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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Money laundering

Garnet LLP's MLRO receives an internal report that a client, Orchid Holdings, may have used sale proceeds from a criminal tax evasion scheme. The MLRO concludes there are reasonable grounds for suspicion, but the audit engagement partner argues that the firm should wait until the audit is complete to avoid disrupting work. Which action is most appropriate?

The MLRO should report to the authorities promptly, seeking any required consent before continuing affected work, while avoiding tipping off. Delaying until the opinion is signed is inappropriate, telling the client would tip them off, and merely documenting the matter fails the reporting duty because tax evasion proceeds are criminal property.

  1. AMake the external report to the authorities promptly, seeking consent where required before continuing with affected activity, and avoid tipping offCorrect
  2. BDelay reporting until the audit opinion is signed so that findings are complete
  3. CResign immediately and tell the client the reason so that it can respond
  4. DDocument the suspicion on file only, since auditors are not required to report suspicions of tax offences

Explanation

Once the MLRO has reasonable grounds for suspicion, the report must be made as soon as practicable, not deferred for engagement convenience. Where continuing work could amount to involvement in a prohibited act, consent from the authority may be needed first. Telling the client why would be tipping off, and criminal tax evasion proceeds are within money laundering offences, so file-only documentation is inadequate.

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