Today's Mail on Sunday and Money Laundering query on Page 80

Today's Mail on Sunday and Money Laundering...

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A reader complains that their accountant has asked for ID (copies of, actually) such as passport or photo driving licence and recent utilities bill or bank statement to evidence address in order to comply with Money Laundering regulations.

The reader wonders if the accountant has thought this up for their own reasons.

The expert advice is not entirely supportive of the accountant and states, 'If you are an ordinary person running an ordinary business for many years, your accountant could easily conclude that if the taxman is happy to deal with you, then he is happy to represent you.'

Is this good advice?

Replies (18)

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Stepurhan
By stepurhan
07th Mar 2011 09:50

Rely on HMRC?

Leaving aside whether the client in question has proof that HMRC have been happy to deal with them for several years, what ID checks do HMRC do? Presumably the closest to a check they do is matching a National Insurance number to a name. If I was in a position to access such matching information, say as a payroll clerk, then I could presumably set up multiple registrations with HMRC at multiple addresses and they would be none the wiser.

The question of why someone would want to do that is another matter. Possibly to create the facade of a legitimate business behind which to conduct shady dealings for example.

But ultimately, aren't the checks done because we are required to do them, not because we mistrust people. How does the Daily Mail get to accepting the idea that, as the reader suggests, the accountant is doing it for their own reasons. What reasons? A photocopy of a photo ID that looks nothing like the accountant isn't going to be much use to him, is it? We get enough grief from the Money Laundering Regulations as it is without national newpapers saying we are just being awkward complying with them.

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Me!
By nigelburge
07th Mar 2011 10:12

Oh come on Andy!!

This was the Mail.  If anyone believes anything they read in that rag or even takes it seriously, I would steer well clear.

If anyone was strongly infuenced by the Wail, I certainly would think twice about acting for them. Taking any kind of "advice" from them is akin to taking advice from a certified lunatic. Haven't we all had clients who come in saying "well, I read in the Money Mail that.........." Arghhhh!!!!!!!!!!!!

(My mother-in-law gets it and I cannot resist a look now and again - trouble is, I then have a large bruise on the underside of my jaw!!)

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By andypartridge
07th Mar 2011 10:34

@ Nigel

I take your point (I think) that the paper does have some dubious editorial policies, but I have found in the past that this part of the paper has offered some sound advice. That is the principle reason why I thought this response to a reader was decidedly odd and wondered what their agenda was. Let's face it, they are at the head of the queue when it comes to slaughtering HMRC.

The implication was clear, a mature business person should not need identifying by their accountant (because HMRC is satisfied as to their identity), but also that clients should resist this kind of enquiry from their (nosy) accountant and seek one with more common sense.

The former I can live with as an error on The Mail on Sunday's part, but the latter presents us with a more practical problem for maintaining good client relationships.

-- Kind regards Andy

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Me!
By nigelburge
07th Mar 2011 10:49

@Andy
Yes - I quite take your point Andy - I am afraid THAT paper just raises my hackles!!

All we can do if someone says to us that "we are being nosey etc etc" is to explain the workings of the MLR regulations to them in the nicest possible way, make it as esy as possible for them and suggest that they do not place quite so much reliance on what they read in the Wail in the future.

If that article had appeared in te Times/Telegraph etc, then I would be regarding it as someting to get concerned about, but it was in the Wail......................

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By Richard Willis
07th Mar 2011 11:14

Why don't you

write to the finance editor of the said comic and point out the error of their ways?!

Using CD as a reference perhaps!

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By steveoneill
07th Mar 2011 11:54

Information excepted in good faith

The so called expert is obviously not up to date with ‘regulated entities’ under the MLR, however a couple of statistics for you to ponder as to the need for accountants to apply CDD,

HMRC are currently processing 81 million records for NI numbers when there are only about 49 million people over the age of 16 eligible to use them.When completing my fraud and financial crime training course, a couple of fellow students from the FSA and another Government department quoted from a Government report that found that 18% of information at Companies House was either fraudulent, misleading or well out of date.Companies House (and HMRC to a certain extent) are exempt from applying CDD, they except documents and information in ‘good faith’. This is one reason why TCSP’s are bought under the MLR’s and also why it fails.When we form a company for a member of the public, (even offshore and/or non-UK residents), with no other on-going services CDD is not required to be performed (unless fees over 15,000 euro). Upon incorporation an automated CT41G with a CT Reference code is raised.  Therefore the new owner of the company has HMRC and Companies House documentation which they hope is relied upon for whatever purpose, this has not generally been verified in any shape or form, it is all information actioned ‘in good faith’.  Would you like to take the liability under the MLR’s in taking this as evidence of ID?

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David Winch
By David Winch
07th Mar 2011 12:37

Forming companies

Steve

Have a look at Reg 3 MLR 2007.

