Just looking for some opinion from others on a certain matter.
We were asked to provide a mortgage reference for our clients (husband & wife).
They own a few small companies - one of which is currently in liquidation. They were in substantial arrears for VAT and paye, and HMRC decided to wind that company up.
When asked in the application for interests in another company and any other material information - we noted that they were majority shareholders of the close company in liquidation. We advised our clients that as professional accountants we could not conveniently obmit this fact. (We did advise our clients that we thought that credit would be difficult to obtain but they had been advised otherwise).
We were asked by the mortgage broker if we could just omit this as well (as regulated by the FSA!). We said no.
Now we have received a letter from a new accountant stating they have been asked to handle their affairs.
However we have noticed that the new accountants are accredited business partners with....the mortgage brokers!
Quite frankly happy to get rid of them. However is it worth pointing out in the letter to the new accountant that we note that they are accredited business partners with the mortgage brokers who basically are trying to defraud the banks?
Or do we just wash our hands and let them get on with it.
Advice/opinion much appreciated.
Replies (40)
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I would make sure the new accountants have FULL disclosure of the status. This means that they cant be kept in the dark about the "other matters" by the client/broker in collusion, and if they play silly buggers, well that's up to them.
And good riddance to bad rubbish as you say.
I just fired a (new) client who refused to give me the backup for his mileage claim - it was clearly bogus and he just didnt like my pressing him for it. Tough, as I said if you want to put a load of rubbish on your return, employ a cowboy firm.
Agreed
I would make sure the new accountants have FULL disclosure of the status. This means that they cant be kept in the dark about the "other matters" by the client/broker in collusion, and if they play silly buggers, well that's up to them.
And good riddance to bad rubbish as you say.
Totally agree with this. You've then done everything you can, and what they do is up to them.
Life is too short!
If others want to do stupid things which put their reputations at risk - that's up to them.
But I would NOT write to anyone suggesting that a third party (whom you identify) is "trying to defraud" the banks. Your allegation would be a serious defamation of the mortgage broker which you would be "publishing" by putting it in the letter to the new accountant. I wouldn't blame the mortgage broker if he responded by suing you for libel.
(Whilst you would certainly be in a position to put up a defence to a libel action, the action itself would cause you grief and your lawyers might well recommend you offer a sum in settlement rather than fight the action.)
David
Strictly factual
If you stick strictly to the facts - "we were asked to omit this information from our reference but were unwilling to do so" - then you will be fine.
But you did say in your original post, "is it worth pointing out in the letter to the new accountant that we note that they are accredited business partners with the mortgage brokers who basically are trying to defraud the banks?". That comment goes way too far!
David
Over to David
The information has come to you in the course of your business and indicates that an offence is being contemplated. Money laundering report ? Technically it is an offence not to report a crime which you have cause to believe is being planned.
No money laundering report
Until there is suspicion of an offence actually having been committed, there is, I believe, no requirement to report to SOCA. But, as you say, David can put us right.
anomaly
Until there is suspicion of an offence actually having been committed, there is, I believe, no requirement to report to SOCA. But, as you say, David can put us right.
It would be "odd" if there isnt, unless this is an anomaly, as there is a requirement to report to the police any criminal offence you have reason to believe is being planned.
Anomalies
Until there is suspicion of an offence actually having been committed, there is, I believe, no requirement to report to SOCA. But, as you say, David can put us right.
It would be "odd" if there isnt, unless this is an anomaly, as there is a requirement to report to the police any criminal offence you have reason to believe is being planned.
I agree that this would be anomalous - but life is full of anomalies. I don't believe (David will correct me if I'm wrong) that merely suspecting that an offence may be committed is sufficient to require a report under the ML regulations, even if there is a common law duty to report it to a police officer.
It probably boils down to whether anyone can be said to have entered into an "arrangement" to facilitate etc the acqusition etc of criminal property. In my view, merely thinking about doing something does not amount to an "arrangement" to do something.
Come on, David - let us have your views and put us out of our misery!
Yes - I'm confused too
I thought you had to give them opportunity to 'do the right thing' or 'put things right'.
Report to the police? Would they really be interested? In my personal experience, they turn a blind eye to a lot of stuff anyway.
Davids opinion would be appreciated.
EDIT: I am more concerned that lessons of the past have obviously not been learned. Will we have to bail out the banks yet again?
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The terrorism act S19 makes it offence not to report suspicious activity in the course of undertaking your business in relation to money and property.
