Bankruptcy (or is it?)

We've been asked to pay a supplier (sole trader) in cash because he has no bank account.

On challenging the idea of any supplier not having any bank account I am told he is bankrupt.

Can a bankrupt have a bank account?

Is a bankrupt even allowed to be self-employed?

Thanks.

Comments
davidwinch's picture

I am not an insolvency practitioner but . . .

davidwinch | | Permalink

I am not an insolvency practitioner but my understanding is that an undischarged bankrupt is permitted to have a bank account and is permitted to be self-employed, but is not permitted to obtain goods or services on credit (above £500) without disclosing that he is an undischarged bankrupt. Also an undischarged bankrupt is not permitted to be involved in the management of a company.

Also there is a restriction on being self-employed under a business name which is not the one under which you were made bankrupt.

A common mistake is that people think an undischarged bankrupt is not permitted to be a company director but is permitted to be involved in the running of a company provided he is not called a director. That is not the case.

David Winch

carnmores's picture

David is 99% correct

carnmores | | Permalink

which is a hell of a lot more than me! with court approval bankrupts are allowed to be involved with the management of companies.

re the bank accoount point alot of banks with not give a bankrupt an account - i think A&L will do, and if they do you usually only get a cash card - considering that half of them hagve gone bust themselves its a disgrace

Jon Stow's picture

I know things have changed a bit re bankruptcy rules

Jon Stow | | Permalink

but I have in the past heard of cases where the bankrupt was asking for cash to conceal income from the Official Receiver. That reason may of course be none of your business.

Phil Rees's picture

none of your business?

Phil Rees | | Permalink

A ML reporting matter surely?

Jon Stow's picture

Well, our business to report

Jon Stow | | Permalink

if information received in the course of business, but not if heard down at the Hen & Cackle. Even professionally, we would have to have reasonable suspicion as to the reason for requesting payment in cash. It might be entirely innocent.

davidwinch's picture

Duty to report suspicion

davidwinch | | Permalink

Jon

I appreciate that the request for cash might be entirely innocent, but the issue is 'Does the accountant suspect, or have reasonable grounds to suspect, money laundering?'.

A suspicion is what you have which causes you to think that further enquiries ought to be made. It goes without saying that a suspicion may prove to be unfounded on further investigation (by the authorities for example). However, unless you are yourself of the view, on reflection, that you neither suspect, nor have reasonable grounds to suspect, (or you are intent yourself on making further enquiries to resolve the matter) then the suspicion is reportable (if the other conditions are met).

I take your point about the Hen and Cackle, but that is not the position here.

I assume the original poster raised the point because he was contemplating a report under the MLR. In deciding whether to make a report he will have to weigh up all the relevant information he has (which is probably more than is set out in his original posting).

David Winch

Jon Stow's picture

Yes, David

Jon Stow | | Permalink

I agree entirely. The issue is whether one has grounds for suspicion of the motive.

why waste more time?

Anonymous | | Permalink

Why waste more time ? If the man is innocent then he has nothing to fear and nothing will come of the report in anycase but you have covered your behind. Our guidance states that when asked to pay cash an accountant should be aware that he may well be assisting !! a few more years.
Sad I know but we are victims of this legislation, it is likely that the criminal will get a slap on the wrists but the poor accountant will be made to suffer. And if it is serious you can always look at what happened to the Accountant Andrew Ramsey from Scotland whose head was found in a fishing net, as reported in the Scotsman!!

definition of money laundering

georgeford | | Permalink

Hi there,

The common definition of money laundering is using money from illegal activity and 'laundering' it through a number of transactions so it comes out clean. If the guy asks for cash then get a receipt or tell him that it is company policy not to pay in cash.

Unless the services provided were illegal then I don't see that it is laundering. It is then up to him to declare to whoever how much he earned (tax / creditor / administrator etc)

Cheers
George

davidwinch's picture

Statutory definition of money laundering

davidwinch | | Permalink

George

We are dealing with money laundering as defined by statute - in particular sections 327 to 340 Proceeds of Crime Act 2002. The definition is very wide, so that 'money laundering' need not have anything to do with 'money' or 'laundering' but effectively refers to any connection with any benefit of any crime (where the alleged launderer knows or suspects that the asset is, or represents, a benefit of someone's criminal conduct).

