THE ROLE OF ACCOUNTANTS

Accountants claim to have the expertise to detect and report money laundering. They sell this expertise as part of fraud investigation services. The Institute of Chartered Accountants in England & Wales (ICAEW) draws attention to possible signs of money laundering. These include, "transactions with little commercial logic taking place in the normal course of business; the forming of companies or trusts with no apparent commercial or other purpose; unusual transactions with companies registered overseas; transactions with companies whose identity is difficult to establish as they are registered in countries known for their commercial secrecy; transactions where there is a lack of information or explanation or where explanations are unsatisfactory; payments for unspecified services" (ICAEW, 1996, p. 7-8; also see ICAEW, 1994; Auditing Practices Board, 1995; Bond, 1994).

Is this expertise used for the public good? One of the conclusions of the National Criminal Intelligence Service (NCIS) is that

The Economic Secretary to the UK Treasury has reported that

The conclusion of the G-7 sponsored, the Financial Action Task Force (FATF) is that

The FATF has reported that the ploys used by these professionals "include the establishment of shell corporations, trusts and partnerships by........ accountants and other professionals. Working through these business entities, the professionals spin webs of intricate transactions to mask the origin of criminally derived funds and to conceal the identities of the parties and beneficiaries. In many cases professionals act as directors, trustees, or partners in these transactions, or they will supply nominal directors, trustees, or partners" (Financial Action Task Force, 1996, para 21).

Might one expect accountants/auditors to report money laundering to the regulators? Accountants enjoy state guaranteed market of external audits. As auditors, they have more powers than the Police. Their rights are enshrined in Sections 389A and 390 of the Companies Act 1985. Unlike the Police, they do not need a court warrant to have access to company books, records, vouchers and files. Accountants and auditors of financial businesses have a statutory `duty' to report suspicious transactions, even without client knowledge, to the regulators (Hansard, 15 February 1994, cols. 852-875). The legislation provides that making a disclosure to the regulators shall not be treated as a breach of any duty of confidentiality to a client. By acting in `good faith', accountants/auditors also enjoy qualified privileges from the laws of libel. So what is an auditor's `duty' as regards money laundering, which is a category of fraud?

However, the spokespersons for the UK accountancy industry are only too willing to abdicate their moral and legal obligations.

It should be noted that the Auditing Practices Board (APB) issues auditing standards which all auditors are required to comply with. However, the APB has no independence from the auditing industry. It is controlled by the UK accountancy trade associations. It enables auditors and company directors to negotiate dilution of auditor obligations. The compliance with auditing standards is monitored by the accountancy bodies who, under the Companies Act 1989, function as public regulators of the auditing industry. However, the accountancy bodies have no independence from the auditing industry. It is significant that on the topic of `money laundering' the APB has a issued a ` Practice Note ' rather than an ` Auditing Standard '. The significance is that the auditor monitoring regime introduced by the Companies Act 1989 requires the accountancy bodies to monitor compliance only with `auditing standards'. `Practice Notes' are for auditor guidance only. Compliance with them is not mandatory. The institutional pressures on accountants and auditors to report money laundering are virtually non-existent.

Despite a plethora of professional statements presenting a veneer of public respectability (e.g. ICAEW, 1994, 1996; Bond 1994, APB, 1997) accountants are least likely (compared even to solicitors) to report suspicious transactions (see Table 1) to regulators⁷.

The above statistics show a consistently "disappointing failure on the part of.... accountants..... to meet their legal and moral obligations to report suspicious transactions to the authorities" (NCIS press release dated 17 August, 1998): a failure which is directly responsible for drug-trafficking and degradation of our daily lives. In defence, one might argue that perhaps accountants are not aware of their public `duties'. But this would be a feeble excuse. It could be that they lack an adequate knowledge base and thus fail to notice instances of money laundering. Yet accountants and their trade associations routinely trade upon their claims of expertise for detecting and reporting fraud. Perhaps accountants do notice instances of money laundering, but are more concerned to advance the private interests of their clients and enhance their own fee income. The relatively low number of notifications to the NCIS may be due to the accountants' own involvement in the processes of money laundering. Accountants would hardly report their own involvement in facilitating money laundering. Certainly, with the absence of independent regulators, their failures to discharge social obligations have not been investigated and punished. Whatever the reason, the accountants' inability or reluctance to report suspicious transactions needs to be investigated. Without the appropriate regulatory structures, accountants are unlikely to act in a socially responsible way. So the remainder of this monograph will show that accountants are involved in laundering money and that the present regulators have shown a marked unwillingness to investigate the involvement of accountants in money laundering activities.

