Money laundering and the drive guy

Money laundering and the drive guy

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The other evening my wife had a guy round to give us an estimate for laying a new drive. I listened to his sales spiel in a fairly detached way, noting his technique, which I thought a bit naive. However, when he offered us a discount of just over 15/115ths of the first quote if we paid cash, my hackles rose. No doubt if he wasn't going to put our proposed fee in his VAT return it wasn't going to find its way into his end of year accounts.

Now, I did not come across this individual in the course of business so I do not have to make a SOCA report but I am more than a bit inclined to use HMRC's anonymous tip-off line. What would you do or have you been along this path?
Old Horace

Replies (21)

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David Winch
By David Winch
08th Feb 2009 13:20

Response to Penny

Penny

Yes, the same 'suspicion' rules apply. To commit the offence the customer, in this case, must "know or suspect" that the 'arrangement' facilitates in some way the "acquisition, retention, use or control of criminal property" by, or on behalf of, someone else.

The leading UK case on the meaning of "suspicion" is derived from a case relating to an 'arrangement' but is now also applied to reporting suspicions of someone else by persons in the 'regulated sector' (under s330 Proceeds of Crime Act 2002).

That case R v Da Silva concerned the conviction of Mrs Da Silva for money laundering via an 'arrangement'. Her husband had been convicted by a jury of obtaining money transfers by deception in that he submitted false time sheets to obtain wage payments for non-existent workers. Those wage payments were paid by the employer by bank transfer into a Halifax account in fact operated by Mrs Da Silva. The jury also found that Mrs Da Silva "suspected" the credits to her account to be a benefit of crime and she was accordingly convicted of money laundering (although she was acquitted of any part in the timesheet fraud itself).

Mrs Da Silva appealed on the basis that the judge has misdirected the jury on the meaning of "suspicion". The Court of Appeal therefore had to give an authoritative view of the meaning of "suspicion" in this context (which they did and then went on to uphold the conviction of Mrs Da Silva).

The Court of Appeal said, "the prosecution must prove that the defendant's acts of facilitating another person's retention or control of the proceeds of criminal conduct were done by a defendant who thought that there was a possibility, which was more than fanciful, that the other person was or had been engaged in or had benefited from criminal conduct".

They added, "in an appropriate case, a jury should also be directed that the suspicion must be of a settled nature; a case might, for example, arise in which a defendant did entertain a suspicion in the above sense but, on further thought, honestly dismissed it from his or her mind as being unworthy or as contrary to such evidence as existed or as being outweighed by other considerations". In other words a mere fleeting thought, inkling or a temporary suspicion later honestly dismissed would not amount to a "suspicion" sufficient to support a money laundering conviction.

David

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David Winch
By David Winch
06th Feb 2009 16:53

Response to Julie

Julie

Strictly speaking, as a customer you could be obliged to seek consent for the transaction under s328 PoCA 2002.

It is a common mistake to assume that the obligations arising under PoCA 2002 (and Terrorism Act 2000 in respect of terrorist finance) apply only to persons in the 'regulated sector'. They do not!

Whilst in the 'regulated sector' you have a duty to report suspicions of money laundering by others.

However everyone in the UK has a statutory obligation to obtain consent from SOCA for their own money laundering activities. A customer assisting the plumber to evade tax himself commits a money laundering offence if he does it without consent from SOCA. Therefore, strictly speaking, the customer requires to seek and obtain consent from SOCA (by reporting to them and ticking the 'consent required' box) before entering into the transaction.

In practice, of course, the risk of a normally honest customer being prosecuted for failing to seek consent is negligible.

David

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By User deleted
05th Feb 2009 17:28

Blurry eyed
Sorry David, still a bit blurry eyed after January.

Mind you, in the cases I am referring to SOCA and its predecessor NCIS were given UTRs, accounting periods and the amounts of tax under declared. Yet still nothing happened. Perhaps £15k and £20k falls below their radar?

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By julieraikes
06th Feb 2009 15:58

information received in a business capacity
I agree with the comments regarding cash and dont think you should assume there is anything wrong. I work with alot of small businesses where they have cheques bouncing, plus they often find it easier to pay their bills/wages in cash.