It is the suspicion of that which is reportable under the Money Laundering Regulations 2007 and section 330 Proceeds of Crime Act 2002.

So for example if I were to steal a pair of jeans from my local Marks & Spencer I would commit a 'money laundering' offence (because, immediately on completion of the theft I would be in possession of stolen property - the jeans (which I would know to be a benefit of crime) - contrary to section 329 PoCA 2002).

By a similar logic a person who is engaged in tax evasion obtains proceeds of crime (equal to the tax liability which he has evaded) and therefore is engaged in money laundering.

In the case raised by the original poster here the suspicion may be that the individual in question may be obtaining income without reporting it to his trustee in bankruptcy, which would be an insolvency offence.

If you work within the 'regulated sector' (for example as a principal or employee in a business that provides accountancy services on a fee paying basis) then you really should be aware of the nature of your responsibilities under the MLR. You should have been provided with training on this by your employer (he has a statutory duty to provide you with that training).

David Winch

P.S. George, I have just realised you are the journalist who posts on here - so you are not employed in the 'regulated sector' and do not have statutory responsibilities to report money laundering by others under s330 PoCA 2002. Don't overlook however your statutory responsibility to report any money laundering which you undertake yourself (and obtain consent for it from SOCA) under sections 327 - 329.

If you are not already aware, about 200,000 reports of suspected money laundering are made to SOCA each year. The vast majority of reports are made by banks & building societies. About 8,000 to 10,000 reports each year are made by accountants, and a roughly similar number are made by solicitors.

ex-jouranlists riposte

georgeford | | Permalink

Just read the section you referred to and the subsequent one.
still disagree but would like to open up a separate but related debate:
Am I the only person out there who thinks that cash is now a dirty word whether in business or in just going to the shop to buy something.

Have had many a strange look if anything I buy over £50 is in cash.

Cheers
George

davidwinch's picture

Added to my earlier post

davidwinch | | Permalink

George

I have added to me previous post!

David Winch

davidwinch's picture

What do you disagree with?

davidwinch | | Permalink

George Can you say what it is you disagree with?

There are some technical points around money laundering and tax evasion in which the Court of Appeal has made some interesting decisions (some of their decisions may be thought to be at odds with others).

There was one involving undeclared cash takings of a grocery and greengrocery shop which were hidden in boxes of fruit being carried to a money transmitters shop. Customs Officers stopped two men in the street carrying nearly £100,000 hidden in this way.

The Court of Appeal held that a prosecution for money laundering could go ahead on the basis that there was suspected tax evasion involved. The case is R v K [2007] EWCA Crim 491 (if you are interested).

David Winch

(Edited to include a link to the judgment.)

the jeans

georgeford | | Permalink

Taking a step back from possible interpretations of the law - can you hand on heart say that nicking a pair of jeans constitutes money laundering and / or risks prosecution for that offence?

Cheers
George

davidwinch's picture

Ask Mr Whitwam

davidwinch | | Permalink

The Court of Appeal considered the case of a 50cc child's motorcycle stolen from the home of a Mr Kelly (or more accurately stolen from the garage of his home). On the day of the theft a Mr Gareth Whitwam was seen in possession of the motorcycle.

Mr Whitwam was convicted of money laundering contrary to section 329 PoCA 2002. He appealed. The Court of Appeal upheld the conviction. The case is CPS Nottinghamshire v Rose [2008] EWCA Crim 239.

The Court of Appeal held:

  • " The stolen motorcycle was property obtained by the thief, within the meaning of s.340(10)(a), since the thief obtained a right to possession of it and, by s.340(10)(d), an interest includes a right to possession; and it was self-evidently obtained as a result of or in connection with criminal conduct. It therefore constituted the thief's benefit from criminal conduct. It follows that the first part of the definition of criminal property, in s.340(3)(a), was satisfied. The second part, in s.340(3)(b), depended on whether the appellant knew or suspected that it constituted or represented such a benefit. That was an issue that the recorder properly left to the jury and that the jury decided against the appellant."

