My ethical dilemma

It appears fairly black and white to me ... report it!

I am certainly no expert in MLR.  David Winch and others will be able to give a more informed opinion and quite possibly correct my uninformed one!

From what I understand you are a consultant working in a company that pays significant amounts of bonuses in cash.  You suspect (quite reasonably in my opinion) this is done to escape the obligation to pay tax on these bonuses.  I presume that you believe senior management are involved in it, so you cannot get them to correct the situation.

To me, that's fairly black and white - it's tax evasion so you are required to report it.  Although you think the auditors have never found it, it is quite possible they do suspect it and have made reports in the past.

I believe SOCA pass tax-related MLR reports to HMRC.  If they want to investigate further then I would imagine that they would launch a "routine" PAYE inspection, so that they can "discover" these discrepancies themselves.  You should NEVER, EVER be named as the informant.

If after the tax enquiry, the PAYE offences are so large that the business cannot pay the PAYE and penalties, that's hardly your fault.  The fault firmly lays at the feet of the people that perpetrated it.

I certainly wouldn't want to go to prison to protect a client's illegal activities.  So report it, clear your troubled conscience and get some sleep!

Look for a "get out of jail free" card.

                   "Also, there could be a possibility of physical violence against me."

As I understand it being in fear for your life, or safety, is a "get out clause" and you don't have to report it. However, if you continue to work there that argument might prove difficult to sustain.

Another thought, you say you're working as a "consultant" but not what kind of consultant.  Is the work you do actually in the regulated sector ?

Get out clause

If you have the get out clause, take it, get out and dont report it.

Move on and put it down to experience.

That way you get the client out of your life, get some sleep and dont have to worry about your life being in danger.

Only problem you are then left with is - how do i get that 70% of my income back?

Parachute

This company could be reported by a competitor, disgruntled ex-employee, director's ex-wife, or could just get  a thorough PAYE inspection that gets to the bottom of it. If the consequences are as dire as you say and the company folds, 70% of your income goes anyway, so one way or another you should be looking to reduce your reliance on this particular worm-cannery!

Your legal obligation

It appears that - at the least - you suspect there is deliberate dishonest evasion of tax going on.  That evasion might be of VAT and corporation tax (if the employer is a company) in that (if I understand you correctly) cash income is not going through the books.  Also there are PAYE issues regarding cash payments to employees.

You believe this non-recording is not simply arising from innocent errors or lack of knowledge but rather it is deliberate dishonest tax evasion.

The information has apparently come to you in the course of self-employment as an accountant (i.e. providing bookkeeping or accountancy or tax services as a self-employed person in return for payment).  So the information has come to you as a person in the 'regulated sector' (for the purposes of MLR 2007 and s330 PoCA 2002).

That means (with an exception discussed below) you have a legal obligation to report your suspicions to SOCA.  The maximum penalty for failure to report is 5 years' imprisonment, s334(2).

The exception is where you have a 'reasonable excuse' see s330(6)(a). 

(There is another exception - for information received in 'privileged circumstances' - but this does not seem to apply to you based on the facts in your original post.)

No-one actually knows what amounts to a 'reasonable excuse'.  It does not seem to have been tested in the courts.  But the fact that you (and others) would lose income if the evasion came to light is unlikely to be considered a 'reasonable excuse' to permit criminal conduct to continue undiscovered.

If you (or your family or your employees) are genuinely at risk of physical violence then that may consitute a 'reasonable excuse'.

I advised some years ago in a case where a client spotted a junior member of the accountants' staff on an audit visit looking at incriminating documents which the client had intended to hide.  The client had previous convictions for violent assaults.  He said to the staff member, "If you tell anyone about that you will never walk again".

The staff member, to her credit, told the audit partner.  The firm resigned but did not make a report as they considered there was a credible threat of violence which afforded a 'reasonable excuse'.

However in your case you may simply have a generalised fear which would be less easy to justify as a 'reasonable excuse' if the stuff hit the fan.

Do make sure that you are not yourself engaged in any conduct which assists the tax evasion.  If you are then you could be charged with a principal money laundering offence, and with conspiracy to evade tax, yourself.  As an accountant you face stiff penalties if convicted.  There are no 'reasonable excuse' provisions in the statute for these offences (although you could argue that you acted 'under duress' if you were directly threatened with violence yourself).

If you make a report to SOCA you should follow that up with a phone call to SOCA explaining your fear of violence.  SOCA will then take extra care not to reveal the source of their information.

You are in a tough situation.

You may find it helpful to make a confidential call to the members' advice line of your professional body (they will not 'shop' you to SOCA or their disciplinary department).

It is time to find other work and ditch this lot!

Good luck!

David

Tough One

Normally I just would say report it as I doubt it will even be read let alone acted upon. UK Goverment agencies are not exactly admired for their ability to share data & communicate with each other at the best of times. 

The reporting procedure is supposed to be confidential although I for one cetainly do not discount the possibility of some ham fisted HMRC officer letting the cat out the bag or the details coming out at a later date in the legal process.

I do not see the whole physical threat aspect affording you much protection. If it worked, everyone would just say that and how you would prove it is beyond me.

