the world every year. While this money still forms part of the global economy, it would be better transacted through legitimate channels. For example, we are all aware of the current dire economic state of Greece in recent years. Whatever the overall cause of this, the situation was clearly exacerbated by the black economy whereby cash was king and nobody paid any taxes. I am aware of this from my time living in Greece.

Some people just like cash!

The culture of avoiding taxes prevails in every country in the world. In some it is stronger than others. Generally, the avoidance of tax goes hand in hand with a strong culture of using cash for everything, including large transactions such as property deals.

This culture is evident in many of the forensic accounting cases that I handle every year. For example, somebody who has migrated to the UK sells a property in Pakistan and remits the funds from abroad. The house sale is conducted in cash, and the proceeds are taken to a local money transmission agent who sends them to the UK. The money will be deposited after a day or so into the UK migrant’s bank account – or he will be asked to collect it as cash from a transfer agent’s office – or sometimes as a handover in a supermarket car park!

Question – What Legislation Prevents A Person Collecting An International Money Transfer As Cash – If None, Is There Any Legislation That Obliges An Individual To Carry Out Due Diligence On The Source Of The Funds That He Is Receiving?

At present there is no legislation, but an unwary recipient might find himself in hot water with the law!

The sale of the property in Pakistan, even when conducted through lawyers, has avoided the fiscal attention of the authorities. The transfer of the money has remained outside any Central Bank restrictions and official exchange rates. No capital taxes will have been paid on the sale. Technically the source of the money is therefore illegal – but it is possible that the recipient in the UK being sent funds by his solicitor in Pakistan believes them to be legitimate. If lawyers and estate agents abroad are prepared to use unregistered transfer agents to send money to the UK, what chance does the unsophisticated recipient have if the funds then enter the criminal network?

Unfortunately, there is a possibility that the Pakistani transfer agent is part of an organised money laundering gang. If not, it is even more likely that he utilises the services of such a gang with a head office in Dubai (or elsewhere) to facilitate the international transfer. The relatively “clean” funds (remember they have probably avoided any tax in Pakistan in this example) have now entered the criminal network. The respective value will now be paid out to the migrant in the UK – only he will receive criminal street cash in his hands.

Is The Banking System The Only Safe Way To Remit Funds?

You do not have to be a money-laundering specialist to regard the receipt of large sums of cash “sent” from abroad with suspicion. Yet many, particularly eastern cultures, are happy to receive money in this way. It is this disparity in our respective attitudes towards cash that gives me as a forensic accountant a problem. It appears that I must take into account a person’s ethnic origins when providing an opinion on the feasibility of transacting large sums of cash. To be perfectly honest, I also believe the authorities and financial institutions are failing to properly communicate strongly enough the problems associated with large cash deals. However, any such failings in the UK pale into insignificance when compared to the efforts made by the regulators in some countries. Although many countries including India have signed up to the International FATF agreements regarding money laundering (and therefore are seen to be safe places to deal with) the reality is that unregulated business takes place widely. Although other countries may pay homage to the need for anti money laundering (such as Pakistan who is a member of the Asia Pacific Group on Money Laundering), there is ample scope for the money launderers to operate.

The key message I suppose is that cash is not welcome outside the criminal world! When I sell my holiday home in Sharm El Sheikh or Dubai (if I every own one!) I will not be accepting cash in the UK. Carrying around £200 in notes in my wallet is one thing – participating in cash handovers is another! I see so many criminal cases where this has happened, with the unwitting recipient then being pounced on by the police who have been monitoring the activities of known money launderers for some time. Although the funds may have commenced as a legitimate house sale and then a Hawala style transaction, they have ended up facilitating money laundering. Its no wonder that the Hawala infrastructure ought not to be used for large-scale cash transfers – regardless of good intentions – unless this form of transfer becomes regulated and monitored as robustly as the mainstream banks.

About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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