CHAPTER 3
THE PUBLIC WASH

The allegations of money laundering involving accountants came in the High Court case of AGIP (Africa) Limited v Jackson & Others (1990) 1 Ch. 265.

In the late 1970s and early 1980s, AGIP (Africa) Limited, a company incorporated in Jersey⁸ was engaged in drilling for oil in Tunisia, under permits and concessions granted by the Tunisian Government. The Tunis branch held a US dollar account at Banque du Sud from which overseas suppliers were paid. Over a period of many years (since 1976), both before and after 1983 when accountants Jackson & Co. became involved in the matter (see below), AGIP was systematically defrauded of millions of dollars by its chief accountant, a Mr. Zdiri. Though not a director of the company or a signatory of any bank account, he was responsible for collecting invoices and matching them to the completed payment orders prior to obtaining approved signatures for the same. He was also responsible for banking. The court judged that Mr Zdiri had used his position to misappropriate the funds by altering the name of the payee on the payment orders after obtaining authorised signatures.

Mr. Justice Millett's judgement stated that between March 1983 and January 1985, Mr. Zdiri defrauded AGIP of US $10.5 million by altering some 27 orders which found their way to England. The payees were all companies registered in England and managed by Jackson & Co., based in the Isle of Man. Seven different companies, each holding a US$ account at a major branch of Lloyds Bank (a major British bank) were used in succession to receive the monies. However, AGIP did not bring a criminal case for fraud or even a case for the recovery of US $10.5 million or anything (said to be in excess of $17 million) dating back from 1976. Instead, it took civil action under `law of trust' to recover only the sum of US $518,822.92 (being the last of the diverted monies), paid on 7th January 1985 to Baker Oil Services (for details see below), on the ground that this was all that Jackson & Co. could reasonably afford to repay.

The case was defended by Mr. Barry Jackson and a Mr. Edward Bowers⁹, who practised as chartered accountants in the Isle of Man, under the name of Jackson & Co. The third defendant, a Mr. Ian Griffin (not an accountant), was an employee of Jackson & Co. The defendants, the judge noted, were acting on the instructions of a French lawyer, Monsieur Yves Coulon, who in turn was acting for principals whose identity is not known. The court judgement recorded that Jackson & Co. were introduced to the prevailing arrangements by Roger Humphrey of Thornton Baker (now Grant Thornton) who also provided some of the payee companies (see further details below). Each of the companies had a nominal share capital which was usually registered in the names of service companies provided by Jackson & Co. In each case, Mr. Jackson and Mr. Griffin were the directors and the authorised signatories on the company's bank account. Roger Humphrey was also a director and a signatory in the case of the first few companies. None of the companies had any assets or carried on any genuine business activity. In the case of each company, except that of Baker Oil, after two or three payments had been received and paid out, the account was closed and a new account opened for the successor company. Its predecessor was then put into liquidation and either Jackson or Bowers was appointed liquidator. All bank statements of the payee companies' showed the receipts to be derived from payments made by AGIP.

