Is a money laundering report required?

Is a money laundering report required?

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I met a sole trader prospect a few weeks ago. Turns out that due to sales levels he should have registered for VAT over a year ago. The VAT bill after allowing for input VAT will come to about £6,000. Although this came as a shock to him, he expressed a desire to sort out matters. I have not heard from him since, other than that he is looking at other accountants.

Let's assume that I hear nothing more from the prospect. Also I do believe he is genuine in wanting to get his tax affairs in order, and will probably just find a cheaper accountant to get the job done.

Therefore, do I have a suspicion of an offence that is reportable?

Replies (14)

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Quack
By Constantly Confused
21st Feb 2013 09:55

If in doubt, make the report.  I agree it is probably not needed here, but I'd still do it to be safe.

Also this question was marked as if there had already been an answer, but when I got here there wasn't!  What's with that?

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Euan's picture
By Euan MacLennan
21st Feb 2013 14:27

Don't worry! Ducky!

They saw you coming!

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David Winch
By David Winch
21st Feb 2013 14:58

Key points

Two key points:

1.  Do you suspect the client of dishonesty (either at the time or now)?

2.  Do you meet the s330(14) Proceeds of Crime Act 2002 criteria (member of an appropriate body) to allow you to treat the information as 'privileged' (and hence not reportable)?

David

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Replying to Portia Nina Levin:
Man of Kent
By Kent accountant
21st Feb 2013 15:37

@davidwinch

davidwinch wrote:

Two key points:

1.  Do you suspect the client of dishonesty (either at the time or now)?

2.  Do you meet the s330(14) Proceeds of Crime Act 2002 criteria (member of an appropriate body) to allow you to treat the information as 'privileged' (and hence not reportable)?

David

On point 2, is membership of CCAB considered an appropriate body and even where this is not a client can that information still be considered privileged?  

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David Winch
By David Winch
21st Feb 2013 16:58

Privilege

Section 330(14) PoCA 2002 says:

“(14)  A relevant professional adviser is an accountant, auditor or tax adviser who is a member of a professional body which is established for accountants, auditors or tax advisers (as the case may be) and which makes provision for —
(a) testing the competence of those seeking admission to membership of such a body as a condition for such admission; and
(b) imposing and maintaining professional and ethical standards for its members, as well as imposing sanctions for non-compliance with those standards .”

So the question is whether the OP is a "relevant professional adviser" under this definition or if the OP satisfies the criteria of s330(7B) which says:

“(7B) This subsection applies to a person if —
(a) he is employed by, or is in partnership with, a professional legal adviser or a relevant professional adviser to provide the adviser with assistance or support,
(b) the information or other matter mentioned in subsection (3) comes to the person in connection with the provision of such assistance or support, and
(c) the information or other matter came to the adviser in privileged circumstances.”

If s330(7B) is satisfied then the information is not reportable to his MLRO or to SOCA where "the information or other matter came to him in privileged circumstances" - see s330(6)(b).

Obviously the CCAB bodies do meet the criteria, as do some non-CCAB accountancy or tax bodies.

However if the OP is not, under these criteria, a "relevant professional adviser" (and he is not a "professional legal adviser" either) then he cannot treat the information as not being reportable on the grounds of "privilege".

David

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Man of Kent
By Kent accountant
21st Feb 2013 17:12

Thanks David

That's very useful.

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avatar
By peaky99
21st Feb 2013 17:31

I second that !

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Replying to MissAccounting:
Red Leader
By Red Leader
22nd Feb 2013 10:29

@David

OP here. I'm regulated by ICAEW.

I thought the exclusion you mentioned only applied if I somehow enjoyed legal privilege in this case, perhaps due to a legal action. If I understand you correctly, it sounds as if a lot of my SOCA filings would now not be required. Can't believe this is so, but happy to be enlightened.

To answer your question, I do not suspect the prospect of concealing his VAT error. But: would "the authorities" regard that as a reasonable view to hold?

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David Winch
By David Winch
22nd Feb 2013 16:52

Legal advice

The privilege can apply where the client is seeking "legal advice" from you.  That means advice on his legal rights or (more likely) his legal duties and obligations.

