Service-Based Money Laundering (SBML): Professional Services Are Prime Targets
Service-Based Money Laundering (SBML): Professional Services Are Prime Targets
Professional Services such as Trust or Company Service Providers (TCSPs), legal consulting and advisory services, and accounting advisory services in UAE are vulnerable to being misused as channels or means for conducting illicit activities such as money laundering (ML); this is also known as Service-Based Money Laundering (SBML). The infographic lists the factors that make professional services prone to ML risks. The nature of services that professionals provide possess certain characteristics which make them prone to being misused by illicit actors. Let us look into each factor contributing to the misuse of professional services as a front to conduct money laundering and other illicit activities.
No physical commodity Trail
Services provided by professionals such as advisory and consulting are not easily quantifiable and are intangible in nature. Also, services provided by professionals cannot be tracked or crosschecked with invoice quantity as quantification of intangible service cannot be conclusively confirmed as there is no physical commodity trail where the quantity of service can be cross-verified across what’s mentioned in the invoice. This makes it possible for illicit actors to introduce fake invoices to justify transactions, as the authenticity cannot be easily verified and carry out Service-Based Money Laundering (SBML).
Subjective Invoice Value
Professional services are unique in nature, be it consulting or advisory. The nature of service and billing method for each professional service is charged differently by different professionals, even those in the same sector.
Invoice value in professional services is subjective as multiple factors, such as the quality, experience and expertise of the consulting team, their goodwill or reputation in the industry, and the speed or urgency at which solutions are offered, are subjective in nature, varying from one professional service to another.
This subjectiveness of invoice values makes it even more difficult for regulators to develop a standardised mechanism to detect illicit activity behind the mask of seemingly legitimate professional service.
Discretionary Control Over Customer Services
Professional services such as advisory and consulting give these professionals immense amounts of freedom and control over the quality, quantity, duration, nature, and units of services they provide to their customers.
This discretionary control is usually not governed by any regulator besides the requirement of basic professional ethics and responsible conduct requirements, making professional services prone to being misused by launderers to carry out SBML.
Commingling Vulnerability
Commingling is the blending or mixing illicit proceeds with legitimately earned profits or revenue. Due to the lack of physical movement of commodities to justify invoice values, subjective invoice valuations, and discretionary control over services, professional services such as advisory and consulting are vulnerable to commingling illicit proceeds with their legitimate revenue by money launderers.
Low Rate of Face to Face Client Interaction
In this day and age of technology and easy connectivity, most service-based businesses are finalised and conducted through non-face-to-face means that include video-calling coupled with other customer due diligence measures.
The low rate of actual face-to-face client interaction where the customers of professionals visit their office premises is not a frequent occurrence. This lack of actual human interaction and footfall at the business of professional service providers makes it difficult for authorities to identify if a small office with one qualified professional, such as an accountant or a legal advisor, can actually cater to the needs of hundreds of clients mentioned in their books of accounts. This makes professional consulting and advisory services appear as attractive choices for money launderers to carry out Service-Based Money Laundering (SBML).
Multi-Jurisdictional Spread
A professional sitting in the UAE can give advice to a client sitting in Australia, or a client in Switzerland can reach out to a consultant in Dubai for professional advice and consulting. Professional services such as accounting, legal services, trust and company formation services, etc., can be sought and offered across the geographical boundaries of a country.
This makes professional services vulnerable to being misused by criminals for washing their illicit proceeds through SBML due to multi-jurisdictional spread and lack of uniform regulatory controls across such geographies.
Facilitation of Anonymity
Many professional services can be sought and offered through means facilitating anonymity, such as Nominee Directorship, designating Authorised Signatories, establishing trusts to protect the identities of beneficiaries, etc.
This anonymity of the actual person behind the transaction leads to non-disclosure of the ultimate beneficial owner (UBOs), contributing to non-transparency about the actual recipient of the service, making the use of professional service seem like an opportunity to conduct illegal transactions and activities and carry out SBML.
Conclusion
Professional services such as consulting and advisory services in various fields are at risk of being misused by criminals for the purpose of washing the proceeds of crime. Professional service providers must keep these service-based money laundering (SBML) vulnerabilities in mind while conducting business.
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