Sharing data

Just to clarify, information from reports submitted to SOCA goes onto a database known as ELMER.  That database is then accessed by authorised persons in HMRC, DWP, local police forces, etc.

So it is not the case (as it was some years ago) that SOCA sift the information and then send copies out to the agencies that they think might be interested in it.

The report form includes 'tick boxes' to be completed by the reporter to indicate if the suspicion involves tax evasion, terrorism, etc.

I presume that HMRC take special interest in the tax evasion ones.

David

The physical threat aspect is a rather nebulous concept.

Certainly in the cases where householders have protected themselves from intruders the physical abilities of the householder are taken into account. For instance a 85 year old 6 stone grandmother could get away with picking up a poker to hit an intruder, whereas a fit 6' 18stone rugby player doing the same thing might be judged to have behaved excessively.

I would guess that if the client is larger than you, and perhaps has a reputation for being violent, then you would be far more likely to be believed that if the client was elderly, infirm, a member of the local knitting circle, etc.

Violence is quite normal for some clients

I have had several very bad experiences where I feared for my physical well-being - long before money laundering. I can only assume those who say that any threat should be ignored have not had this problem themselves.

The police will only do something - if at all - once some sort of violence has taken place. That is rather late in the day if your jaw has been smashed up.

If I find a client is either dishonest, violent or both I get out of the situation as fast as I can and you should, whether or not you decide to file a report to SOCA.

Scotland

I should have said that there are additional reporting obligations in Scotland under s31 Criminal Justice and Licensing (Scotland) Act 2010.  There are also additional offences, including the s28 offence of agreeing to do something which, though not criminal in itself, enables or furthers the commission of an offence (of one of the types specified in the legislation) by someone else.

As is often the case, the statutory offences are widely drawn so that, whilst they are referred to as "serious organised crime", they can include, for example, two people working together to commit shoplifting offences, or pickpocketing, or distraction burglary.  This may not be what most of us would have in mind when we think of "serious organised crime".

It may well be that the evasions / frauds described by Davros would amount to "serious organised crime" and so he (or she - or, in the case of Davros perhaps even "it"!) needs to be careful (if in Scotland) to avoid personally committing the s28 offence.

But this particular legislation is limited to Scotland only.  As far as I know there is no direct equivalent offence in the rest of the UK.

David

Protection from harrassement or harm
The organisation Public Concern at Work has a helpline which you can contact who will offer you professional advice on how you can report this without exposing yourself to harasssment or harm (see their website
In addition you you could speak to the relevant regularoty body and ask them to make the report on your behalf without revealing any information wwhich doul identify who you are.

Finally you could simply report it to the SFO and eithert just not tell them who you are or tell them you want to bre teated as an anonymous source. Some of the regulatoriy bodies have anonymous online reporting facilities and/or helplines (I am fairly sure HMRC does).

Given all of the above you could risk prosecution if the defence you gave for not reporting this organisation is fear of harm.

Public Concern at Work are a good organisation and experts in this area I would strongly recommend you talk to them before deciding on any couse of action. Although I do agree with earlier comments that you need to distance yourself from this company as fast as possible.

.

Given all of the above you could risk prosecution if the defence you gave for not reporting this organisation is fear of harm.

Posted by JMillgate on Fri, 08/07/2011 - 12:22

And yet the legilation actually states that fear of violence is an acceptable "excuse" for not making a report.

The only "hurdle" that I can see is in proving that such a fear is based upon some genuine perceived threat (such as a history of violence) and not just on a fanciful "well it might happen" assumption.

ELMER database

David - Thanks for the insight into what happens with all of our Suspicious Activity Reports.

I just wondered, are all of the organisations that have access to the ELMER database (HMRC, DWP, police, etc) able to see who filed the Suspicious Activity Report?

Top Cat

I am not aware that the legislation actually states that fear of violence is an acceptable "excuse".  Can you point me to that?

I know that the CCAB Guidance says something like "there is no money laundering case law on this issue and it is anticipated that only relatively extreme circumstances, such as duress and threats to safety, might be accepted".  Is that what you had in mind?

David

ELMER

I actually don't know whether the personnel who look at ELMER data at HMRC etc can see who filed the report.  My working assumption would be that they can.

I do know that there are agreements between SOCA and HMRC which govern how information from ELMER may be accessed, distributed and used and that, in practice, SOCA receive very very few reports of improper disclosure of information obtained from reports (from memory somewhere between zero and five complaints per year - and over 200,000 reports are filed annually).

David

Reasonable excuse

The concept of "reasonable excuse" as a defence has always formed part of common law and applies to almost all cases (excepting offences of strict liability).  It has also always been an accepted part of our legal system that no one can be forced to place themselves in danger to comply with the law. Therefore, it follows, that where there is a justifiable fear for your safety should you file a report, then the law protects you from prosecution.

As I stated, the "hurdle" which must be crossed is in convincing a court that there was good reason to fear for your safety, or indeed your life.