It is well accepted that a 'money laundering' offence is committed by a person who has possession of the proceeds of his own crime.

David Winch

IMHO Cash is becoming a dirty word!

Mark R Outhwaite | | Permalink

Hi all this is my first post,

Hi George in particular,

George I agree, with police now routinely seizing cash amounts of £1,000 plus.

You should also consider the impact of S 328 of POCA which catches a lot of those professionals offering accounting services. IE they risk getting involved with the arrangement of ML transactions.

Cheers

Mark

Cash Jobs

Anonymous | | Permalink

Unfortunately cash Jobs is also a euphemism for no tax or vat, as is private work.
Cash or private work for that matter is not bad! It is the none recording of cash (e.g. unrecorded takings) a money laundering offence!
The general public often engage themselves in these offences, for example when insisting on paying cash to evade the Vat on building work. The General public think that this is acceptable behaviour mainly because it is so prevalent it has become the popular common mans interpretation of the Law.
There needs to be a behaviour change from the top to the bottom of society as it is apparent that (with a few minor exceptions) each and every one of us is a money launderer.
Question for David. If an offence is committed but the person is not aware that it is a crime, e.g. cash payment to save Vat (I know it is strange but some believe that this is how vat works) where is the line drawn? How dim is the man on the Clapham Omnibus? Surely in the case of vat and cash building work it is the customer that has the proceeds of the crime.

Old Greying Accountant's picture

Can I report my bank?

Old Greying Acc... | | Permalink

The charges on my account are clearly criminal and bear no relation to the cost of the services they provide me, surely a reportable money laundering offence if ever there was one based on the above answers?

Ergo, I don't blame the guy asking for cash, even if he had a bank account!

What I found totally immoral was the fact my %age over base nearly doubled to compensate for the fact base rate was dropping, still I suppose at least they haven't cut my limit (yet)!!

davidwinch's picture

Who to report for 'cash jobs'

davidwinch | | Permalink

Your reference to the 'man on the Clapham Omnibus' is very appropriate. A crime, such as tax evasion, necessarily involves dishonesty. In criminal law dishonesty, in this context, is defined by a two part test.

Both of the following are necessary for dishonesty:

  1. The offender's behaviour (which may mean simply his silence!) must be dishonest by the standards of ordinary and decent people, and
  2. The offender himself must realise that his behaviour is dishonest by that standard.

I think you would have difficulty persuading a court that "ordinary and decent people" would regard paying cash to 'save' tax and VAT would not be dishonest.

Suppose a builder offers to do some work on my house for £1,000 with an invoice or £800 for cash and no invoice. If I take up the offer of £800 then I will 'benefit' by saving £200 (and so commit a money laundering offence) and the builder will 'benefit' by saving the VAT and income tax he would ordinarily be liable for (and so he commits a money laundering offence). So both the customer and the builder commit money laundering offences and should be reported under the MLR 2007 / PoCA 2002.

If a suspected offender genuinely believes that what he is doing is honest, then he is not dishonest and does not commit a crime such as tax evasion. So a person who genuinely believes VAT is not chargeable on a cash transaction does not commit tax evasion by paying the builder less in cash. Perhaps a better example is the UK resident who sells his Spanish holiday home at a profit (perhaps unlikely these days!!) and genuinely believes he does not need to disclose this on his UK tax return. Although he fails to declare a taxable capital gain (and may be subject to a civil penalty from HMRC) he is not guilty of criminal tax evasion as he has not been dishonest.

Does that clarify the position for you?

David Winch

don't mention the Jeans

Anonymous | | Permalink

George

Claiming for a (non allowable) pair of Jeans as a deduction from your taxable trading profits is also money laundering !

davidwinch's picture

Police seizure of cash

davidwinch | | Permalink

The police have powers to seize 'cash' of £1,000 or more if a 'constable' has reasonable grounds for suspecting that the cash is intended for use in crime or is (or represents) proceeds of crime. Customs officers and others have similar powers.

