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Anti-Money Laundering FAQs

Reporting

Q: My client has just confessed that he has been avoiding tax on income from investments and properties over several years and has asked how he should put matters right. Do I need to I make a report to the Serious Organised Crime Agency (SOCA) or could his disclosure be covered by the privilege reporting exemption?

Background

I am a sole practitioner Chartered Tax Adviser. My client came to see me yesterday and dropped the following bombshell. Apparently his aunt died several years ago and left him quite a substantial sum of money which he had duly invested partly in shares and partly in property. He knew he should have declared the income from these investments and paid tax on it but somehow had never got round to it. However he now wanted to put matters right and make a full disclosure to HMRC. He had lots of questions. What was his position legally? Would he go to gaol? Would he have to pay interest and penalties? Would he have to pay it all at once? I went through what the law says, the approach HMRC are likely to take and what the first steps would be in declaring this income. Should I make a report to SOCA or could his disclosure be covered by the privilege reporting exemption?

A: This is a complex area and if a member is in doubt about whether the privilege reporting exemption (the exemption) applies he should seek specialist help. Further guidance can be found in Chapter 7 of the CCAB guidance and in Chapter 12 of the Appendix to the CCAB guidance entitled Supplementary Anti-Money Laundering Guidance for the Tax Practitioner.

It is very likely that the privilege reporting exemption (‘the exemption’) will apply and in which case you must not make a Suspicious Activity Report to SOCA. This is on the basis that the information came to you, a relevant professional adviser ( members of the CIOT and ATT are relevant professional advisers for these purposes) in privileged circumstances (very broadly where a client or his representative seeks ‘legal advice’ and gives information in connection with the ‘legal advice’). Legal advice can be taken to mean advice on taxation matters where the tax adviser is giving advice on the interpretation or application of any element of tax law and in the process is assisting a client to understand his tax position.

If you are satisfied that the exemption does apply you should keep a record of the reasons for your decision in case you are challenged at a later date.

Please note that the exemption does not apply if the information is disclosed or advice is sought ‘with the intention of furthering a criminal purpose’.

Note

Even though the client is willing to make a full disclosure in this case you would be obliged to make a report to SOCA if the exemption did not apply (for example if you were not a relevant professional adviser). This is because the client knew that tax was payable but did not declare the income. The tax he saved by his failure to disclose constitute proceeds of crime.

Q: My ex-client has appointed a new adviser. We parted company when he refused to make a full disclosure to HMRC about an undeclared source of income. I have submitted a Suspicious Activity Report (SAR) to SOCA. Can I tell his new adviser why we parted company and that I have made a report to SOCA.

A: You cannot disclose any information to the new adviser without your former client's consent. If he gives permission you may discuss freely with the new adviser all matters of which he should be made aware (though see below as regards the SAR).

We would not recommend that you volunteer information about the SAR.If the new adviser asks if a SAR has been submitted it is usually best practice to decline to answer. There is no obligation to supply this information.

However if you are satisfied that the request comes within the provisions of S330C POCA you may disclose the information. There are a number of conditions which must be met.In particular as far as tax advisers are concerned you should note that S330C only applies where the exchange of information is between professional legal advisers or 'relevant professional advisers of a particular kind'. Members of CIOT and ATT are relevant professional advisers for these purposes. However tax advisers who are not members of a professional body which meets the requirements of the legislation will not be regarded as relevant professional advisers.

Q: Could this be reasonable grounds for suspicion of money laundering? A member of staff came back from a visit to Client A and said he was sure Client A must be ‘fiddling his tax’. In his view there could be no other explanation for how Client A, a young man in his mid twenties, could afford to own and drive the car he did (top range model costing over £30,000). He certainly could not afford to run the car from the profits of his business and he did not think Client A had any other source of income. However he had no evidence to back up his claim.

A: Suspicion is more than speculation but less than actual knowledge based in evidence. It must be based on some evidence even if that evidence is tentative. Simple speculation that a client may be money laundering is not sufficient grounds for money laundering– ‘a vague feeling of unease would not suffice’.

On the basis of the limited information above it is unlikely that you have reasonable grounds for suspicion – it is more indicative of speculation. The possibility of another source of income has not been ruled out as your member of staff only thinks he has no other income. There could be a number of innocent explanations as to how Client A financed his lifestyle, for example, he may be part of a wealthy family happy to support his passion for fast cars.

