money laundering report?

money laundering report?

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A recent post of David Winch's spurred me to get more up to date on MLR regs. I refer my learned friends to Appendix 3 of the ICAEW Tax Guide 4/09. Here are two extracts that confuse me as they almost seem to be the same circumstance:

"Examples of when the privilege reporting exemption might apply:

-advice on disclosure obligations to the tax authorities, including advice given in the context of compliance work on reporting requirements and situations where
previously there may have been failure to disclose."

"Examples of when the privilege reporting exemption is unlikely to apply:

-Information uncovered during tax compliance work, for example spotting that personal expenditure had been claimed as a business expense in a previous year."

So I find a careless VAT under-declaration. The client unduly delays correcting this. I advise the client of the disclosure obligation, i.e. correct in next VAT return - this appears to fall within the first example. But the info was uncovered during tax compliance work, and so falls within the second example.

Is a report required?

Replies (12)

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By david.price
25th Oct 2011 18:51

First reasonable opportunity to correct.

If you discover an "accidental" underpayment, advise the client, and he corrects it - no report.

 

If you discover an "accidental" underpayment, advise the client, and he fails to or refuses to correct it - report.  

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David Winch
By David Winch
25th Oct 2011 20:32

How you got to know

If in the course of routine compliance work YOU DISCOVER something then the position is that (i) if it is an accidental error by the client you should give him an opportunity to put it right (and if he doesn't do so then you report it) (ii) if it appears to have been a deliberate dishonest act or omission by the client you report it (no second chance).

Privilege does not apply in either case, but mere accidental errors are not reportable.

On the other hand if the CLIENT TELLS YOU that he has been doing something dishonest and asks for your assistance in regularising his affairs with HMRC then he is seeking legal advice from you and privilege is likely to apply (and if privilege applies it is not reportable).

The difference between the two examples you quote in your original post is that in the first you are being asked to advise - in the second you make a discovery in the course of routine complance work.

Does that help?

David

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avatar
By User deleted
25th Oct 2011 20:56

It certainly helps me, David

(David the legal expert, that is) - always comprehensive and concise.

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FT
By FirstTab
25th Oct 2011 21:40

I worry about this - still confused

David I am confused about this area. Even your explanation does not make it clear for me. Privilege only applies on legal advice. I as an accountant do not give legal advice. It is always compliance and tax savings advice.

I would not be able to distinguish between the two.

I am sure you must have gathered whole of this areas annoys me. I know it is the law.

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
25th Oct 2011 22:47

Is it as simple as if a client asks you to help them comply with the law, it falls under legal privilege?

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By david.price
25th Oct 2011 23:06

No Privalege

It would appear that there is no right of privalege for accountants.

http://www.theregister.co.uk/2010/10/18/privilege_outlaw/ 

 

 

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David Winch
By David Winch
26th Oct 2011 08:23

Different types of privilege

There are different types of "privilege".

There is common-law legal professional privilege which is available to lawyers in relation to the affairs of their clients.  Common-law LPP is not available to accountants in any circumstances (but can cover, for example, correspondence between a lawyer and an accountant concerning the affairs of a mutual client).  Common-law LPP confers various rights on the documents it covers - for example a court cannot require the production of privileged documents in evidence (unless that privilege has been waived by the client).

There is PoCA 2002 privilege (which is different from common-law LPP).  PoCA 2002 privilege is limited to conferring an exemption from the obligation to report a suspicion of money laundering (under s330 PoCA 2002 / MLR 2007).  However a document covered only by PoCA 2002 privilege can be required to be produced in evidence in court.

PoCA 2002 privilege is available to lawyers and is also available to accountants and tax advisers who are members of a body which satisfies the criteria of s330(14) PoCA 2002.

The OP's question concerns PoCA 2002 privilege.  The PWC case to which david.price refers concerns common-law LPP (which was not available to PWC in advising their client Prudential because PWC are not lawyers).

