SWEEPING IT UNDER THE CARPET:
THE ROLE OF ACCOUNTANCY FIRMS IN MONEYLAUNDERING


by Austin Mitchell
Member of Parliament, House of Commons, UK

Prem Sikka, University of Essex, UK.
Hugh Willmott, University of Manchester Institute of Science and Technology, UK

A paper for presentation at the Critical Perspectives on Accounting Symposium, Baruch College, New York, 26-28 April 1996. This draft is for discussion only. Comments are most welcome.

Address for Correspondence:
Prem Sikka, Department of Accounting and Financial Management, University of Essex, Wivenhoe Park, Colchester, Essex CO4 3SQ, UK.

ABSTRACT
White-collar crime is increasing in the Western world. It has been estimated that some 500 billion of hot money is laundered through the world's financial markets each year. Such huge amounts of money cannot be successfully laundered without the involvement of accountants (and other professionals) who use their expertise to create the complex webs of transactions whose purpose it is to conceal and obscure illegal activity. Despite this involvement, accountants and auditors are expected to play a leading role in the reporting of fraud and moneylaundering. Through a detailed consideration of a case in which a small accountancy firm was judged by the High Court to be involved in moneylaundering, the paper explores the relationship between regulators and errant accountants. The reluctance or inability of the regulators to pursue other accountants and larger accounting firms implicated in this case suggests that, by design or by default, the current regulatory apparatus operates to shield the activities of accountancy firms from critical scrutiny.

INTRODUCTION
Accounting calculus and ideologies have become a major influence on commercial and everyday life in most Western societies. Inter alia accounting has developed as a means of recording transactions and identifying, and thereby inhibiting, fraudulent activity. Accountants routinely trade upon their claims of rationality, professionalism and `service of the public interest' to secure or extend their monopolies (e,g, external audits), privileges and status. In this way, accountants have colonized both public and private sectors where their calculations routinely inform decisions about the allocation of goods and services, including employment health and education.

Major advances have been made in illuminating the expansion of `accounting think' in relation to the social, economic and political role of accounting and accountants (Tinker, 1985; Lehman, 1992; Hopwood and Miller, 1994). But comparatively little research has addressed the antisocial and predatory acts of accountancy firms, their partners and advisers (Tinker and Okcabol, 1991). One aspect of such antisocial action concerns the apparent links between accountants and white-collar crime. Yet, despite being a phenomenon that is increasingly scrutinised by social scientists (e.g. Levi, 1987; Nelken, 1993; Geis et al, 1995), and frequently reported in the daily press , the involvement of accountants (Pizzo et al, 1989; Kerry and Brown, 1992) in white-collar crime has been generally neglected by accounting academics.

It is estimated that some 500 billion of hot money is laundered through the world's financial systems (The Times, 20 September 1995, page 26). The increasing amount and visibility of white- collar crime has been perceived as a threat to the reputation of London as a (comparatively) clean international financial centre. In response, the UK government has introduced legislation (e.g the Criminal Justice Act 1993; The Money-Laundering Regulations 1993; also see Bosworth-Davies and Saltmarsh, 1994; Bingham, 1992) that requires accountants and auditors (and other financial advisers) to play a central role in the detection/reporting of fraud and moneylaundering. This legislation expects accountants and auditors to override their commercial concerns and report suspicious transactions and schemes to regulators. These requirements presuppose that accountants themselves are not a party to such transactions even though they have a history of what Woolf (1983) calls "turning a blind eye on the wholesale abuse by client company directors of [legal] provisions" (page 112) and disclosing considerably less than what they actually know (Woolf, 1986, page 511; also see Sikka and Willmott, 1995).

In 1993, Britain's major criminal law enforcement agency, the Serious Fraud Office (SFO), was investigating 57 cases of fraud which alone amounted to some 6 billion (SFO 1994, page 8). Such large amounts, it has been argued, cannot easily be laundered without the (direct or indirect) involvement of accountants (Kochan and Whittington, 1991; Stewart, 1991; Barchard, 1992; Davies, 1992; Kerry and Brown, 1992; Lever, 1992; the Financial Crime Enforcement Network, 1992; Ehrenfeld, 1992). It is accountants, amongst others, who are knowledgeable of the world's financial systems. It is accountants who are able to create and manipulate the complex transactions which make it difficult to identify and trace the origins and the ultimate destiny of the illicit funds or, when acting as auditors, are reluctant to reveal and report such activity.

By detailing a court case in which two members of a small accounting firm was judged to have 'knowingly' laundered money and assisted in the misapplication of the plaintiff's [AGIP ] funds, this paper illustrates how money laundering activity is undertaken. It also draws attention to the alleged involvement of larger firms in the case. More importantly, perhaps, it highlights the operation of the regulatory apparatus in the UK in addressing cases of moneylaundering. Despite the court judgement, the reluctance of regulatory authorities to investigate evidence and allegations brought out in this case indicates an alarming degree of inertia and buck-passing within the UK regulatory process. The evidence of this case suggests the existence of a deeply ingrained indifference to the apparent involvement of major accounting firms in moneylaundering activity or, at least, an institutionalized disinclination to undertake vigorous and open investigation of such cases.

The paper is organised into four sections. The first section sketches a framework for understanding white-collar crime. Often attention is focused upon the acts of individuals, but in contrast, we argue that more attention should be given to the organizational and social contexts that tolerate or `turn a blind eye to' white-collar crime. The second section describes the case of AGIP (Africa) Limited v Jackson & Others (1990) 1 Ch. 265 in which an accountancy firm (Jackson & Co.) was found to have used a series of shell (or cut-out) companies to launder money (Mansell, 1991a; also see Robinson 1994, page 293). We detail the way in which very large sums of money passed through the offices of this firm, though the only benefit derived by those involved took the form of standard fee income. Additionally, our examination of this case raises some questions about the role of two other accountancy firms: Grant Thornton whose tax manager allegedly provided a number of contacts for Jackson & Co., and Coopers & Lybrand whose audits of AGIP did not detect the fraud which allegedly began in the mid 1970s. We submit that the clarity of High Court judgement and the many unanswered questions surrounding the comparatively high-profile AGIP case should have attracted the attention of UK regulators. More specifically, allegations made during the course of the trial should have prompted an investigation of the involvement of the larger accountancy firms in the AGIP affair. The apparent lack of action prompted us to engage in a dialogue with the regulators. Through a series of questions raised in Parliament and numerous letters to regulators and Ministers, including the Prime Minister, we sought to discover how the regulatory apparatus was responding to the revelations of the AGIP case. This correspondence is reported in the third section of the paper. On the basis of the findings derived from our investigation of the response of the regulators and Ministers, the fourth section concludes that regulatory indifference and inaction is symptomatic of a close and indulgent relationship between the UK accountancy profession and the state.

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