Under Reg 3(1) the MLR apply to (amongst others) trust or company service providers.

Under Reg 3(10)

 “Trust or company service provider” means a firm or sole practitioner who by way of business provides any of the following services to other persons—

(a) forming companies or other legal persons;

. . .

when providing such services.

 

The fee paid for the service is not relevant.  So, in my opinion at least, the company formation service falls within the MLR 2007 and the usual Customer Due Diligence requirements apply.

David

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Woolpit Gus
By nutwood
07th Mar 2011 13:10

It seems

from the wording of the query in the Mail that the writer was a long standing client - not a new client   Maybe I am in error, but I have never performed the ID checks on clients on the books when the MRL requirements first came in.  Should I have done?

Some years ago I did have an approach from my bank requesting my wife and I to make an appointment to attend the bank to provide ID information for ourselves and our several businesses so that the bank's records could be brought up to date.  I wrote to the bank explaining that I thought their request was overzealous and that as the cost of lost time for both of us would be in the order of £750 plus VAT, we would expect them to accept a bill for that sum.  I also pointed out that they had been happy to deal with us and our businesses for over 25 years with the information they already had on file and that if they now found that inadequate perhaps we should re-consider our banking arrangements.

Needless to say, the bank decided they didn't need to update their records and apologised for bothering us.

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David Winch
By David Winch
07th Mar 2011 13:18

CDD for existing clients

One of the changes made when the MLR 2007 replaced the MLR 2003 was that Reg 7(2) introduced a requirement for Customer Due Diligence in relation to existing customers / clients.

This topic should be covered both in the regular training you receive under Reg 21 and in your firm's policies and procedures manual prepared under Reg 20.

Regarding your second point, in practice your bank may have satisfied themselves by undertaking electronic checks of your ID and reviewing existing documents and information in their files.

David

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Woolpit Gus
By nutwood
07th Mar 2011 13:56

Phew!

Good job none of my old clients have branched out into high risk businesses or suffered unaccountable success then - and the only ones to have married are men and they've not changed their names. 

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By cymraeg_draig
07th Mar 2011 14:37

An observation -

Yes - I quite take your point Andy - I am afraid THAT paper just raises my hackles!!

 

Posted by nigelburge on Mon, 07/03/2011 - 10:49

 

You may not like the Mail, but I scan the papers online and I've noticed one thing.  Storiesw that appear in the Mail seem to appear in other newspapers the following day.  They do seem to be the first to break many stories.

 

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Universe
By SteveOH
07th Mar 2011 16:33

Forming a company or supplying a company?

Trust or company service provider” means a firm or sole practitioner who by way of business provides any of the following services to other persons—

(a) forming companies or other legal persons;

Is there a distinction between forming a company for a client and supplying an already formed company (by a formation agent) to a client? I can see that the former service would require registration but what about the latter?

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David Winch
By David Winch
07th Mar 2011 17:07

Company formations

My reading of the MLR is that they apply to businesses who charge fees for forming companies.  If you instruct a company formation agent to form a company then the company formation agent forms the company and charges you a fee for that.  So the formation agent is subject to the MLR 2007.

But if the company is being formed for your client what description do you put on your invoice to your client?  If you bill the client for "incorporating Newco Ltd" then it seems to me you are acting as a trust or company service provider (just as you would if you bill the client for allowing the company's registered office to be at your premises, or allowing the company to use your office as a correspondence address).

Of course in most cases you will go on to provide accountancy or tax services to the new company and so MLR 2007 will apply to the relationship anyway under the heading of "external accountant" or "tax adviser".

David

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Mark Lee headshot 2023
By Mark Lee
09th Mar 2011 00:14

ICAEW guidance

The article quotes Felicity Banks from the Business Law team (I think) at ICAEW. She probably understands the MLR rules better than most of us.  Apparently Felicity said: 

'Compliance officers in accounting firms sometimes point out that it's easier and therefore cheaper to have rather higher standards for everybody, rather than have an argument with some of their partners over how much they have to do for individual clients.'

She probably said much more than this but the Mail have only printed the one sentence. And that sentence seems to be why the article's author (who is a journalist rather than an 'expert') suggests seeing if the reader can get more sense from another accountant. 

When I initially saw this mentioned on AccountingWeb I was concerned by the story. After a little further investigation however I think it's a non-issue.

Mark

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By andypartridge
09th Mar 2011 09:41

Non issue?

Mark, what do you mean by a non-issue?

Do you think readers have not been misinformed? Was it good advice in the business section of a national newspaper with a multi-million circulation?

Or is it a non-issue in the sense that accountants need not be concerned about it? Many clients will believe what they read and that can be a problem for the small practitioner. It's a big step up from 'pub talk'.