Indeed there is a legal obligation for any citizen to assist a police officer should the officer request assistance. If a police officer was grappling with a drunk in the street and ask you to help, then you are obliged to do so. A 20 year old 18 stone rugby player would have no excuse for not doing so, and would risk prosecution by refusing to help, whereas a 70 year old with a history of heart disease and a wooden leg would be judged to have a "reasonable excuse" for not doing so as his heart condition would mean he was being asked to put himself in a (to him) potentially life threatening situation.

Something Fishy about This

 This story just doesn't ring true to me.

Assisting the police

I think we need to be very cautious about saying there is an obligation to assist the police.

It is one thing to say that if one comes across a situation in which a police officer is being physically assaulted and he asks for assistance one should endeavour to provide it - but it would be quite another to suggest that there is any legal obligation to assist the police generally in the execution of their duties.

It can be an offence to deliberately frustrate a police officer's execution of his duty.  So for example if one were to actively assist an offender to escape arrest - say by tripping up an officer chasing him, or giving an escaping offender a lift in your car - then that would be an offence.

But if an officer asks you whether you have seen anybody acting suspiciously after a crime has been committed nearby you are under no legal obligation to answer (but you do have to answer if you are asked to explain your own presence in that location and your own behaviour).

More relevantly, if the police turn up at your office and simply say, "We are making enquiries about your client Mr X, what can you tell us about him?" then you have a positive obligation to reply, "I can tell you nothing about him as I am bound to keep confidential information I have about my client".

I do come across cases in which accountants have - quite wrongly - voluntarily answered police questions about their clients.  That breach of client confidentiality leaves them open to being sued by the client!

The position is different, of course, if the officer has a court order requiring the disclosure of documents (for example under s345 Proceeds of Crime Act 2002).  Accountants, just like anyone else, are obliged to comply with court orders.

David

Refusing to assist a police officer

This is from the Crown Prosecutions charging standards -

Refusing to Assist a Constable

At common law it is an offence to refuse to assist a constable when called on to do so.

To establish the offence you need to prove that:

the constable saw a breach of the peace being committed; andthere was a reasonable necessity for calling upon the defendant for assistance; andwhen called on to do so the defendant, without any physical impossibility or lawful excuse, refused to do so.

The offence is triable on indictment but is rarely used

http://www.cps.gov.uk/legal/p_to_r/public_justice_offences_incorporating_the_charging_standard/#a30

Breach of the peace

Top Cat

Thank you for that, which underlines the point I was making about there being no legal obligation to assist the police generally in the execution of their duties.

David

-

Agreed, there is no general legal duty to assist the police. However, the point I was making (which we seem to have lost sight of) was that under MLR there is a duty to file a report unless there is a reasonable excuse for not doing so.  The OP raised the question of fearing violence as a resonable excuse for not filing a report.

I would suggest that being in fear for your safety / life would be seen as a reasonable excuse just as it is if a police officer requests your assistance in stopping a breach of the peace, a "reasonable excuse" such as physical infirmity or fear for your safety would be a complete defence.

I take your point that a "reasonable excuse" is a defence against prosecution for failure to report a suspicion.  (If I am being picky, that duty arises under s330 Proceeds of Crime Act 2002 rather than the Money Laundering Regulations 2007.)

I also agree that a fear of violence (against oneself or others) could amount to a "reasonable excuse".

The problem is that this is untested in the courts.  An unwarranted and irrational fear of violence might not be accepted as a "reasonable excuse".  But then how "real" does the threat have to be and how could that be evidenced?

It is something of a grey and unexplored area.

Best advice may be to at least keep a contemporaneous note of the suspicion and the reason for it and the fear and the basis of that.

David

Untested but only in this particular context

The problem is that this is untested in the courts. An unwarranted and irrational fear of violence might not be accepted as a "reasonable excuse". But then how "real" does the threat have to be and how could that be evidenced?

Posted by davidwinch on Sat, 09/07/2011 - 07:50

Agreed it is untested in this particular context, but, there are plenty of examples of it's use in other types of offence, and indeed the law itself actually criminalises putting others in fear such as in legislation regarding harassment, stalking, witness intimidation, etc. As a "defence" of course being in fear can justify assaults, even murders (self defence).  It's always been a basis of our system that the law cannot force a citizen to place himself in danger, so, whilst untested, I dont see much difficulty in using fear of violence as a defence, providing that there is some genuine provable justification for that fear. 

The other point I was making with the "assisting a police offcer" example, was that the vulnerability of the victim is also a factor which can and is taken into account in such cases so the ruling in two identical cases could differ as it can depend as much on the vulnerability of the accountant as it does on the level of the threat.

I agree with your last point, even if not reporting due to fear, keep records including the reason for not reporting, and break all ties with the client as quickly as possible. 

Aiding unfair competition also

As well as the MLR considerations, if the reason the client stays in business is only because of the tax evasion transactions then aren't you also aiding the client in unfair competition against other law abiding competitors?  If everybody did this it would end up with the whole market doing the same. 

So, ethically, I think that's another (maybe more important?) reason to disassosciate from this client and go and offer attractive rates of consultancy to their competitor; if the tax evading business reaches it's likely destiny you may then be able to help a law abiding competitor take on the redundant staff then that would more than help with sleep at night.  With consideration for my health and safety, that would be my game plan I think.

Good luck!