Section 328 of the Proceeds of Crime Act 2002 refers to a failure to report an arrangement which helps another individual to acquire or use criminal property. Under subsection (1), knowing or suspecting that an arrangement would help an individual acquire or deal with criminal property is an offence. Subsection (2) provides a defence namely that an authorised disclosure under section 338 was made or there was a reasonable excuse for not reporting. In other words, a person has to report arrangements of criminal proceeds under subsection (2) or he will commit an offence under subsection (1). Although section 328 is not specifically aimed at professionals, it is arguable that some professionals, and especially those who give financial advice, are particularly likely to discover criminal proceeds. For example in Squirrell Ltd v National Westminister Bank plc (customs and excise intervening) [2005] EWHC 664, a bank discovered that some of the proceeds in a customer’s account could have been the result of criminal activity and as a result was forced to block a customer’s account in order to prevent itself becoming involved in making arrangements for dealing with criminal property.
Anomalies
Waiting for David's view naturally but I don't see that you could report something that may happen because equally it may not.... Otherwise people could be filing reports left right & centre out of malice. Surely you need some level of proof?
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Waiting for David's view naturally but I don't see that you could report something that may happen because equally it may not.... Otherwise people could be filing reports left right & centre out of malice. Surely you need some level of proof?
You would think so, but the Terrorism Act and the Money Laundering regulations (MLR of course was, allegedly, originally to combat terrorism) speak of "suspicion". which means you need no proof, merely some reason (which could be anything from documents to an overheard conversation in the 'pub) to suspect.
It would for instance be reasonable to "suspect" that a muslim hate preacher may be involved in plotting or funding terrorism. You have no "proof", but you nevertheless have a "suspicion" based merely on what he says.
There are two separate duties here. One is under Money Laundering Regulations. The other is under common law where technically if you know an offence is being planned and do nothing to stop it you could, in theory, be charged with concealing an offence (esentially peerverting the course of justice).
Part 2 of the Serious Crime Act 2007 creates, at sections 44 to 46, three new inchoate offences of intentionally encouraging or assisting an offence; encouraging or assisting an offence believing it will be committed; and encouraging or assisting offences believing one or more will be committed. These offences replace the common law offence of incitement for all offences committed after 1 October 2008. They allow people who assist another to commit an offence to be prosecuted regardless of whether the underlying substantive offence is actually committed or attempted. Failing to report suspicion could constitute "assisting".
Is it relevant?
I don't want to appear flip about this ... but I have already asked if the police would actually care? Wouldn't it be a complete waste of time to tell them that someone is 'planning' to give incomplete information when applying for a mortgage.
As I said previously, even when you report an actual crime in progress (ie. stealing from cars) they seem to take the report ... and then do nothing!
They may take terrorism a little more seriously, but that isn't the subject here.
Offence(s)?
OK, let's think about this.
At most what we have here is a suspicion that an agreement may have been made to defraud a lender and some preparatory steps may have been taken (starting the process of changing accountant).
In England & Wales an agreement to do something unlawful can be an offence of conspiracy under common law and under s1 Criminal Law Act 1977. Taking steps which are more than merely preparatory to the commission of a crime may amount to an "attempt" to commit that crime, see s1 Criminal Attempts Act 1981.
But clearly we do not suspect that any benefit has yet been derived from any crime. If there is no benefit of crime there is no 'criminal property' as defined by s340(3) Proceeds of Crime Act 2002.
The MLR 2007 relate to (amongst other things) the obligation to report suspicions of money laundering under s330 PoCA 2002. However if there is no 'criminal property' there can be no money laundering. Since there is no 'criminal property' then (in my view at least) there can be no 'arrangement' falling within s328 yet, nor can there be anything which amounts to money laundering or even attempted money laundering or conspiracy to launder money. So I do not see that there is yet a suspicion of anything which falls within the, rather wide, definition of 'money laundering' in s340(11).
So in my view no obligation arises (yet) to make a money laundering report under s330 PoCA 2002.
But what about other legislation?
Consider s19 Terrorism Act 2000. We can see immediately that s19 does not apply to anyone in the 'regulated sector' - but s21A does, so what of that? It relates to suspicions of offences in s15 - 18 TA 2000 only. These sections relate only to offences concerning money or other assets used, intended to be used or derived from terrorism and terrorist related activities.
We have no suspicion that this matter is related in any way to terrorism.
Accountants have normally a contractual and professional obligation to keep their client's affairs confidential. That duty is recognised by law and that is why there are, in certain legislation, explicit over-rides in the public interest - see, for example, s337 PoCA 2002. So, in my view, an accountant is not obliged to report a suspicion of criminal conduct by his client if that criminality does not involve money laundering or a terrorism related activity or some other activity which the law expressly requires him to report.
