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.
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.
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.