All receipts by the payee companies were transferred, usually on the same day, to another company, Euro-Arabian Jewellery Limited, which also maintained a US dollar account at the same branch of Lloyds bank. Euro-Arabian was registered in England with Mr. Jackson as one of its three directors. Jackson, Humphrey and Griffin were the authorised signatories of its bank account, with the agreement that either could act as a signatory in his own right. The court judgement recorded that there was "no evidence to show that Euro-Arabian carried on any genuine business activity". As soon as Euro-Arabian received any payment from a payee company, it paid it out to parties located abroad. Most of the money went to Kinz Joaillier SARL, incorporated in France, which appears to be a subsidiary of Euro-Arabian Jewellery. Mr. Jackson was a director of the company with Yves Coulon acting as its legal adviser. Coulon had no authority to operate the bank accounts of any of the payee companies or Euro-Arabian, but the bank's assistant manager (who was not involved in the fraud in any way whatsoever) was authorised to disclose information about the accounts to him. The bank's assistant manager was told to expect payments of about US $500,000 per month from Tunis. When a payment was expected, the assistant manager would be notified by Jackson & Co. Upon receipt of the money, he would telephone Jackson & Co. and inform them that the sums had been received. After a short interval, but usually on the same day (presumably after instructions from someone e.g. Coulon), upon Mr. Jackson's instructions, the monies would be paid out.

The case brought by AGIP centred on a payment to Baker¹⁰ Oil which was incorporated on 12 December 1984. Mr. Jackson and Mr. Griffin held the entire issued share capital of £1 each. They were also its bank signatories and directors. Baker Oil opened a US$ account at the same London bank branch on 17th December 1984. Just a day later, a Mr. Del Sorbo, an AGIP official, had signed a payment order of US$ 518,802.92 in favour of Maersk Supply (Tunisia) Limited, payable at Morgan Guaranty Trust Company of New York. After the signature, the payment had been altered and made payable to `Beker-Service Cie' with the address of the London branch of Lloyds Bank and the correct number of Baker Oil's U.S. dollar account. The altered payment order was executed by Banque du Sud on 7th January 1985. Jackson & Co. had already told Lloyds Bank to expect a payment and asked to be informed of its arrival. On 7th January Mr. Del Sorbo also became aware of the fraud as he visited Banque du Sud. He asked the bank to stop the payments, but due to time differences between London, Tunis and New York, payments had already been made and could not be reversed. The sum of US$ 518,822.92 was received to the account of Baker Oil and then transferred to the account of Jackson & Co. (opened in March 1984), held at the same branch of Lloyds and Baker Oil's account was immediately closed. These transactions were confirmed in a letter to Baker Oil. On 9th January 1985, the same amount was transferred to Jackson & Co.'s 'Client's' account at the Isle of Man Bank Limited. On 15th January, most of the amount¹¹ was paid out from this bank account to Kinz Joaillier SARL. Subsequently, Baker Oil, Euro-Arabian and Kinz were all put into liquidation. AGIP brought proceedings in Tunisia against Banque du Sud and also sought to recover US$ 518,822.92 from Baker Oil (which no longer existed) and Jackson & Co.

In another document, a letter (dated 14 August 1984) addressed to Mr. Jackson by a firm of solicitors noted that:

In his judgement, Mr. Justice Millett stated (also see The Times, 20 May 1989, page 3; 5 June 1989, page 41) that:

To recap, monies were being transferred from AGIP to Kinz Joaillier SARL via a number of other `cut out' companies and their bank accounts. In this process, accountants Jackson & Co. were judged by the courts to have dishonestly assisted in the misapplication of funds. Another argument advanced was that the processes "formed part of a long-standing arrangement.... the arrangements resulted in the extraction of monies from Tunisia in circumvention of the Tunisian Exchange Control Regulations". This may have been done with the intention of bribing Tunisian officials or Ministers.

Jackson & Co. appealed against the court judgement by arguing that they merely took over on-going arrangements and schemes. They also argued that the monies paid by AGIP to the said English Companies were in fact intended to be received by senior Tunisian politicians and their families. They argued that the payments were voluntarily made by AGIP to circumvent Tunisian exchange control regulations (also see Mansell 1991a, 1991b and an article in French magazine Jeune Afrique Economie, Sept/Oct 1986, pages 59-63). The appeal was unsuccessful (see AGIP v Jackson & Co (1991) 1 Ch. 547; also see Financial Times, 18 January 1991, p. 36) and Jackson & Co. were ordered to pay US $700,000 to AGIP.

CHAPTER 4
THE ACCOUNTING CIRCLES

There are two further accounting aspects which need to be examined. The first of these relates to the involvement of Grant Thornton tax manager Roger Humphrey. The second relates to the efficiency of the AGIP audits.

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