Thousands of recruitment agencies could be leaving themselves open to prosecution and fines under the new money laundering regulations, according to Barry Roback of accountancy firm JSA Group.

Under the new legislation, firms must report not just attempts to launder large sums of money by drug dealers or bank robbers, but also suspicious tax arrangements by individual contractors, such as using offshore companies.

“If they don’t report their suspicions and the guy is not paying tax, the agency could be subject to some very heavy fines,” said Roback. However, agencies must also be careful not to make enquiries which could be seen as tipping off the suspected evader.

The regulations will also increase the amount of red tape faced by recruiters, who will be required to make extensive checks on the identity of both clients and contractors. Although Roback said he wasn’t aware of “any accusation, successful or otherwise” of a money laundering scam in the recruitment industry, the fact that many agencies paid their staff electronically meant they came under the regulations.

“Recruitment agencies are obliged to ascertain that the people they are dealing with are who they say they are,” he said. “It’s a huge area and it’s a minefield.”