On The SOCA reporting, the original question made the point that because the comment was not heard in an official capacity it is not reportable. If the conversation had been made to you as his accountant then you would be expected to question further and report if there was any suspcion. In this instance you are a customer not an accountant and have therefore no duty to report

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David Winch
By David Winch
05th Feb 2009 10:24

Response to Phil

Phil

Can I ask you to re-read my earlier post?

I specifically did NOT say that HMRC act on every report! I said that there are cases in which HMRC have acted even where they have received only one report.

If you actually WANT HMRC to act on a report then it will help if you

(i) use the appropriate XX code in the white space,

(ii) quote the taxpayer's tax reference (i.e. VAT number if a VAT fraud, income tax ref if an income tax fraud, etc),

(iii) indicate, if you are able to, the scale of the fraud.

Obviously HMRC prioritise the information they receive and they do not investigate every report.

David

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By User deleted
04th Feb 2009 22:36

HMRC Act on Every SOCA Report?
David, are you sure "HMRC do act on even a single report via SOCA"? I have reported a couple of clients for tax fraud over the years and have seen absolutely zilch come of it.

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David Winch
By David Winch
04th Feb 2009 17:43

More seriously . . .

I would have more concerns about the plumber who gave an incorrect VAT number and then disappeared, than someone offering a discount for cash.

Whilst it is strictly correct about s328 PoCA 2002, the chance of being prosecuted simply for accepting a cash discount in questionable circumstances is infinitesimal. If everyone who did a 'cash' deal complied with s328 the 'black economy' would have ended when PoCA 2002 came into force. I have not noticed that happening!

Have you ever wondered how many people were prosecuted for failure to comply with the Money Laundering Regulations 2003? Hint: it was a round number!

However HMRC do act on even a single report via SOCA (which is not to say that they act on every single report!).

David

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By User deleted
04th Feb 2009 17:42

Back to the Point (not)
Hi Essex Bloke.

Well, I think what you need to tell us is, is she paying them cash for their services? Only then can readers advise if there is any funny business going on.

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David Winch
By David Winch
04th Feb 2009 17:37

Have tape measure, will travel . . .

Essex Man,

Could we please have details of your wife ;-)

David

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By User deleted
04th Feb 2009 16:56

Could we have the details of the plumber...
...who disappeared without being paid? I don't want to report him to SOCA, but I've got a few jobs he could do.

BTW I hate to mention it but did you by any chance come home early from work unexpectedly to find that your missus had a bloke supping tea on the sofa who'd "come round to give us an estimate for laying a new drive"?

I only ask because whenever I go home early there seems to be a tradesman somewhere in the house "measuring up", usually upstairs. Still, it seems to keep the wife happy, and we've got a house full of new carpets and fitted furniture...

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By User deleted
04th Feb 2009 16:49

Nothing wrong with cash, but ...
Nothing wrong with cash. I offered a builder client (new client) a substantial discount for cash many years ago. I did it at the time because he was an unknown quantity to me and the fee was around £6,000 (he was one of those walk-ins with six years returns and accounts arrears to sort). Now before I get reported, I would say that it was all correctly accounted for.

Whilst Old Horace may be jumping the gun by immediately assuming the cash will go undeclared, he should still consider his own position. David’s reference to POCA 2002 s.328 is perfectly correct. So how would the professional bodies feel towards any member reported to them for an offence under this section? My guess is that you’d be out on your ear, with costs awarded against you.

Looking at it from the other side of the fence, it is doubtful that HMRC will act on just a single money laundering report passed on by SOCA, they would probably look for a series of such reports. And even if they did ask to review the drive guy’s books and records, all he has to do is show the transaction has been correctly recorded.

So, if it was a choice between possibly losing my livelihood or possibly causing the drive guy to receive an HMRC visit, I know which one I’d go for.

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By User deleted
04th Feb 2009 16:19

Fun? It is now!
All comments very welcome though some seem to have lost their sense of humour in the January rush.