However consider the following: Client A’s business shows only a modest profit and when asked he confirms that he has no other income. He has such limited means that even if he lived very frugally it is difficult to see how he could afford to run such an expensive car. Another client had mentioned that Client A had carried out some work for her and that whilst not cheap he had done a very good job. However there is no trace in Client A’s books and records of this work and he denies all knowledge of the job ("probably someone else with the same name as me did the work"). This could suggest that some projects are not recorded through the books and hence not declared to HMRC potentially resulting in an underpayment of tax and possibly VAT. This tentative evidence would mean that it is likely you have reasonable grounds for suspicion of money laundering.

Customer Due Diligence (CDD)

Q: When do I need to carry out CDD - before or after my client becomes my client?

A: You should normally verify the identity of your client before the establishment of a business relationship. However, Regulation 9 allows verification to be completed during the establishment of a business relationship if—

(a) this is necessary not to interrupt the normal conduct of business; and (b) there is little risk of money laundering or terrorist financing occurring, provided that the verification is completed as soon as practicable after contact is first established.

Q: Can I use electronic ID?

A: Whilst electronic verification may be sufficient in some cases to comply with anti money laundering requirements, there may be circumstances where it will not be sufficient, for example where the client is in a higher risk category. Electronic verification will only confirm that someone exists, not that your client is who they say they are. You should consider the risk implications in respect of each client and be on the alert for information which may suggest that your client is not the person they say they are. You may reduce risk by supporting electronic verification with some other CDD material, such as ensuring that they pay you through a bank/building society account held in their own name.

Q: All of my clients have been clients for many years, long before these new regulations? Do I need to do CDD on them?

A: You need to keep CDD up-to-date for all your clients.You may well already have sufficient documentary ID details on your files but if there has been any subsequent change to their circumstances or risk profile, you should update your CDD.You should review clients’ CDD on a regular basis.

Q: If my client is introduced to me by another firm of accountants do I still have to do CDD?

A: Regulation 17 allows you to rely on CDD carried out by credit or financial institutions or members of the following professional bodies:

  • Association of Chartered Certified Accountants
  • Institute of Chartered Accountants in England and Wales
  • Institute of Chartered Accountants in Ireland
  • Institute of Chartered Accountants of Scotland
  • Council of Licensed Conveyancers
  • Faculty of Advocates
  • General Council of the Bar
  • General Council of the Bar of Northern Ireland
  • Law Society
  • Law Society of Scotland
  • Law Society of Northern Ireland

The third party must give consent for the CDD to be replied upon and although the Regulations do not define how consent must be evidenced, it is sensible to provide written notification saying that you intend to rely on the third party firm for the purposes of Regulation 17. Also, whether you wish to place reliance on third party CDD will be part of your risk assessment as you retain responsibility to comply with any requirements of the MLR 2007 and this responsibility and any liability for failure to apply verification correctly cannot be delegated to the third party.

Training

Q: I have just taken on a new member of staff. He tells me he has had extensive anti money laundering training at his last firm. Do I still need to bother with training for him?

A: As it is your responsibility under MLR 2007 to train all your staff you should ensure that your new member of staff receives adequate training from you. You could be prosecuted for a breach of the MLR 2007 if you fail to do so.Also, your internal AML policies and procedures may be different to those of the previous firm of your new member of staff. Not only should staff receive training at their induction but they should also be given refresher training – Regulation 21 says “regularly”. You should consider providing updates to staff if their job changes or AML legislation is amended. You could circulate our AML Newsletter to your staff.

Supervision

Q: I work on a sub-contract basis for a firm of chartered accountants – can I just be supervised by their supervisor?

A: You may not need to register to be supervised for compliance with the MLR if all your clients are Accountancy Service Providers (ie firms of tax advisers, accountants, insolvency practitioners etc) which are supervised for AML purposes by a professional body or HMRC, and you can meet the following conditions

·you do not do business directly with the supervised Accountancy Service Providers' own clients;

·you are included in the supervised Accountancy Service Providers' anti-money laundering controls and procedures, suspicious activity reporting, and training programmes; and

·you have a written contract with each of your clients confirming that every aspect of the relationship between you meets all anti-money laundering requirements

Q: I have registered with HMRC for supervision – do I also need to register with CIOT/ATT?

A: As a Chartered Tax Adviser or Taxation Technician you should register with the CIOT or ATT for supervision unless you or your firm is supervised by another professional body. In such a case you should notify the CIOT or ATT of your supervisor. Members should not register with HMRC other than for trust and company services supervision – see below for more detail. If you have registered with HMRC in error please contact CIOT/ATT for further guidance.

Q: My firm does a lot of trust and company service work - will CIOT/ATT supervise us for that part of our services to clients?

A: Only if it is incidental to your accountancy service provider work otherwise you would also need to register with HMRC for your trust and company service work.

 

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