High-risk banks, auditors and Sarbanes-Oxley
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Volume 5 Number 2
High-risk banks, auditors and Sarbanes–Oxley Rena Biniek Corbett and Peter Johnstone* *Department of Criminal Justice, East Carolina University, 108 Ragsdale Building, Greenville, NC 27858-4353, USA tel: +1 252 328 4195; fax: +1 252 328 4196; e-mail: [email protected]
Rena Biniek Corbett, CPA, MBA is an assistant professor at Barton College, North Carolina. Dr Peter Johnstone is Professor and Chair of the Department of Criminal Justice at East Carolina University.
ABSTRACT One apparently inevitable consequence of globalisation is that banking systems have become an integral, if not central, part in the movement of illicit money and correspondent accounts between foreign banks and US banks have become an increasingly viable avenue for funnelling illegally obtained monies into the US economy. Financial transactions, such as wire transfers, may occur in various currencies between a foreign correspondent bank and the US bank with little if any oversight by the US bank over the foreign bank’s management integrity, domestic regulations, or presence of or adherence to anti-money laundering controls. The ease of movement of funds through cyberspace in conjunction with the lack of monitoring of funds through foreign correspondent banks by US banks has allowed a lacuna to remain, whereby criminal account holders continue to enjoy full banking facilities largely without recourse. Throughout the past decade the effectiveness of the auditing standards developed by the US accounting profession has been repeatedly questioned. This has now culminated in the removal of the profession’s right to self-regulate. The
effectiveness of the existing auditing standards may not, however, be the problem. Instead, the problem may lie in the oversight of the adherence to the auditing standards, including the standards of independence and ethics. Unless there is an effective system of monitoring the compliance of accounting firms auditing US public companies, changing the rule-making body may not make a difference and will be just one more costly legislative measure. This paper explores the relationship between the legislators’ desire to prevent domestic and international illegal money movements, while at the same time stimulating consumer confidence, and the relative ease with which it has been possible for accountants and the banking community to facilitate the circumvention of domestic US legislation that has been aimed at preventing and detecting the circulation of the cash proceeds of crime through legitimate banking channels. It concludes by evaluating the most recent legislative attempts to curb unprofessional and sometimes illegal auditing practices that have so frequently been the avenue through which the channelling of illicit funds has been facilitated in the USA. INTRODUCTION In 2001 the Minority Staff of the US Senate Permanent Subcommittee on Investigations concluded its year-long investigation into correspondent banking and how it functions as a channel for money laundering.1 Foreign correspondent banks with
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