Offshore disclosure

Offshore disclosure

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I have been acting for a small business client for the last four years, his tax affairs have been routine until now. He has just announced that he is making a disclosure under the Offshore facility. He is sketchy about the details but has given us figures which establish that his disclosure is between £75k to £100k, and covers mainly rental income, and there is also some earned income and interest. We have persuaded him to go back to 1997 in making the disclosure and he is working out his own tax, NI and penalties. He has declined any assistance from us other than asking about rates and allowances and tax treatment and is handling his own disclosure.

The question is whether we should file a SAR? He has asked for some professional advice in making the disclosures and we feel that this takes matters into legal privilege, but we are concerned that the lack of openness with those who have been his professional advisors makes the matter more serious.

Anon

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By clive griffiths
22nd Nov 2007 19:34

No
Disengage.

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David Winch
By David Winch
22nd Nov 2007 20:22

An interesting question!

What is perplexing me is, "Why is the client dealing with the matter this way?"

Is it because the client simply wishes to avoid the fees which would arise if he instructed you to deal with the matter? Or that the client wishes to avoid the embarrassment of telling you how much he has lied to you in the past?

Or is the client intending to make an incomplete disclosure to HMR&C and wishes to avoid the searching questions you might ask him if you were dealing with the affair? Or does the client simply regard you as incompetent so that he is better to deal with the disclosure himself?

You need to discuss this with the client. If he does not give you a frank explanation that seems credible to you then you and he can no longer work together. In any event he needs to give you a full copy of his disclosure so you have a full picture of his tax affairs. Again, without that you can no longer work together.

If you can no longer work together you must resign from the engagement.

Whether or not you resign, you may need to make an SAR.

I would take the view that where a client has volunteered information to you and sought your legal advice in order to make full disclosure to the authorities and you had no previous suspicion of tax evasion (and if your firm meets the statutory criteria) then the information is received in privileged circumstances. In that event I would make an INTERNAL report to the MLRO (assuming you are not the firm's MLRO yourself) with the rider than you believe that a report should NOT be made to SOCA because of professional privilege. Ultimately the MLRO should decide whether or not privilege applies (that way you are protected and the responsibility for not reporting is the MLRO's).

If you suspect the client is not intending to make FULL disclosure to the authorities then it would appear he is abusing your legal advice to further a criminal purpose (continued tax evasion) and in that event professional privilege does not operate. So report the matter to your MLRO with a rider that you believe your legal advice is being abused and that, in your opinion, a report to SOCA is required. Again ultimately the MLRO will make the decision and carry responsibility for it.

Naturally if you suspect that the client had undeclared taxable income or gains prior to 1997 which he is not disclosing, then he is not making full disclosure (HMR&C are asking for information over the past 20 years). Full disclosure of course covers income tax, CGT, VAT, IHT, etc.

Similarly, ask yourself whether you can be satisfied regarding the sources of funds used to purchase the properties which he has rented out. Could the sources include either undeclared taxable income or gains or even some sort of 'real' criminal conduct (by which I mean not simply tax evasion but some other type of crime such as theft, drug dealing, etc., etc)?

David
www.MLROsupport.co.uk

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David Winch
By David Winch
22nd Nov 2007 20:59

P.S.

Anon

Another possibility is that he acquired one or more of the rented properties with the assistance of a mortgage obtained by deliberately and dishonestly overstating his income and / or providing other false information.

This is very common (particularly with self-certified mortgages) but constitues a criminal offence of mortgage fraud and ordinarily will trigger an SAR (whether or not the lender has suffered any loss).

I come across mortgage fraud very frequently with my forensic accountancy clients (nearly all of whom are individuals already convicted of other serious crimes). The police love it, because it is an 'own goal' - relatively easy to prove and results in the whole of the current value of the property being treated in law as a benefit of criminal conduct (because the offender could not have acquired the property except by committing the mortgage fraud).

In confiscation proceedings the current value of the property (not just the equity in it) is regarded as a benefit of crime and the offender is liable to confiscation of the equivalent amount. Very often this will 'wipe out' the offender since he also remains liable to repay the mortgage to the lender.

As an added incentive the police force receive a percentage of the money from the confiscation as a supplement to their budget! One way to warm the heart of the Chief Constable!

David
www.AccountingEvidence.com

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By User deleted
23rd Nov 2007 09:36

Thank you very much for this advice,
a second opinion is invaluable. The property from which these rents derive was in respect of an estate worker's cottage, which our client purchased with his main residence many years ago, so source of funds for purchase is not a concern.
As you say it is "interesting" that he is insisting that he makes his own report, from our point of view he may be making a full disclosure or he may be being stupid and chancing his luck further. When we are supplied with a copy of his disclosure I think that it will be unlikely that we will be able to judge if it is correct or not. In short, we do not have sufficient information to be able to tell if he is going straight.

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David Winch
By David Winch
23rd Nov 2007 10:30

But do you "suspect"?

The question (in law) is, "Do you know or suspect, or have you reasonable grounds to suspect, an involvement in money laundering?" (my paraphrasing of the statute).

You can say, "He may be being dishonest" and you can say, "He may be telling the whole truth". That doesn't help much.

You need to consider do you have any facts or evidence leading you to suspect dishonesty? Evidence here does not necessarily mean documentary evidence. The way he is dealing with HMR&C (and not fully using you) is certainly evidence - but is it evidence which leads you to suspect dishonesty? That may depend upon whether he shows you the disclosure which he makes and whether, when you look through it, you feel it 'stacks up'.

But a suspicion is a long way short of proof, it is even less firm than a belief.

At the moment it seems to me that you have what might be described as a general feeling of unease. That alone is not sufficient to trigger a report. But if your unease is reinforced when you meet the client again or review his disclosure then you are likely to cross the line which triggers a suspicious activity report. Similarly if the client leaves the firm in order to avoid providing the information to you then a report should be made, in my opinion.

Some people think, erroneously, that a suspicion is reportable when they have completed an investigation and excluded any reasonable possibility of innocence. On the contrary, if they felt matters required further investigation that was because they had a suspicion at that stage. A suspicion is not the result of an investigation, it is the state of mind which makes one believe an investigation (by yourself or the authorities) would be appropriate.

David
www.MLROsupport.co.uk

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By User deleted
23rd Nov 2007 11:01

Food for thought indeed.
Can I again thank you for taking the time to respond. We may contact you for a second opinion when we obtain a copy of the report.

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David Winch
By David Winch
23rd Nov 2007 12:37

My pleasure

As I hope you have gathered, when responding on here I am also thinking in terms of other readers who may be in a situation which is, as you might say, the same but different! So I try to cover points which may not be strictly relevant to your query.

Of course, through my company MLRO Support Ltd, I offer specific replies to queries, for a modest fee.

David

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By billgilcom
23rd Nov 2007 17:44

Offshore Estate Worker?
There is a slight contradiction in the information provided or the client's undersatanding of what can be done under the ODF.... unless I have missed the fact that he also put the funds into an offshore account. If there is no Offshore account which is relevant and on the income of which duties have been evaded then it is not competent to be used under the ODF - even though he should still be approaching HMRC to make a clean breast of matters.

Maybe of course it will materialise when he goes online and makes his disclosure

regards and apologies if I have missed something in the reading
[email protected]
http://www.wamstaxltd.com

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