So, if the matter is occurring in England & Wales, I do not think it is reportable (as things stand).
If the matter is occurring in Scotland the law there is different. In Scotland, it seems to me, there may be an obligation to report what has happened under s31 Criminal Justice and Licensing (Scotland) Act 2010. This is because the original poster suspects something which may amount to an offence under s28 of that Act. There may have been an agreement, and some steps have been taken, which may enable or further the commission of "serious organised crime" as defined by s28 because there is a plan for two or more people to work together to obtain a benefit of crime.
In summary (1) England & Wales: no report, (2) Scotland: report under s31 of the 2010 Act.
David
@ David
Cheers David, as usual you're clear, concise and back up your points with references that we can trace back to the relevant legislation if we so desire. What a twinkly star!
Move along, there's nothing to see here
Just get on with life (making money), and leave them to it.
Assisting / encouraging an offence
With regard to the ss44 - 67 Serious Crime Act 2007 it is important to note s44(1)(b) which provides that the offender (for example the accountant) must "intend to encourage or assist [the crime's] commission".
I do not think an accountant who, in accordance with his professional obligations, keeps a client's affairs confidential is intending to encourage or assist the commission of a crime. So I do not see the accountant falling foul of these provisions of the Serious Crime Act 2007 simply by doing nothing.
David
s19 Terrorism Act
It seems that there is no obligation to report (other than maybe a moral one) where you suspect someone is "fiddling" the building society to get a mortgage. However, under the Terrorism Act there is a definite obligation (moral & legal) to report suspicions.
Which, of course, raises the question - how do you know if the money acquired is to be used for terrorism or not - the Act speaks of "suspicion", so how do you form a suspcion of terrorism? Do we assume all muslim clients are potential terrorists and English clients are not ?
The Terrorism Act S19 makes it an offence not to report suspicious activity in the course of undertaking your business in relation to money and property. In the OP's case the sudden change of accountant in the circumstances given has clearly raised suspicion, this suspecion came in the course of his business, so if the OP suspected any possible link to terrorism then he would have an obligation to report.
Suspicion
It seems that there is no obligation to report (other than maybe a moral one) where you suspect someone is "fiddling" the building society to get a mortgage.
Not quite - if you suspect that someone is fiddling the building society you should report. If on the other hand you suspect that someone is only thinking about fiddling the society there is, as David says, no criminal property at that point, so no requirement to report under ML regulations.
And as you've said yourself on several occasions, we should be dealing with our clients with regard to legal requirements only - our own morals and ethics should not come into it.
Do we assume all muslim clients are potential terrorists and English clients are not ?
Absolutely not. One might assume that every client is a potential terrorist. But that is not the same as suspecting that any of them actually are.
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Do we assume all muslim clients are potential terrorists and English clients are not ?
Absolutely not. One might assume that every client is a potential terrorist. But that is not the same as suspecting that any of them actually are.
So exactly what do you base "suspicion" on ? What makes one perso suspicious may not make another suspicious, but, if the client turns out to be a terrorist, or in the case of the OPs client(ex) if the funds are used to fund terrorism, then by not forming that suspicion and reporting accordingly, you could find yourself in a very sticky position.
This is where our law is out of step with other countries. In the USA & Australia it is very simple - if you suspect someone is planning to commit a crime (any crime) you must report it - no excuses. Here, of course, as usual, everything is vague and full of ifs and buts, which simply makes for unenforceable laws.
LOL
If the OP suspected any link to terrorism I suspect the client would have been sacked long ago.
OK - an assumption on my part ... but a reasonable one.
Off topic
Quick note to request that posts be kept on topic - please be sure to refer back to the OP's question when planning a reply. Thanks :-)
Is doing nothing a crime?
The question has been raised as to whether the accountant commits a crime if he does nothing to prevent a planned fraud on the building society.
My answer would be that doing nothing is not ordinarily a crime unless there is some law which makes doing nothing in a particular situation a crime.
So, for example, a person's dishonest failure to declare a new source of taxable income can amount to tax evasion, which is a crime.
We know, of course, that a failure (by a person active in the regulated sector) to report a suspicion of money laundering is a crime (in most circumstances).
A dishonest failure to disclose information which one is under a duty to disclose can amount to fraud (e.g. where a person applies for life insurance without disclosing a serious medical condition from which he suffers).
But an accountant has a professional duty to keep his client's affairs confidential and that duty should not be lightly cast aside.
