Letter sent to Standing Committee B on 16 November 2001.
The Chartered Institute of Taxation and the Association of Taxation Technicians remain fully supportive of and take a keen interest in the steps being taken by the government to counter money laundering. In this letter we are highlighting for you and your colleagues on the Standing Committee the areas where we still have some concerns, chiefly in relation to the obligation to report suspicious transactions which the Bill places on professionals.
In May 2001 we submitted representations on the Proceeds of Crime Bill. These were followed up by meetings with the Home Office and Inland Revenue. We welcomed these opportunities to discuss our concerns and are pleased to note that some of the suggestions made by representatives of the professional bodies have been incorporated into latest version of the Bill. However, there remain a number of areas where we feel further attention is necessary, and these are set out below.
Although currently the Bill appears to affect taxation advisers only when they receive information in the course of a business which includes investment advice and is therefore regulated (see paragraph 5 below), we understand that a new draft EU directive on money laundering, reference PE-CONS 3654/01, is likely to be implemented shortly and will call for member states to extend “suspicious transaction reporting” of the kind required by Clause 324 of this Bill to all accountants and taxation advisers. This would mean that all our members would potentially be affected.
1. Legal Privilege
Under the Bill, legal privilege is available only to professional legal advisers. This can create difficulties as is illustrated below. There is little, if any, difference between the advice given by a legal adviser and that given by tax practitioner to a client wishing to make a full disclosure of tax
irregularities. However, under the Proceeds of Crime Bill a tax practitioner operating in the regulated sector would be obliged to make a report to the National Criminal Intelligence Service (NCIS) whereas the legal adviser would not. Clause 324(5)(b) and (8) refers.
It is reasonable to assume that those guilty of tax irregularities would be less likely to seek advice from tax practitioners than lawyers if they knew that as a result a report would be made to the police. Not only does this place tax practitioners at a commercial disadvantage to legal advisers, it is also likely to deter the disclosure of tax irregularities; this cannot be in the government’s best interests. Consequently we urge the Government to amend Clause 324 to extend legal privilege to cover tax advisers in the Bill.
2. The role of NCIS and Hansard
Currently the Inland Revenue operates the so-called Hansard procedure. In appropriate cases this allows a financial settlement to be reached, including interest and often large penalties, in return for a full “confession” of tax irregularities. It offers an efficient and effective way of resolving, often complex, tax investigation cases. It is not clear how the Hansard procedure can co-exist with the requirement under Clause 324 of the Proceeds of Crime Bill to report knowledge or suspicions that a client is laundering the proceeds of crime (including tax evasion) to “a constable”, which in practice would mean the National Criminal Intelligence Service, as required by Clause 327(4) of the Bill. We suggest that this could be resolved by adding Inland Revenue officers to Clause 327 (4) of the Bill (line 35 on page 187) as persons to whom authorised disclosures could be made by tax advisers. Customs officers are already included within the clause; it would seem logical and consistent to bring the other major tax gathering body within the scope of the clause as well.
We should add that we are in no sense arguing for a soft option for tax evaders here. We entirely accept that the Inland Revenue should prosecute tax offences in appropriate cases, and if clients disclosed non-tax offences as well, we would accept that the police may have to be informed. However, we believe that as drafted the Bill will discourage voluntary disclosures of tax offences and actually lead to less tax evasion being detected.
3. De minimis
As currently drafted the Bill does not provide for a de minimis limit in relation to the reporting of known or suspected money laundering of the proceeds of crime. We remain concerned that the absence of such a provision will lead to NCIS being deluged with reports of a comparatively trivial nature. There is a very real danger that resources and expertise will be diverted or distracted from dealing with serious crimes. In view of this we recommend that the government look again at the introduction of a de minimis limit which would enable NCIS to make best use of its resources.
4. Position of non-employees
Under Clause 324(4) an authorised disclosure may also be made to a “nominated officer”. This is defined in sub-clause (7) as “ a person nominated by the alleged offender’s employer”, and is only meaningful where the knowledge or suspicions are those of someone who is an employee. If it is a partner, director or a volunteer to whom the information comes, they have no-one to whom they can make a disclosure apart from NCIS, even though they may be partners, directors or volunteers in an organisation which has a money laundering regulatory officer. This should be remedied by adding “or, as the case may be, his firm, company or voluntary organisation” after “employer” in line 6 on page 188.
5. Regulated businesses
An adviser could commit an offence under Clause 324 if the requisite knowledge or suspicions came to him/her “in the course of a business in the regulated sector” (sub clause (3)). This is further defined in Schedule 6 Part 1 and here, an “investment business” within the meaning of the Financial Services Act 1986 is deemed to be in the regulated sector (paragraph 1(f)). Some of our members may work for businesses which are “investment businesses” as defined, but they do not themselves deal with investment matters. For example, a client may have laundered the proceeds of an offence via a pension policy taken out through a firm’s pension department, and then one of our members working in that firm’s tax department may complete that person’s tax return to claim tax relief for the payment, with no knowledge of, or reason to suspect, the source of the funds. We believe that it would be unjust for the tax adviser in these circumstances to be prosecuted under Clause 324 and that the Bill should be clarified by adding the words “and he was directly involved in the activities by virtue of which the business is regulated” in line 33 on page 187.
6. The Criminal Assets Recovery Agency (Part 6 of the Bill)
We understand that this Agency will not be used by the Inland Revenue to obtain additional powers for use in its own investigation work, but only when criminal prosecution or civil confiscation have been considered and rejected. We think that it would be very helpful if Ministers made a clear statement on the record about this.
16 November 2001
Technical Department
020 7235 9381
