Money Laundering

Money Laundering

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Once upon a time, in an office far far away....

A couple, owning a company of which they were the sole directors, were feeling hard up and so persuaded their bank to loan them some money.

The bank said "Sure! Sign here!", having filled in a form for them, which they duly signed.

Unfortunately, the current turnover declaration in that form, prepared by the bank, was to be put it bluntly, optimistic.  About £200k optimistic.  (It is just about possible that a new contract was included, which while not yet in the bag would make up the difference - but that's future, not current.) 

So the form is clearly just plain wrong, so off we stroll to the place where they keep SARs.

However, there seems to be a wrinkle.  The company files abbreviated accounts and the directors claim they will never show the accounts to anyone.

So how can the anonymity that underpins the reporting process be maintained?  If the accounts really never go anywhere but HMRC (in a years time), wouldn't any action by SOCA lead to the finger being pointed directly back at us?

Under these circumstances, where anonymity can not be guaranteed are we still required to file a SAR?

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David Winch
By David Winch
13th Jul 2011 10:56

The legal requirement for a report

The legal obligation to report suspicions (i.e. to make a Suspicious Activity Report or SAR) arises under s330 Proceeds of Crime Act 2002 (there is an additional obligation in Scotland only under s31 Criminal Justice and Licensing (Scotland) Act 2010).

The legal obligation does not routinely disappear just because someone might guess who had made a report if (and it's a big IF) the authorities follow up the suspicion.  However there may be a 'reasonable excuse' for not reporting if there is a danger of violent retribution (we have dealt with that in another thread recently).

However the legal obligation is to report a knowledge or suspicion of money laundering which you have as a result of information which has come to you in the course of your work in the 'regulated sector' (the obligation is somewhat wider in Scotland - but only if more than one person is involved in the suspected crime).

Obviously if there has been no crime then there can be nothing to report.

So the question I am asking myself is, "Has a crime been committed?".

If an error was made on the application for the loan that will not be a crime unless it was a deliberate dishonest 'error'.

I am doubtful as to whether there has been a crime here.  Could it be that the application was foolishly optimistic rather than deliberately dishonest, or that there was a misunderstanding about what information was required on the form (e.g. projected turnover rather than past turnover)?

(By the way you give no indication as to how significant / insignificant a £200K error in the figures would be.)

David

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By Harbinger
13th Jul 2011 11:31

Dodgy Loan application

David,

Thank you for your swift response!

The application was 10 months into the year, so the directors must have known roughly what the full year turnover would be, and also that the current trading times 12 just wouldn't give a figure double their actual turnover for the full year.

All we have is the application form, prepared by the bank, presumably after full discussions with our client.  How full those discussions were, we don't know.  How full the disclosures by our client were, we don't know.  What we do know is that the bank prepared the forms, including this statement of turnover, and our client signed them.  There's a possibility that the staff at the bank stuck the extra £200k onto turnover and assured our client that it was OK to do so - in which case I'd say the bank staff would have been party to a fraud. I find it hard to believe that the banks internal procedures would allow this, however.

Half the problem is probably that we are not lawyers and what we think of as a crime is apparently not what lawyers think is a crime.

 

 

 

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By zarathustra
13th Jul 2011 11:47

Navel gazing

Making the assumption that this is not an audit client, I can't imagine how I would even come to consider this point if it were one of my clients as I would neither ask for nor have any interest in the application form.

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David Winch
By David Winch
13th Jul 2011 12:38

Are you saying . . .

Are you saying that the form asked for a prediction of the turnover for an accounting year which had not then ended?  If so, I would be thinking "foolish and hopelessly over-optimistic".  But you mention a new contract which might have been secured and might have got them there?

So I would be slow (very slow) to describe this as dishonest and criminal.

I wouldn't feel this was reportable.

David

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By richardterhorst
15th Jul 2011 13:39

over analysing
If a sales person he probably believed it. If an accountant probably dishonest then.
Over analysing andmaybe to quick to think "dishonest"?

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