So a question such as "Should I have registered for VAT?" or "Might I be liable for penalties?" or "Does interest credited to an overseas bank account have to be declared on my UK tax return?" or "Might I be liable for prosecution and how should I declare my previously undeclared income to HMRC?" is a request for legal advice.

But a question such as "How much tax will I have to pay in January on my income?" or a request to complete a tax return for signature is not a request for legal advice - it's pure compliance work.

Have a read of the CCAB / ICAEW money laundering guidance.

Of course if you simply discover from your examination of your client's records that he seems to have evaded tax then there is no privilege because the information has not come to you in connection with your giving legal advice (although you may later give legal advice as a result of your discovery).

See s330(10) and (11).

I have read your original query as indicating the client came to you because he wanted advice about what to do because he had realised he had exceeded the VAT registration threshold.  That looks like a situation in which privilege would apply.  However perhaps you are saying that it was only after he approached you (to do routine compliance work) that YOU discovered he had exceeded the threshold.  That is unlikely to be a privilege situation.

If you do not suspect him of dishonesty (but only negligence) make a note of that on file explaining the background / reasons for you view.  If your firm has an MLRO (who is not you!) then by all means discuss it with him and get his agreement that a report is not required.  Again make a file note.

I would not expect the ICAEW (who are your supervisory body for ML) would have any problem with your decision not to report in those circumstances.

David

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avatar
By peaky99
23rd Feb 2013 09:46

Hi David

I have been approached by a potential client in exactly the circumstances you suggest.

 

Is it ok if I print off this thread and include it as part of the decision process ?

 

 

 

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David Winch
By David Winch
23rd Feb 2013 11:20

Printing off
No problem as far as I am concerned.

David

P.S. Mine's a pint!

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By DMGbus
24th Feb 2013 23:04

Legal privilege - recent case

I read last month that in the following case:

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http://www.shoosmiths.co.uk/client-resources/legal-updates/Supreme-Court-decision-on-legal-advice-privilege-4709.aspx

That...

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Accordingly, legal advice privilege will only apply to communications in connection with advice given by qualified lawyers.

...so does this put qualified lawyers at an advantage as compared accountants?

 

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By justsotax
25th Feb 2013 09:34

it is a worry seeing the way

at the slightest hint of a monetary error by a client (or potential client) that the first thought is to report them. 

 

 

 

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David Winch
By David Winch
25th Feb 2013 23:54

Different types of 'privilege'

Just to be clear there are different types of 'privilege'.  Broadly there are two categories: (1) common-law privilege and (2) statutory privilege.

Common-law privilege can also be split into legal advice privilege and litigation privilege.

The Prudential case to which you refer Prudential plc & Another R (on the application of) v Special Commissioner of Income Tax & Anotherr [2013] UKSC 1 concerned common-law privilege, and in particular legal advice privilege.

The common-law is essentially law which is derived from a shared and longstanding understanding of what might be called 'unwritten' law.  It is the law because courts have always understood it to be the law - even though it is not covered by any statute. For example, for a long time there was no statutory offence of murder in England & Wales - but it was always recognised that murder was a crime.

From time to time new statute law replaces and expressly abolishes parts of common-law.  So that when, for example, the Theft Act 1968 was introduced (in England & Wales) it abolished the common-law offence of 'cheat' (except in relation to 'cheat' of the public revenue) see s32(1)(a).

The Prudential case confirmed that common-law legal advice privilege is available only to lawyers.  (Undoubtedly that means common-law litigation privilege is similarly available only to lawyers.)  As a result PwC have to produce documents under s20 TMA 1970 which relate to advice they gave to their client Prudential.  Had PwC been a firm of lawyers rather than a firm of accountants they would not have been obliged to produce those documents.

So in answer to the question - lawyers do have that advantage from a client's perspective.

But the decision in the Prudential case did not affect the statutory privilege which is available both to lawyers and accountants under s330 PoCA 2002 / MLR 2007 (sometimes referred to as PoCA-privilege) regarding the exemption from the obligation to report suspicions based on information received in 'privileged circumstances' (as defined within s330).

David

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