Professionals as enablers of economic crime – more effective prevention of the phenomenon

Situations revealed by the Tax Administration’s supervision

Source: Tax Administration

Several different forms of criminal enabling by professionals have been detected under the supervision of the Tax Administration. Risky situations include:

Arrangements in situations involving insolvency, bankruptcy or liquidation

The assets are transferred to a new company at a price lower than the market value to be out of reach of the creditors. The creditors of the insolvent company lose the value of the assets, which, in turn, benefits the persons responsible for the new company.

Frauds involving tax-at-source refunds for dividends

Several parties receive a receipt for the same dividend and the tax at source collected on it. In reality, the tax has only been paid once, so the state is paying undue refunds. In these situations, several rapid transfers of shares and the use of intermediaries have been used to disguise the real owner and the perpetrators. Nominee registration may also complicate the identification of the actual owners.

Offshore company

Establishing an offshore company in a tax haven country, i.e. a country offering more lenient tax treatment, located outside the real beneficiary’s country of residence to conceal their income. Strawmen and buffer companies may be used for these purposes.

Mixing criminal assets with legitimate business

Establishing companies, trusts or other artificial structures to introduce criminally acquired assets to legitimate business activity or wholly fictitious business activity. The funds continue to circulate through domestic or foreign bank accounts to the actual perpetrators.

Fraudulent documents or sham deals

Fraudulent documents, such as fabricated invoices, may be used to launder funds obtained from illegal activities. Including the funds in intercompany invoicing makes it more difficult to expose their criminal origin.

The application of cryptocurrencies and assets

As cryptocurrencies and the crypto-asset market become established, criminals will also be more interested in exploiting crypto-assets. The anonymity and the lack of regulation associated with these increase the risk of money laundering and make it more difficult to detect the real perpetrators.

The acquisition of a company on the verge of bankruptcy

In case of payment difficulties, a company may be sold, with the assistance of a distressed asset broker, to a party not actually responsible for the business. Buffer company arrangements are used to make it appear that the company is continuing its business even though, in reality, the companies’ assets are being transferred out of the reach of creditors. Companies subject to such acquisition practices may also be exploited in the laundering of funds obtained through various criminal activities. The acquisition of a company on the verge of bankruptcy has been established as a professional form of business exploitation.

Customer secret

Lawyers’ trust accounts may be exploited in managing illegally obtained funds. Efforts to disguise or conceal the true nature, origin and location of funds received from customers as well as various provision measures may indicate money laundering.

Evasion of taxation reporting obligations

Financial institutions must identify the taxation domicile of their customers and report asset and income data on their customers. Account holders and specific accounts to be reported must also be identified. In addition, financial institutions, including tax consultants, lawyers or group parent companies, may be subject to reporting obligations as certain types of cross-border tax planning structures need to be reported. In these cases, there may be efforts to avoid the reporting obligations by creating an arrangement that is not subject to reporting.

Sanctions evasion

To a large extent, sanctions evasion can exploit arrangements similar to the structures that aim to avoid paying taxes, including solutions used to conceal the real beneficiary, offshore companies, buffer company structures or cryptocurrencies to ensure anonymity.

The perspective of criminal investigations by the Customs

Source: Customs

Criminal investigations by the Customs include pre-trial investigations into economic crimes committed in business activity or by exploiting business structures. Professional enablers may show up in various ways in pre-trial investigations.

Exploitation of relationships

In cases under investigation, accountants with very close relationships with clients suspected of offences have been identified. The accountants have made use of accounting procedures to cover unclear and unfounded financial transactions, for example recording them in settlement accounts or by approving deficient cash receipts submitted retrospectively.

Minimising the risk of getting caught

Suspects may be assisted by individuals who may have contributed to the planning of business activities and tax avoidance before the offences came to light. It can be assumed that the purpose is to eliminate or at least minimise the risk of being caught. The planning of concealing the benefits gained through criminal activity may also play a key role, involving, for instance, the use of foreign companies and bank accounts.

Foreign trade practices that involve evading rules

In customs procedures, companies are often assisted by professional freight forwarders, which organise international goods transports commissioned by customers, for instance. Pre-trial investigations have found that forwarders may also serve as professional enablers in the efforts to evade taxes and duties and circumvent prohibitions and restrictions. Pre-trial investigations related to sanctions have particularly revealed cases where forwarders are suspected of being involved in making arrangements for sanctions evasion.