Could you remind me who the journalist is? Expert and journalist are not necessarily mutually exclusive and I think it is fair to assume that a journalist answering readers questions in a specialist field are themselves knowledgeable. Otherwise it's a bit like misrepresenting you with, 'that Mark Lee, he's just an Aweb member'! In the event that the writer is not knowledgable, their view is likely to carry some considerable weight.

Whatever, it's hardly a non-issue, maybe a different issue to the one you expected.

-- Kind regards Andy

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By steveoneill
09th Mar 2011 11:34

Company Formation Agents

David

You need to read the HMRC guidance on this, the CCAB notes have never covered ‘occasional’ transactions well, since they do not believe it exists for accountants, (so it said in the original draft version). I did not say it was not a regulated activity, just exempt from CDD. Yes, the fee level is all important when distinguishing between a business relationship and a one off transaction of any regulated activity. The importance of the fee level is also important when dealing in cash, because that what brings non regulatory products into the regime as HVD.The expectations of forming a company for a member of the general public is of a one-off transaction, therefore a regulated activity but exempt from CDD because the value is less than 15,000 euro, this has nothing to do with the method of payment.However, if we provide registered office services for example, this denotes ‘an element of duration’ therefore we enter into a business relationship and apply CDD.With our professional clients such as accountants, we expect to enter into a relationship and apply CDD, so we end up in the strange twilight zone of applying CDD to accountants and solicitors and hardly ever have to with the general public.I am not going to retype the Regulations for you, since you know them but have a closer look at 7(1) with a simple formation direct to the public we neither enter into a business realationship, carry out an occasional trasnaction nor suspect money laundering, therefore CDD is not applied.I was at the meeting at HM Treasury where this was clarified for TCSP's (sat behind me was Felicity Banks and the rest of the CCAB bodies), it was decided there that the CCAB guidance would not be extended to cover TCSP's but HMRC's would, since the CCAB guidance was to rigid to be adapted for this purpose. If you look at the CCAB guidnace it now refers you in the Treasury approved version to HMRC guidance to cover this very point in sections 1.4 & 1.5 By the way Companies House will be going direct to the general public for company formations as from 1 April 2011 through web filing for £18 a go, not only exempt form CDD but also from the ML Regulations themselves, since they do not do this 'by the way of business', so out side the scope of the Refgulations, this just makes more of a mockeryof the original newspaper quote and the point I made.Back to the original posting, I had just given an AML training course for one of the supervisory bodies, and a member of a second one was there, any way the topic at lunch got around is this article, but more specifically to the supposed quote from Felicity Banks, The people I was with represent each of the bodies at the supervisors forum, who are meeting this Thursday, and they thought this would be the hot topic of the day, they say she was obviously misquoted and likely to go mad! So I love to be a fly on the wall at that one

Steve O'Neill

ICA (Dip.aml, Dip.fin crime)

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David Winch
By David Winch
09th Mar 2011 12:16

@Steve

Steve

Thanks for spelling out your logic behind this.

I agree that where there is no enduring business relationship / service (and no suspicion of money laundering) a single transaction in relation to the provision of a service (or goods) under 15,000 euro falls outside the definition of "occasional transaction" in Reg 2.

It follows that whilst the activity falls within the scope of the MLR 2007 it does not fall within the range of activities set out in Reg 7(1) which would trigger an obligation to conduct Customer Due Diligence.

In that respect it is, of course, rather unusual.

Kind regards

David

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By steveoneill
09th Mar 2011 14:46

Other sectors

Hi David

Thanks for that, yes it is fairly unusual in the accountancy sector, 64-8 usually denotes an expectation of an on-going relationship, but it is very common and often the norm in others sectors, but that is one of the problems many are discovering, accountants do not understand the effect of MLR’s on other entities, many of which may be their own clients.We had an incident recently of a firm of wholesalers with a Chartered Accountant at the helm who through advice he received, he says was from advice from the institute (which I have doubts about) was told that as long as when they are delivering goods to their regular customers and collecting cash each week and the amount each time was under £10,000 for each transaction, the firm was not subject to the MLR’s.This was clearly, a contract to supply on a weekly basis at agreed prices, so within a business relationship. Been committing the criminal offence of non-registration for over two years.Another case, I have just finished, a HVD firm which is audited, advised by their accountant/auditors about MLR registration and taking a copy of a passport, initial fine by HMRC £110,000 for lack of risk assessments and enhanced due diligence.   Most accounting practices will have some clients whose trades fall within the regulations, e.g. HVD’s, money transfer businesses, IFA’s etc.  The accountant needs to assess this risk for his own benefit, if the client has poor compliance the accountant’s risk of becoming involved in money laundering has just risen. But how can they assess the risk of something they do not understand?This could be a good topic for the forum you run through accounting web to increase understanding for the accountants of other sectors risks and procedures.RegardsSteve O’Neill 

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