Response of the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) to the consultation proposals on potential changes to the Money Laundering Regulations 2007 (the Regulations)
1.The CIOT and ATT welcome this opportunity to respond to the consultation document on the potential changes to the Regulations. We remain fully supportive of the government's fight against money laundering and terrorist financing.
Our response considers the impact on the tax sector and in particular on members of our professional bodies.We have not commented on questions where, in general, our members are not directly involved.
2.Question 1:Should the existing criminal sanctions be wholly or partly repealed?
The CIOT and ATT consider that the existing criminal sanctions should be wholly repealed in respect of the Regulations.Such a move should bolster the risk based approach and ensure that the appropriate sanction was applied to better distinguish between those who actually break the law and those who make errors of an administrative nature. This would bring the sanctions into line with those more generally applicable in relation to tax matters.
We agree, as noted in the report, that fear has resulted in some businesses going further than is necessary to comply with the Regulations.We do not think it is necessarily the case that removing criminal sanctions will reduce the seriousness with which those supervised will place on their obligations to comply with the Regulations.In our view we consider that executing criminal sanctions for administrative breakdowns is both disproportionate and impracticable. However we are in no doubt that criminal sanctions should be retained for the predicate money laundering offences and the failure to report offence set out in the Proceeds of Crime Act (POCA). See also our comments at Question 2 below.
Whilst there may be concern that the repeal of criminal sanctions could be seen as sending out a message downgrading the significance of the Regulations this could and should be effectively managed by a strong signal from the Supervisors that they will continue strenuously to enforce compliance by a range of sanctions including fines and in some instances expulsion.Members of professional bodies will be very aware of the damage to their professional reputation that sanctions by their professional body would bring.
3.Question 2: Should new powers be granted to supervisors allowing them to order or require actions by businesses to mitigate the potential negative impacts from the loss of criminal sanctions?
It is vitally important that effective, proportionate and consistent sanctions are in place to encourage and enforce compliance with the Regulations. Treasury guidance on the approach expected of Supervisors and indicative sanctions would help greatly in this respect to create a uniform approachacross the regulated sector. For example, the Accountancy Affinity Group among the Supervisors is working to set a common approach towards enforcement within the tax and accounting sector. Potentially this could be officially approved as the acceptable and expected standard for supervisors in that area.
The CIOT and ATT aim to educate and support members in their compliance with the Anti Money Laundering and Counter Terrorist Financinglegislation. Typically if, after guidance and instruction, a member persists in failing to comply the case is referred to The Taxation Disciplinary Board. This is the independent body which handles disciplinary matters concerning members of the ATT and CIOT.
From the CIOT and ATT's perspective additional powers would probably not be required as members can already be directed either by the CIOT and ATT or the Taxation Disciplinary Boardto take steps to improve compliance.Persistent or serious failure to comply is likely, ultimately, to result in the member being expelled from the CIOT or ATT.This would mean that the member would need to find a new Supervisor which most probably would be HMRC as the default supervisor.The member might seek to resign whichagain would mean finding a new Supervisor - however there are restrictions on a member resigning when there is an ongoing disciplinary investigation. Unlike the professional bodies HMRC does not currently have expulsion available as an AML enforcement sanction against tax advisers.
4.Question 3: Do you agree that the current distinction between Parts 1 and 2 of Schedule 3 eg for reliance purposes should now be removed?
Yes. It is appropriate to remove this inconsistency between professional supervisors.The professional bodies in Part 2 had to demonstrate to the Treasury that they were fit and proper bodies to be included as Supervisors in the first instance and the evidence suggests that they " take their responsibilities seriously".
Further the distinction between Part 1 and Part 2 can be confusing for clients leading to frustration and additional administration where, despite being willing to do so, one professional adviser in Part 1 is unable to rely upon CDD carried out by a fellow professional adviser in Part 2.
5.Question 5: Should there be a general de minimis exclusion for very small businesses (eg those with below €15000 VAT exclusive turnover per annum) or a reduction in the requirements placed on such businesses?
The CIOT and ATT support a general de minimis exclusion for very small businesses with an annual turnover of less than €15000 (VAT exclusive).Less than 250of the firms currently supervised by the CIOT and the ATT would come within the proposed de minimis limit.Many ofthese are individuals who complete tax returns for family and friends for a modest fee and do not undertake any other tax work on a commercial basis.The administrative burden coupled very often with concern over issues such as keeping up to date with the Regulations, carrying out a sufficient level of CDD, having appropriate policies and procedures, is disproportionate to the fee income and nature of work undertaken.
At a turnover level of €15000 the work being undertaken is likely to be basic compliance work with a relatively low risk profile.Whilst recognising there is a concern that criminals could abuse the €15000 limit it is likely that tax advisers laundering money or assisting money launderers would be guilty of an offence under POCA and hence could be sanctioned under that legislation.
Guidance or rules would be needed to identify when the €15000 threshold was reached (eg when the actual income of the business exceeded €15000 or at the start of the business year when it was anticipated that it would be breached).It may be prudent to have some disaggregation rules, for exampleto prevent one person (or a group of associated persons) setting up numerous small companies each with a turnover of less than €15000 with the sole purpose of remaining outside the regulated sector.
If a de minimis limit is deemed not to be appropriate the CIOT and ATT would strongly urge the government to give further consideration to and guidance on the meaning of "by way of business" with a view potentially to excluding those who provide services for family, friends, charitable and community organisations only for modest fees.
6.Question6: Do you agree that non-lending credit institutions should be exempt from the Regulations?
Yes - this addresses an unintended consequence of the wording of the legislation.
7.Question 16:Should the ability of supervisors to exchange information with each other for the purposes of discharging their AML supervisory functions be strengthened, if necessary by the creation of new gateways to allow for the exchange of information?
The CIOT and ATT support in principlethe strengthening of the freedom to exchange of information between all supervisors.However given the potentially commercially sensitive nature of some of the information held by the professional bodies the power should be permissive rather than obligatory and be in terms of only releasing such information for AML purposes.
8.Questions 4,7,8 and 10
We have no comment to make.
9.Questions 11-15 and 17
The CIOT and ATT do not need these supplementary powers as members are already required to comply with any reasonable request from their professional body.Failure to comply may result in referral to the Taxation Disciplinary Board where the ultimate sanction is expulsion.However we support in principle proportionate powers being made available to enable Supervisors to perform their supervisory function efficiently and effectively.
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