There was a case a while back where a woman was claiming benefits from the DWP whilst not declaring the income of the man with whom she was living. The man was charged with dishonestly causing or allowing her failure to declare his income to the DWP. The Court of Appeal said, "Ordinarily a person is not guilty of a criminal offence if he merely stands by with the knowledge that a third party is committing an offence".
It went on to confirm the view of the Crown Court below that he could not be guilty of this offence simply by doing nothing.
On the other hand if a police constable asks you for your assistance in dealing with, say, a drunk on the street, then you are obliged in law to assist the officer (but you are not obliged to assist the officer in the absence of any request to do so).
Of course if a police officer asks you a question you are not ordinarily obliged to answer (and you should not volunteer information about a client's affairs simply because a police officer asks you for it - but that is a whole different topic!).
In short, we have to be careful in forming a view as to whether simply doing nothing does, or does not, amount to a criminal offence in particular circumstances.
David
No communication from client?
I presume you won't be responding to the handover letter at all until you have your client's express authority.
Thought crime
There is a case of a prosecution where the individual thought he was carrying drugs but was not in fact.The ultimate thought crime?
@uktaxpal
There is an offence of "offering to supply" controlled drugs. If you and I meet in a night club and I offer to sell you ecstasy (which is a controlled drug) but what I actually have to supply to you are smarties (which are not a controlled drug) I am nevertheless guilty of offering to supply controlled drugs.
There is a certain logic to that!
The point (relevant to mortgage fraud) is that very often in criminal cases what is going on in the defendant's mind is as important to conviction as what he did. Lawyers refer to "mens rea" which is a Latin phrase sometimes translated as "the guilty state of mind" and is a necessary ingredient of many offences (including theft, fraud, tax evasion, etc).
David
Thought and crime
Suppose I have, to my knowledge, a smarties tube in my pocket. I know there is something inside the tube. I am stopped and searched by the police. Inside the smarties tube are controlled drugs.
To prove the offence of possession of controlled drugs against me the Crown have to prove that I had to my knowledge possession of the smarties tube and whatever was inside it, and that what was inside it was in fact a controlled drug. They do not have to prove that I knew that what was inside the smarties tube was a controlled drug.
I may then raise the defence that I neither knew, nor suspected, nor had reason to suspect that what was inside the tube was a controlled drug. The onus is, at that stage, upon me to produce evidence in support of that defence. This is an example of the 'reverse burden of proof' that arises in some criminal cases.
That is my understanding of the possession offence under s5 Misuse of Drugs Act 1971. But drug law is a bit different from the law of mortgage fraud.
However please let me know if you are aware of a case to the contrary. I am always willing to learn.
David
Attempting an impossible crime
There are two types of attempting an impossible crime.
Suppose I attempt to rob a train of gold bullion. In fact there is no gold on the train. I may however be convicted of the attempt (which I made in a mistaken belief as to the facts). Or, to take another example, I attempt to steal an aircraft parked at Heathrow. I have absolutely no clue how to start the engines or 'put into gear' - let alone fly - an aircraft so it would be impossible for me to steal one. But I can be convicted of the attempt.
Suppose however I attempt to supply the controlled drug "chocolate" and surreptitiously offer to supply smarties to you in a night club. I cannot be charged with offering to supply a controlled drug (where I had a mistaken belief as to the illegality of what I was attempting to do - in fact chocolate is not a controlled drug). Even if my attempt had succeeded I would not actually have committed a crime - so I cannot be convicted of attempting to commit one.
If however I had offered to supply "ecstasy" rather than "chocolate" I would have committed an offence (even though in fact I had only chocolate).
Does that clarify the position?
As you can appreciate, with the weird and wonderful (or not) substances around it is quite possible that someone might offer to supply a substance which he thought was a controlled drug, but actually was not. So that is not a crime.
David
Controlled drugs
in fact chocolate is not a controlled drug
Given the amount my spouse and children get through, it's high time that it was ;)
Sorry - off-topic but it was just crying out for that
is there a fine for making a wrong MLR
or is the fine for not making it in the first place
bottoms to be covered I think
Making a wrong MLR
I am not sure whether by a "wrong" MLR you mean making a Suspicious Activity Report to SOCA which is factually inaccurate, or making one where there was no need to make one at all.
Essentially it comes down to what your supervisory body thinks if they get to know about it - and whether they take it as an indication that your MLR procedures generally are not up to the required standard.
SOCA have made half-hearted attempts to dissuade people from submitting 'defensive' reports - the ones telling them what you know they already know - simply to cover your ****. But they also recognise that if there is a statutory obligation to file a report and a threat of imprisonment for not making one, then accountants, solicitors, etc will err on the side of caution and submit a report.
David