What to do if you suspect money laundering

By Jessica Salerno-Shumaker, OSCPA senior content manager

While money laundering might be a well-known term when it comes to fraud, not enough accounting professionals can spot some of the telltale signs.

“I’ve come across quite a few CPAs and finance professionals who did not know what money laundering looked like,” said Robert Norlander, CPA. “And they were even preparing tax returns for drug dealers.”

Norlander was a special agent with the IRS Criminal Investigations Unit for more than 20 years and will present on the topic at the upcoming Ohio Accounting Shows this fall. He said that the general public might see money laundering on TV or hear about it in the news, but don’t really understand what it looks like in real life. He’s also spoken to CPAs who, unaware that their client was laundering money, instead thought “they were really great businessmen.”

When working with clients, one area that can reveal money laundering is cash deposits under $10,000. Norlander said banks are required to file a currency transaction report with the IRS if someone has received over $10,000 in cash, so receiving $9,900 can go unchecked.

A second sign of money laundering is unusual cash deposits that are not reflective of the system. An example of this would be if someone is consistently paying their rent in cash, something that is rarely done anymore.

“You may have one or two renters paying $500 to $600 depending on your clientele,” he said. “But if you're renting houses that are $2,000 or $3,000 a month and they're always paid in cash, that is probably a problem.”

Businesses that seem to serve no economic purpose are also a cause for concern.

“This is a business where money comes in, money goes out, and there's no postage, no rent and no office supplies,” he said. “They don't have a brick-and-mortar location and there's no website. That doesn’t always mean it’s money laundering, but it's a key indicator that something's going on. Because no one operates a business with no overhead.”

Norlander said the awareness of money laundering hasn’t improved in recent years, and said while it might be mentioned in college courses it’s usually a very brief description that doesn’t go into enough detail.

“Not all fraud is money laundering,” he said. “But money laundering can be proceeds of fraud.”

Money laundering isn’t only dealing in cash, either. It’s helpful to be able to spot trade-based money laundering, too.

“You sell your drugs for cash, and you go to pay your supplier in Colombia,” he said. “Then you go out and you buy a bunch of sneakers. And you ship those sneakers to Columbia. Well, the sneakers are now sold for pesos. And that's how they pay for stuff. The cash never leaves the United States, only a product. It just changes from currency to shoes.”

If an auditor suspects money laundering, the first step they should take is to let the partner-in-charge or the audit committee know. If a bookkeeping business suspects one of its clients, Norlander said it’s in the best interest of the business to stop serving the client.

“Because ultimately, it puts them in the position of potentially being asked if they are helping facilitate some of that work by submitting financial statements that they suspect are not accurate,” he said.

While spotting money laundering will likely not be an everyday occurrence for most CPAs, Norlander said it’s important for them to stay vigilant. CPAs are considered financial experts and advisers, and need to train themselves to be able to spot money laundering even if it’s not something they usually deal with.

“There needs to be awareness of what it looks like,” he said. “And if they do see it, take a supervisor, law enforcement, or drop the client. At least know that it exists and be able to recognize the signs.”

Jessica Salerno-Shumaker is the senior content manager at OSCPA.

Hear more from Norlander at the upcoming Ohio Accounting Shows on Oct. 25-26 and Nov. 15-16. Register at my.ohiocpa.com