FirstTab, if a client says to you, "Am I required to complete a tax return?" he is asking you for legal advice.  If the client says, "Can you complete my return and work out my tax liabilities?" he is asking you for a compliance service (and not for legal advice).

If he says, "If I do such and such will I have a liability to tax?" that is legal advice.  Similarly if he asks, "Will I be subject to a penalty because I have done this (or not done that)?" again that is legal advice.  If he asks, "Can I claim tax relief on my hairdressing costs?" that is legal advice.

Legal advice is advice about the client's legal obligations.  However mere computation of tax liabilities for a client does not involve you in providing him with legal advice.

If a client contacts you to say, "I have done this (or failed to do that) am I liable to a penalty?" then he is asking you for legal advice.  If your answer is "Yes, would you like me to deal with HMRC to minimise that penalty?" and he instructs you to do that then the follow-on work stems from the legal advice and so (although it involves computations and compliance work) it remains covered by the PoCA 2002 privilege.

Does that help?

David

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By Moonbeam
26th Oct 2011 02:00

Cor Blimey!

I find the whole ML area a minefield. I think the only way we can all cope with it is to ask David when we get a problem we can't decide about.

David - don't go on your world cruise for a while, please!!

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FT
By FirstTab
26th Oct 2011 08:31

David

Thanks David, my understanding has got a lot further from reading your response. 

I really want to get to the bottom of this in my understanding David, so please bear with my slow understanding of this area. Can you confirm if I have the following correct?

Client asks for advice on how he should handle undisclosed VAT. This is privilege information and exemption applies?Client then says I will just disclose 50% of VAT due and asks how much will his penalty be if he get caught.  This is legal advice therefore privilege applies?I then find out client has undeclared VAT - this is reportable?

Thanks

 

Thanks (1)
David Winch
By David Winch
26th Oct 2011 11:02

Getting there

FirstTab,

A curiousity of this is that if information comes to you in "privileged circumstances" then it remains PoCA privileged unless you form the view that the disclosure of that information to you by the client was made with an intention of pursuing a criminal purpose.

So if the client approaches you and 'fesses up, and your advice is "We can sort it out but it will cost you £xx in tax, penalties, interest and accountancy fees", and the client then says "well in that case I shall just keep quiet and hope not to be found out" - then that is not reportable.  Because the information has come to you in "privileged circumstances".  (A different question is whether you can continue to act for this client - you may well need to sack him.)

But if the client asks you, "I have money in a bank in Lichtenstein but HMRC have new arrangements to get information from the banks over there - so where should I move the money to so that it remains secret and I can continue to defraud HMRC?" then that is reportable.  This is because the information has been disclosed to you for a criminal purpose and the client's criminal purpose negates the protection he would otherwise receive from PoCA privilege, see s330(11).

In your 3 points were you referring to the same client?

So, my answer would be:

1.  Not reportable (on the face of it).

2.  Distinctly difficult.  If the client's original intention was to 'come clean' then not reportable, but if you now consider that was not his intention then reportable.  In either case consider whether you need to sack the client on ethical grounds.

3.  Same as 2 (if the same client and if the non-declared tax is in relation to the information originally disclosed in "privileged circumstances").

On the other hand if 3 is a different client (i.e. not a follow-on from 1 or 2) then reportable as this is a result of your discovery in the course of routine work (and not as a consequence of the client's request for legal advice).

 

Privilege is a difficult technical area of law.  If in doubt get expert advice on the specific facts of the matter.

David

Thanks (2)
Replying to ShirleyM:
Red Leader
By Red Leader
26th Oct 2011 10:49

@David

Thank you very much for your answer to my original post. It does seem clearer to me now. Until the next time, that is...

Red Leader.

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FT
By FirstTab
26th Oct 2011 13:48

David

Thank you so much for taking the time. It is becoming far more clearer with your explanation. 

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