The perspective of the Regional State Administrative Agencies’ enforcement of the Anti-Money Laundering Act

Source: Regional State Administrative Agency for Southern Finland

In the lines of business supervised by the Regional State Administrative Agency, Lawyers, accountants and tax specialists may serve as professional enablers. These lines of business include:

• legal service providers,
• companies primarily offering tax advisory services and
• those carrying out accounting tasks based on assignments.

At the national level, the Regional State Administrative Agency enforces that the lines of business under its responsibility subject to the reporting obligation comply with the Anti-Money Laundering Act and the provisions issued under the Act.

Some of the parties with the reporting obligation have identified the phenomenon as a risk: Many legal, tax advisory and accounting service providers recognise that some parties may strive to exploit them in both money laundering as well as the commitment of various economic crimes.

Exploitation of legal services

The use of lawyers as professional enablers is usually based on the usefulness of the services they provide. These services include disguising the origin of funds or setting up and managing complex business structures. Professionals in the field often have the understanding and skills to carry out corporate acquisitions and real estate purchases that appear legal, as well as financial arrangements that criminals can exploit in committing fraud, tax offences and dishonesty debtor, for instance.

Lawyers may also be unknowingly involved in enabling criminal activity, for example by allowing a transfer of a customer’s assets through their trust accounts or by assisting their customers in setting up shell corporations. This has been taken into account in some of the risk assessments of legal service providers.

Infiltrator in an accounting firm

Some accounting firms have considered the risk of one of their accountants being involved in criminal activities, helping criminals to manage their accounting, i.e. serving as a professional enabler. Due to their expert role, an accountant could “infiltrate” an accounting firm and be assigned to take care of a specific customer’s accounting. This would allow the accountant to manage the accounts of a criminal actor, making it appear that they are meeting their legal obligations and ensuring that the criminal actor is not drawing the attention of the public authorities.

Identifying and assessing the likelihood of such situations is important to detect and prevent cases. Acknowledging this issue in companies’ internal control allows you to take it into consideration and prepare for it by creating the necessary practices and procedures.
Enforcement and prevention at the Regional State Administrative Agency At the Regional State Administrative Agency, we pay attention to professional enablers as a phenomenon and intervene in it together with other public authorities. We remind those with a reporting obligation of the phenomenon and the importance of training employees to also ensure employee awareness of the phenomenon. If a party with the reporting obligation detects suspicious transactions, they must submit a notification of the matter to the Financial Intelligence Unit.

Combating money laundering and terrorism financing in the Financial Supervisory Authority

Source: Financial Supervisory Authority

Professional enabling in the financial sector may include providing services such as accounts, investments or transfers of funds without taking measures to establish the customer’s identity laid down in the Anti-Money Laundering Act.

10 years ago, vulnerabilities in financial institutions related to KYC (know your customer) led to what is known as “the Russian Laundromat Scandal.” The banks were considered to have neglected their duty to verify the actual business activity of their customers and establish the true identity of those in charge of the operations, i.e. the actual beneficiaries. These events contributed extensively to improving the effectiveness of anti-money laundering supervision as well as strengthening bank activities related to customer identification. But is everything in order with all parties supervised by the Financial Supervisory Authority?

Customer due diligence and knowledge of their business lay the foundation of preventing money laundering

As a result of stricter regulation, the largest banks supervised by the Financial Supervisory Authority (FIN-FSA) have invested significantly in customer due diligence and updating their KYC information. Over the past two years, new economic sanctions and, through them, requirements related to in-depth knowledge of customers’ business activity have also increased compliance with the obligations.

The observations made in the annual Risk Assessment survey and supervision conducted by the Financial Supervisory Authority’s Anti-Money Laundering Division show that many companies still have plenty to improve related to basic issues.

With regard to corporate customers, customer due diligence requires a thorough examination of the company’s business area, partners and possible international contacts. It is particularly important to obtain the information required by the Anti-Money Laundering Act. These include information on the nature and scope of the customer’s business activity as well as the nature and domiciles of business partners.

The information must be up-to-date, obtained directly from the customer instead of merely browsing the internet, and the information must be sufficiently detailed. In addition, the information obtained must be compared with information available elsewhere, such as payment transaction data.

Enhanced due diligence is essential for high-risk customers

If a client company operates in a line of business that involves high risks from the perspective of money laundering or compliance with sanctions, or if it has connections to countries with a high risk as defined by law, the customer must be subject to enhanced due diligence.

