Money Laundering - Case Study 1 Mr. Andreou is an accountant and an administration service provider regulated by ICPAC, working in Cyprus. Mr. Andreou had employed one Compliance Officer (CO) who is a recently qualified accountant with no AML experience and limited work experience. Mr. Smith from the UK, who owns a used car dealership in the UK, approached Mr. Andreou and requested for bank administration and accounting services. Mr. Andreou sets up a company with the assistance of a registered licensed lawyer that purchased used cars from Mr. Smiths UK Company and resold them in the local market. Mr. Andreou approved and processed the payments of the purchases and members of his staff issued the sales invoices and deposited the receipts from the sale of the new cars and maintained proper accounting records. The business was very profitable and cash rich, as the used cars were bought at a very low price and resold at a significantly higher price in cash. One employee of Mr. Andreou expressed her concerns to the CO as she was worried that the majority of sales were made in cash (below the 10,000 threshold1) and, in addition to this, in many instances the cars were registered to a different customer than the one paying for the sale. The CO dismissed her worries and explained that this is how business is done in Cyprus, and that many people still have cash at home after the deposit haircut in 2013. Not long after, Mr. Smith was convicted and imprisoned, since it emerged that he is a drug dealer who has set up used car sale businesses in several countries to launder the proceeds from drug sales. As a result, all used cars and cash were viewed by the Republic of Cyprus as criminal proceeds and were now the subject of confiscation proceedings. Mr. Andreou was arrested and put on trial alongside the Compliance Officer. According to the prosecution, the set up and management of the company was intended to eliminate the trail that led back to Mr. Smith and his illegitimate funds, and they should have been suspicious of the transactions as the cars sold were almost obsolete but generated high income in cash. The CO and Mr. Andreou claimed they had no knowledge that the cars where in such a poor state and did not have grounds to suspect Cypriot buyers using cash to settle their purchases. The CO was convicted of failure to report, contrary to Article 27 of the Prevention and Suppression of Money Laundering and Terrorist Financial (Amending) Law of 2018 (the Law) and sentenced to 12 months' imprisonment. 1. Where are the red flags? 2. What actions should have been taken?