ACCA Strategic Professional · Advanced Audit and Assurance (International)

Money laundering: formula sheet

Full chapter guide

Key formulas

Three stages of laundering: Placement → Layering → Integration; Placement puts cash in the system. Layering hides the trail. Integration returns the money as apparently clean wealth. Stages can overlap or be skipped.
Concealing offence: Concealing = hiding, disguising, converting, transferring or removing criminal property; Applies where the person knows or suspects the property is criminal property.
Assisting offence: Assisting = being involved in an arrangement that helps another person retain, use or control criminal property; The person must know or suspect that the arrangement does this. The auditor can commit it by continuing work that facilitates the arrangement.
Failure to report: Know or suspect (or reasonable grounds to) + information came in the course of regulated work → report; Report internally to the nominated officer. Exact tests vary by jurisdiction, so state the principle.
Tipping off: Tipping off = disclosing a report or investigation in a way likely to prejudice it; Applies to the existence of a report or investigation, not to the underlying client transaction itself.
Risk-based approach: Assess risk (client, service, country, channel) → apply CDD or EDD in proportion → monitor; Higher risk means deeper checks. Low risk may allow simplified checks, but never no checks.
Core CDD elements: Identify + Verify + Beneficial owner + Purpose of relationship + Ongoing monitoring; Use this list to structure any CDD answer.
Firm AML controls: Risk assessment + Policies + CDD + Records + Training + MLRO + Reporting + Review; A gap in any one of these is a weakness to report in a scenario.
Internal reporting chain: Staff member → MLRO → national authority (if suspicion is justified); Report suspicion promptly. Do not tip off the client.
When EDD applies: PEP, high-risk country, complex structure, unusual transactions, no face-to-face contact; Typical triggers. Under EDD, add senior approval and source of funds and wealth checks.
Record keeping: Keep CDD evidence and transaction records for the period the local law requires; Do not quote a number of years unless the question gives one. Say 'the statutory period'.
Trigger for internal report: Knowledge OR suspicion OR reasonable grounds for suspicion → report to MLRO; Exact wording depends on local law. Proof is not needed. Report as soon as practicable.
Reporting chain: Engagement team → MLRO → authority (SAR); The MLRO decides whether to file. The team does not contact the authority or client directly.
Tipping off rule: Disclosure to client that a report was made or an investigation exists, likely to prejudice it = offence; Applies to the SAR, the investigation and the content. Check the exact local offence.
Confidentiality override: Legal requirement to disclose > duty of confidentiality; Disclosure under law is permitted. Do not disclose beyond what the law requires.
Documentation: Record the facts, the report date and the MLRO's decision on a restricted file; Keep SAR details out of the normal audit file that the client or others could see.

Quick revision

Money laundering turns proceeds of crime into apparently legitimate funds.
Three stages: placement, layering, integration.
Placement puts criminal cash into the financial system.
Layering hides the source through complex transactions.
Integration returns the funds as apparently clean wealth.
Firms need risk-based procedures, including client due diligence and ongoing monitoring.
Keep records of identification and of decisions taken.
Staff report suspicions internally to the nominated officer.
Tipping off a client about a report or investigation is an offence in many jurisdictions.
Consider the effect on client acceptance, continuance and the audit opinion.
Link suspicion to ISA 250 on laws and regulations, and to fraud risk.
Apply every point to the scenario facts and finish with a recommendation.

Common mistakes

Mixing up layering and integration. Fix: Ask where the money is in the process. Layering is still hiding the trail. Integration is when the money comes back as apparently legitimate wealth or income.
Saying the auditor needs proof or certainty before reporting. Fix: State that knowledge or suspicion is enough. Auditors report suspicion internally and the nominated officer decides next steps.
Listing AML steps with no link to the scenario. Fix: Tie every point to a fact in the case. Name the client, the owner or the transaction.
Telling the client about the suspicion or the report. Fix: State that tipping off is an offence in most regimes. Take advice from the MLRO before saying anything.
Saying the auditor reports the SAR directly to the authority. Fix: Write the chain: team member to MLRO, then MLRO to authority. Say the MLRO decides.
Waiting for proof before reporting. Fix: State that suspicion or reasonable grounds is enough. The authorities investigate.

Exam tips

Always apply the stage or offence to the scenario facts. Definitions alone score few marks.
Use the exact words: placement, layering, integration, concealing, assisting, failing to report, tipping off.
In advice questions, say who the auditor reports to (the nominated officer) and that suspicion is enough.
Never recommend raising a report or investigation with the client. Make the tipping off risk explicit.
Write the answer as a short recommendation to a manager or partner to earn professional skills marks.
Always link AML points to the facts. Generic lists earn few marks.
Use the word 'MLRO' in the right place: staff report to the MLRO, and the MLRO reports externally.
Mention tipping off whenever a suspicion arises in a scenario.