Q&A: Forensic Risk Alliance partners on data, sanctions, and new risks

Q&A: Forensic Risk Alliance partners on data, sanctions, and new risks

Accountancy Age spoke to partners at the FRA to discuss how their role as forensic accountants was impacted by the crisis

Q&A: Forensic Risk Alliance partners on data, sanctions, and new risks

With firms working remotely, forensic accountants have encountered numerous changes in the traditional controls of fraud and compliance. With fewer employees in banks, the rise of virtual currencies, and the high demand for liquidity – forensic accounting has been subject to many developments over these past months.

In an interview with Accountancy Age, Toby Duthie, founding partner and head of the UK and European offices of the Forensic Risk Alliance (FRA) – data governance and compliance consultancy firm – and Charlie Patrick, senior partner at FRA, discuss the trends in forensic accounting and how the pandemic has made their role more complex.

We’ve seen that banks have been scrambling to adapt to the new normal. Have you encountered issues going with due diligence checks, in terms of forensic accounting?

Charlie Patrick: The banks have been under immense pressure from the government to put in place the various support schemes for businesses. Everybody welcomed the speed with which the government moved, and the banks as well put in place procedures to pump money back into businesses who were not getting as much revenue through the door.

The FDA gave some guidance saying that for existing lenders or existing clients for banks, no extra due diligence was necessary if those customers were not in financial difficulty prior to the scheme in place. Also, if they’d already done previously diligence, then they also had a default with a new customer. The bank could opt for simplified due diligence and what they call alternative verification methods and service.

The alternative verification methods they run are things such as accepting scanned emails and documents where you can have the original documents be seen by the bank and also seeking third-party verification. This lack of face to face contact is going to make it difficult for the banks as they are under pressure to pump money back into the economy.

There were going to be pockets of loans which will necessarily end up being problematic because as the guidance was being issued to the banks, clearly fraudsters can also see the guidance as to the level of due diligence – they will be able to see what they can get away with.

We have seen an increase in virtual currencies. Does this mean you have faced more laundering money conflicts during this period of instability?

Toby Duthie: With all these new sanction regimes that are coming in the UK – where in particular Russians and Ukrainians are being put on a blacklist – those money laundering concerns, and focus will only increase. What we’ve seen is that if one of the major banks was to develop a robust KYC system, it would take a huge amount of time and investment.

With the new entrants into the market, I sense that new entrants underestimate the extent of the ask. You have certain issues around capital adequacy, for instance at Metro Bank. It’s a kind of new entrance syndrome.

When you’re a new upstart company you don’t necessarily recognise the complexity of Anti-money Laundering (AML) and sanctions and also the severity of the enforcement regime. When you look at the amount of Russian money in London property, I think that might well change.

This kind of political headwinds against them impact not just the banks, but the banks will then start turning down customers closing accounts receivable. For instance, the Swiss banks are becoming extremely risk-averse because of all the issues that they have with the US authorities.

This means that, by definition, these payments, these people, who can’t get accounts with the major banks are going to look for alternative payment mechanisms and system.

CP: Because business has changed so much over the last three or four months, the banks weren’t necessarily used to the current cash flows which were coming into their businesses. The very competent AML systems are there to identify suspicious transactions and given the challenges to businesses at the moment, the chequebook could look very different. There might be a challenge for them to identify a suspicious transaction.

What is also happening is that money launderers are approaching businesses who are in trouble and suggesting to them that they could wash money through those businesses.

TD: That’s exactly right. We’ve seen before this that there had been a general shift of laundering money outside of the traditional banking systems and looking at a corporate entity to do that.

What have been the biggest challenges for forensic accountants?

TD: There’s going to be a surge of issues to investigate – one of the issues is that we’re always very hungry for data. Typically, the personal interface. If you’re a bank manager and you want to do due diligence on your client, the more personal and direct the better, and equally for forensic accountants.

The more interactions you can have in person with people and the companies you’re investigating – the better.

Corporates are also going to be very budget-constrained because their primary focus at the moment is survival, so investing money in compliance and investigation is going to be a difficult task in some ways. Having said that, the market is picking up again because one of the things that these huge government bailouts have done to date is shield liquidity in the market. Equally, that’s going to get withdrawn over time. The crisis is happening, but the tide hasn’t gone out yet, and that will probably happen.

CP: As investigators, collecting data remotely is never easy and also undertaking investigations where you want to be sitting in the room with the people to understand the companies and the businesses. Whether you are doing compliance work or doing an investigation, it is going to be challenging.

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