Re Essex Man's comments: "There's another dimension of course. IF it turns out that your contractor is happy to defraud HMRC then is he going to treat you the same way? Suppose his work turned out, some weeks later, to be substandard. What chance would you have getting redress? Good, medium, poor or "forget it"?", It occurred to me that after the initial payment of cash we might never see the guy again, and I told my wife that the same evening he visited.

Also, I have now been reminded that a couple of months ago we were presented with a bill from a plumber for work done which purported to include VAT, but without a VAT Reg. number and when we asked for a proper VAT invoice he disappeared unpaid and we can't get hold of him.

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By User deleted
04th Feb 2009 14:39

Why Assume?
Jane is right. Why indeed should you assume anything? Why not just ask the person tendering if his price includes VAT, and whether he will give you a VAT invoice?

There is a range of possible replies, but one of them is on the lines of "I don't think we need to worry about VAT" (possibly accompanied with a nudge and a wink). In the light of that reply you would need to refer to David Winch's typically authoritative post below.

There's another dimension of course. IF it turns out that your contractor is happy to defraud HMRC then is he going to treat you the same way? Suppose his work turned out, some weeks later, to be substandard. What chance would you have getting redress? Good, medium, poor or "forget it"?

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By skylarking
04th Feb 2009 11:48

Don't forget to report
The companies who bombard us with dumb TV commercials saying if you buy now there will be no VAT to pay. I guess these motor dealerships and furniture retailers aren't putting those sales on their VAT Returns, either!
If you feel so strongly, why not get a job with HMRC or SOCA yourself?

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By User deleted
04th Feb 2009 11:36

SOCA report
So now it's "fun" to launch a criminal investigation into a trades person who offers a discount for cash? Even when the other commentators have pointed out some genuine commercial reasons for the discount.

I suppose you could go through the Yellow Pages and ask them all if they give discounts for cash. Hours of "fun".

Heaven help us.

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By User deleted
04th Feb 2009 11:00

Thank you everyone so far!
Yes, David, it might be quite fun to be part of a SOCA "sting"!

Jane, maybe I will offer discounts for cash for doing clients' tax returns.

On a previous occasion when I heard of someone giving discounts for cash it was because he was an undischarged bankrupt hiding money from the Official Receiver. That is another possible dishonest motive.

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By AnonymousUser
04th Feb 2009 10:21

I'm with Penny
if you pay someone cash why assume they are not going to make a note of it? After all, you could equally well write a cheque which they pay into a non business bank account.

Many small traders - particularly in the current climate - are going to be wary of cheques for jobs where they may not easily be able to chase the person concerned if the cheque bounces - to say nothing of the hassle. Why should they not ask for cash to avoid this risk?

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David Winch
By David Winch
04th Feb 2009 07:59

What the law says

The legal position is that if you become party to an 'arrangement' which you know or suspect facilitates the acquisition, retention, use or control of 'criminal property' by someone else you commit a money laundering offence (unless you have obtained the consent of SOCA to do it).

The legislation is in section 328 Proceeds of Crime Act 2002. It does not apply only to people in the regulated sector - it applies to everyone.

So, strictly speaking, if you are planning to get the guy to do your drive, and you suspect the attractive price involves tax evasion by him, you need to report this to SOCA in advance and get their consent to go ahead (which they will almost certainly give - it's the information they want!).

David

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By AnonymousUser
03rd Feb 2009 23:22

Why no discount for tax and NI as well?
It's always puzzled me why the discounts for cash don't extend to some of the tax and NI saved as well as the VAT element. If the earnings will not reach the VAT return, presumably they can't be shown on the SA return either.

If you'll excuse the pun, drive a harder bargain,

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By User deleted
03rd Feb 2009 21:04

Readies as opposed to a cheque
We were not looking to do it on HP. The cost to him of a couple of cheques might be £1.60, not £350. But I take your point, Penny, I might be jumping to a conclusion.

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By User deleted
03rd Feb 2009 20:44

what makes you think
the sale wasn't going to find its way onto the VAT return? Perhaps it was an honest discount for cash? Speculation is not suspicion - if you genuinely think the guy is at it, report him, otherwise I'd give him the benefit of the doubt.

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