The necessity of anti-money laundering standards for Iranian auditors
| DOI | https://doi.org/10.1108/JMLC-05-2019-0034 |
| Pages | 187-207 |
| Date | 15 January 2020 |
| Published date | 15 January 2020 |
| Author | Mahdi Salehi,Vahid Molla Imeny,Ahmad Khaleghi Baygi |
| Subject Matter | Financial crime,Financial compliance/regulation,Accounting & Finance,Financial risk/company failure |
The necessity of anti-money
laundering standards for
Iranian auditors
Mahdi Salehi,Vahid Molla Imeny and Ahmad Khaleghi Baygi
Department of Economics and Administrative Sciences,
Ferdowsi University of Mashhad, Mashhad, Iran
Abstract
Purpose –According to the last publicstatement of FATF (2018), Iran has some significant deficienciesin
its anti-money laundering (AML)regime, especially in suspicious transaction reporting. In this research,the
author tries to empirically show that Iranian auditors do not a response to AML cases effectively and
adopting an AML standard is required for Iranian auditors. Therefore, it helps to improve one of the
deficienciesof Iran’s AML regime.
Design/methodology/approach –To collect data, the author designed and developed a questionnaire
and the questionnairesent to all partners of Iranian auditing firms, which have authorizationfrom the Iranian
Associationof Certified Public Accountants on December 2018.
Findings –The finding shows most of the sample auditors’claim that it is necessary to have an AML
standard and it can be helpfulfor them. Furthermore, most of the Iranian auditors in money launderingcases,
which companies are involved do nothing except filling the checklist of Anti-Money Laundering
ImplementingRegulations for Business and Non-business Companies(2012).
Originality/value –The results of the current research make clear the necessity of adopting an AML
standardfor Iranian auditors and recommend Iranianauthorities to improve Iran’s AML regime.
Keywords Accounting firms, FATF, AML standard, Auditors’responsibilities, Iran’s AML regime,
Anti-money laundering (AML)
Paper type Research paper
1. Introduction
In the battle of anti-money laundering (AML), auditors are considered in the third line of
defense, after front-office staffs and senior management (Cox, 2014). The role of auditors in
combating money laundering is such a crucial one that somebodymay consider them in the
first line of defense (Mitchellet al.,1998;Standingand Van Vuuren, 2003).
According to recommendations 22 and 23 of FATF Recommendations, countries should
require all designated non-financial businesses and professions such as accounting and
auditing firms to have AML policies and procedures for customer due diligence, record-
keeping and reporting suspiciousactivities within in accordance with FATF framework. To
meet these obligationsmost countries adopt some rules and regulations.
For instance, auditors are obliged to report suspicious activities to the National Crime
Agency in the UK (Norton, 2018). Professionssuch as auditors, external accountants and tax
advisors in European regions are required to identify their clients, keep records and report
suspicious transactionsto competent authorities (Mitsilegas and Gilmore, 2007). In the USA,
auditors and accountants must report illicit or suspicious transactions to the government,
although client confidentiality is considered as the main concern (Reuter, 2004). Australian
auditors have to reportsuspicions of breaches of the law (Latimer, 2003).
Necessity of
anti-money
laundering
187
Journalof Money Laundering
Control
Vol.23 No. 1, 2020
pp. 187-207
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2019-0034
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
In Iran, according to The Islamic Republicof Iran Anti-Money Laundering Law (2008) all
financial institutions, auditing and accounting firms, and other reporting entities are
required to report suspicious transactionsto relevant authorities. Furthermore, according to
The Anti-Money Laundering Implementing Regulations for Auditors (2012), Iranian
auditors are required to check their client’s AML compliance program and form an opinion
about it in a separate paragraphin their reports.
In spite of the existence of AML rulesand regulations, we observe a lack of AML training
and also significant weaknessesin the reporting practices of the auditing profession. Iranian
auditors by the virtue of Iranian Auditing Standard 240 and International Auditing
Standard 240 in which the fraud detection is not considered as an auditors’responsibility
limit their duties toward Iran’s AML regime. Therefore, it causes the inefficiency of AML
rules and regulations.
This contradiction makes the following question: is it necessary for Iran to adopt AML
standards for its auditors?In the USA, SAS No. 54, “Illegal Acts by Clients”is promulgated
for guiding auditors when facing illegal activities during the audit process. Is it necessary
for Iran to have such astandard for combating money laundering?
In this research, first, we want to understand Iran’s AML environment from auditors’
perspective and thenwe want to describe Iranian auditors’reactions whenfaced with money
laundering cases. The results will reveal the necessity or non-necessity of AML standards
for Iranian auditors.
Since Iran is considereda country with significant anti-money laundering and combating
the financing of terrorism (AML/CTF) weaknesses in the last public statement of FATF
(2018), this research willhelp Iranian regulators to amend current rules and regulations or to
adopt new ones to have a better AML/CTF regime and in accordance with FATF
framework.
The remainder of this paper is organized as follows. Section 2 “literature review”
presents some informationabout Iran’s AML regime, auditors’roles and responsibilitiesand
background of study and developing a hypothesis. Section 3 “research methodology”
reports the experimental methods usedto test the research hypothesis. The research results
are presented in Section4. Section 5 discusses the summary and conclusion of the research.
2. Literature review
2.1 Iran’s anti-money laundering regime
In 2007, Iran committed to improve its AML/CTFregime in line with the FATF framework
(FATF, 2008). For this reason, the AML Law was ratified by the Parliament of Iran in 2008.
According to this law, money laundering is defined and criminalized. Furthermore, all
Iranian banks, financial institutions, Insurance entities, auditing and accounting firms and
Lawyers are required to identify their customers, report suspicious transactions to the
related authorities, keep their records properly, have good internal controls and provide
AML training for their managersand personnel.
After issuance of Anti-Money Laundering Law (2008) some AML regulations were
promulgated for banks, financial institutions, notaries, stock exchange, foreign exchange
bureaus and also auditors.
The Anti-Money Laundering Implementing Regulations for Auditors (2012) requires
auditors to carry out the following tasks:
Conducting client due diligence.
Risk rating the clients.
Establishing an AML department.
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