In practice, enhanced due diligence means that higher-risk customers must be asked additional questions about their business activity, payment transactions and ownership structure. Where appropriate, the obliged entity must obtain documents and other evidence from an independent source. The same measures may also be taken in other situations. These include obtaining additional information on the reasons of transactions and obtaining additional information on the origin of the funds and assets of the customer and the actual beneficiary.

If a customer suddenly begins to operate in a completely different line of business or geographical area, or if the customer offers very large funds for investment or transfer, there is reason to investigate the background of the transaction in more detail.

A failure to carry out enhanced due diligence to determine the origin of funds, for example, even though unusual activities have been observed, is a case of significant negligence. In the case of a company providing financial services on a professional basis, the negligence can be suspected to be driven by profit-seeking motives.

Who is responsible for enforcing compliance with the law?

Larger companies typically have a compliance function that usually provides instructions for implementing legal obligations and provides more detailed advice. Smaller companies may not have a separate compliance function. In this case, the management subject to enforcement by the Financial Supervisory Authority should independently obtain information on the obligations or consult external specialists, for example.

It is important to remember that whatever the situation, the company’s senior management is ultimately responsible for ensuring that the procedures and processes comply with the provisions of the law and the Financial Supervisory Authority. For this reason, the provision of various kinds of advice and instructions must strictly comply with the current regulations and avoid providing expert assistance that could be considered to result in the evasion of the provisions laid down in the Anti-Money Laundering Act.

If the Financial Supervisory Authority finds that a party subject to enforcement has neglected the fulfilment of its key obligations under the Anti-Money Laundering Act, there is usually a need to perform an inspection targeted to AML measures. This also involves an analysis of the company management’s activities: for example, if they have issued instructions that violate the Anti-Money Laundering obligations or have failed to respond to risks that have arisen. If the objective of neglecting the obligations has been to hide the customer’s funds or assets from the public authorities, there is reason to suspect complicity in a money laundering offence.

Regulating money laundering is not about bullying customers

You should not avoid asking questions and obtaining additional information as “bullying” the customer but as diligent work and securing your own activities.

Anti-money laundering regulation aims to prevent money laundering, terrorism financing and, more generally, economic crime. Compliance with sanctions can make it more difficult to finance Russia’s war of aggression and related military procurement. These objectives should help to perceive the bigger picture and strive to ensure compliance with the goals set in legislation.

If the company’s activities have systematically violated the obligations under the Anti-Money Laundering Act, imposing an administrative fine or a penalty fee under the Anti-Money Laundering Act must be considered. The Financial Supervisory Authority is obliged to submit a notification of suspicious transactions to the Financial Intelligence Unit. If the Financial Supervisory Authority suspects money laundering and the party subject to enforcement is involved in the incident, there is a need to consider whether to submit a request for investigation to the police.

Prevention of money laundering and terrorism financing in the Finnish Bar Association

Source: Finnish Bar Association

In its supervision, the Finnish Bar Association reviews the risk assessments for preventing money laundering of more than fifty law firms each year. The objective of the risk assessments is for the attorneys-at-law to identify potential money laundering risks in their work to prevent criminals from using the attorneys-at-law as intermediaries in their actions.

Attorneys-at-law are also obliged to report any suspicious transactions to the Financial Intelligence Unit. Typically, the reports of suspicion by attorneys-at-law are justified and useful in the investigation of money laundering offences.

Preliminary assessment helps to identify risks

Examples of situations that may involve attempts to exploit attorneys-at-law include:

• establishment of companies,
• hiding the actual beneficiaries by dividing ownership into small shares, or
• drawing up artificial contracts.

Preliminary risk assessment helps an attorney-at-law to identify potential risks and provides an approach to these situations.

In the risk assessments, attorneys-at-law also assess whether their law firm’s activities include vulnerabilities that criminals could try and exploit for money laundering or terrorism financing purposes. Vulnerabilities may include:

• trust in long-term customer relationships where the attorneys-at-law knows the customer personally,
• difficulty in identifying money laundering; and
• lack of due diligence routines in assignments that the law firm rarely manages.

The threshold for questioning customer relationships may be high

In long-term customer relationships, there is a risk that the professional does not dare to question the activities of the familiar customer and examine the source of funds carefully enough. There is often an assumption that illegally acquired assets are of foreign origin and that the risk of money laundering is mostly associated with customers outside the EEA. However, most of the money laundered in Finland is of Finnish origin.

Identifying money laundering risks is genuinely difficult, as professionals rarely encounter these situations. Doing customer due diligence is time-consuming and the threshold for interrupting an assignment may be high if all necessary due diligence measures cannot be completed for reasons such as the customer’s passivity.

