The impact of anti-money laundering regulation on small Maltese audit firms

Abstract

Background: To better combat Money Laundering, auditors have been assigned the added responsibility of being watchdogs and enforcers of the law. This is because they are in a unique position, having access to clients’ financial information. In spite of this, auditors have been observed to rarely report on suspicious ML Activities. This problem becomes apparent when comparing Auditors to other professions entrusted with the same responsibility. Aim: The attitude of subject persons towards regulation seems to play a big role in the fulfilment of their Anti-Money Laundering reporting responsibilities. Therefore, by studying the costs imposed on the less-financially-able segment of Maltese auditors, the study aims to explore the effects of the current Anti-Money Laundering regime on small Maltese auditors. Method: The study explores the different definitions of Money Laundering and the auditors’ Anti-Money Laundering obligations in order to give a wide perspective of the topic to the reader. The study sheds new light on the difficulties and financial impact felt by small audit practitioners in the Maltese landscape. To this end, qualitative studies in the form of semi-structured interviews, were carried out with eight MLROs of Small audit companies within Malta. Conclusion: While the understanding of ML has not changed much over the years, the expectations to deter ever-increasing ML efforts certainly has. By analysing the importance of auditors’ reporting role in AML, which is non-conflicting to their duty to uphold client confidentiality, and also by looking at the ensuing high costs of compliance to AML it was concluded that AML regulation has had profound effects on the small auditors’ profitability and going concern. Moreover, AML regulation may have harmed their relationship with the regulator, added additional unwanted duties, and may have also adversely affected their relations with their clients; both in terms of increased fees and the asking of invasive questions.