Attorneys-at-law as gatekeepers of money laundering

Attorneys-at-law play an important role in society as gatekeepers in the anti-money laundering efforts, which they want to manage with extreme care.

In its supervision, the Finnish Bar Association has noticed that attorneys-at-law do not hesitate to reject assignments that have any suspicious characteristics. Attorneys-at-law face such major penalties for misconduct that they make every effort to avoid risks. By contrast, there is a notable de-risking phenomenon rather than the provision of legal services for professional enabling purposes. De-risking is a phenomenon in which, instead of risk management, business relationships with customers or customer groups are terminated or restricted to avoid risks.

Under the Anti-Money Laundering Act, the Finnish Bar Association has been entrusted with the task of ensuring that attorneys-at-law comply with the regulations of the Act in their activities. This supervisory task is carried out by the Finnish Bar Association through office inspections, in which the issues related to preventing money laundering play a major role. The audits involve extensive discussions of anti-money laundering issues and ensure that the attorneys-at-law have sufficient competence. The Bar Association trains attorneys-at-law online, raises awareness of the subject by organising seminars and regularly highlights any current cases when communicating with its members.

The police report that professional enablers are involved in organised crime

Source: Police

In addition to established, international criminal groups and networks, there are professional enablers involved in organised crime in Finland. They are familiar with the operating methods and, to some extent, the resources, of the public authorities and know legal loopholes and practices where the risk of being caught is low. Indeed, we may say that professional enablers are part of organised crime, in which individuals or stakeholders use their skills to enable financial crimes in particular but also other offences.

Organised crime poses a particular threat to the interests protected by the rule of law, given the effectiveness and scale of the activity. The harm and damage it causes to society is clearly greater compared to normal criminal activity.

What makes organised crime effective?

One of the explanatory factors is networking with legitimate society, which is made possible by operators such as professional enablers. Organised crime aims to achieve political and economic power, which consists of four elements:

1. violence,
2. corruption,
3. the continuity of criminal activity and
4. committing various crimes.

The carry out the elements, the perpetrators need strong legal and other professional competence. A group of professional enablers operating as a part of the network of criminal activity perpetrated by organised crime groups has been identified in Finland.

People may become professional enablers inadvertently, based on coaxing or through deliberate choice

There may be many reasons for linking a professional enabler to a criminal network, and the activities of an individual professional enabler may be unintentional or intentional.

Organised crime employs various means of “hooking” or “coaxing” professional experts into its activities. It is difficult to uncover and combat this, as Finnish professional enablers represent highly appreciated professional groups and their activity is hidden in the structures of legal society. One way to combat this is to raise awareness of the nature of organised crime.

Even reputable professionals may unknowingly participate in the chain

The activities of professional enablers are characterised by transferring illicit funds to the legal economy or concealing the activities through the use of different, at times complex, practices and structures. The arrangements may involve subcontractors, each of which manages its respective part and cannot see the picture formed by the transfer of funds as a whole. This allows also exploiting highly reputable professionals. The activities resemble a network. The benefits and advice are shared between several stakeholders. The term crime-as-a-service (CaaS) is used to refer to the production of criminal services.

As more and more crime occurs in online environments, the need for IT skills is increasingly emphasised: for example, ready-made technical solutions and instructions are available for the implementation of complex cyber-assisted fraud. Similarly as when exploiting accountants, lawyers and other specialists, the criminal operator purchasing the services does not necessarily need to have a deep technical understanding of the operations. Purchasing ready-made tools requiring special expertise also enables replacing them flexibly and quickly.

Money laundering and the acquisition of over-indebted companies

The Financial Intelligence Unit has made observations of:

• companies and persons in charge of companies who not only avoid their legal obligations in their business activities but also appear to be laundering money by directing income from other criminal activities to their corporate activities.
• criminal actors acquiring over-indebted companies on the verge of debt restructuring to their sphere of influence with the aim to exploit the companies in laundering funds obtained through fraud, for example. This arrangement, also known as the acquisition of a company on the verge of bankruptcy, aims to make it more difficult for public authorities to supervise and investigate illegal activity.
• legal persons who fail to comply with obligations and are using the services of specific accountants or accountancy offices. In such cases, based on external assessment, the accountant should at least consider it likely that the company’s activities are ambiguous when it comes to compliance with legal obligations, for instance.

In Finland, the investigation and prevention of the phenomenon are important goals for the police, and the work to combat the phenomenon is carried out in close cooperation with other public authorities.