Essentially it is then up to the owner of the cash to persuade the officer that the cash is legitimate or the matter goes before the Magistrates. Ultimately the cash is forfeit to the Crown if it is not shown to be legitimate. See sections 294 onwards PoCA 2002.

Increasingly the police will use these powers to damage criminals or suspected criminals without the need to prosecute any offence through the courts. So it achieves a 'result' of sorts for a minimum of work for the police.

Cash which is forfeit goes to the Crown, so there is an added advantage there for the police!

Originally only amounts of £10,000 or more could be seized, but this limit has been progressively reduced and now stands at £1,000.

Note that 'cash' for this purpose is defined (by section 289) as any of the following when found in the UK:

  • notes and coins in any currency,
  • postal orders,
  • cheques of any kind, including travellers' cheques,
  • bankers' drafts, and
  • bearer shares and bearer bonds.
  • In practice cash which is seized is usually UK banknotes or Euros. I have never heard of cheques being seized under these powers.

    David Winch

Money Laundering

Anonymous | | Permalink

Just who to and how do you report Money Laundering? We are registered under the MLR but it just seems yet another tax on a very small businesses. When we registered we asked this question and gave a scenario but the MLR Office appeared not to know.

The scenario being that a let house was used as a cannabis factory and the perpetrator was convicted and is now doing five and a half years. However, the owner of ther adjoining property was acting as a look out and would have received a considerable amount of cash for this. The police were not interested because they had no proof of this and were unwilling to investigate - they say they are not allowed to examine accounts or ask for details of income, despite there being two new cars in the driveway. They also had their 'easy collar'.

Has anyone experience of reporting?

The Ancient One

davidwinch's picture

Online is best

davidwinch | | Permalink

Your report should be made to SOCA, the Serious Organised Crime Agency.

The best way to do this is online. Go to
http://www.soca.gov.uk/financialIntel/suspectActivity.html

David Winch

P.S. HMRC routinely pass information to the police, the DWP, local authorities and other official investigators on receipt of a specific request made for the purposes of a criminal investigation. The authority is section 19 Anti-terrorism, Crime and Security Act 2001. There are corresponding powers enabling the police to obtain bank statements, etc for the purposes of a criminal investigation. However police resources are limited and they do not investigate every allegation of crime which they receive. Similarly, reporting a matter to SOCA does not automatically trigger an investigation.

Cash: Moreover

Mark R Outhwaite | | Permalink

Police stop someone with £1000 (or equivalent in cash), police almost automatically confiscate because:
1) it meets their targets for assset recovery (if set)
2) no ordinary person carries that much money around, ergo you must be up to something (therefore the officer could be said to be disrupting criminal activity)
3) You can always get it back from the Magisistrates (at your expense)

Its a no lose situation for the police and almost completely irrelevant to dealing with those who have got £500,000 stuffed in their car/spare tyre and no plausible explanation.

Of course, if you then link this power in with research demonstarting that all cash notes (90% +) are contaminated by illegal drugs then the cops can argue, on the balance of probabailities that this cash is iffy.

Should you be rash enough to film what the police are doing on your mobile phone they will detain you under the 2008 Counter Terrorism Act (see link: http://news.bbc.co.uk/1/hi/england/london/8163428.stm )!

In short the government and the police get to ban cash without having to submit your plans to anything like that pesky Parliamantary scruitiny.

Of course if you really want to help illegal cash transactions / cross border money laundering then you increase the maximim value of your notes to say soemthing like €500. Doh!

So what starts as a perflectly reasonable attempt to seize the proceeds of crime can (has?) becomes a shortcut for the police doing what they want when thet want with no effective oversight.

Thank heavens we don't live in a Police state where Money Laundering Prevention rules can quickly become linked to terrorism without any effective oversight or redress by the subject/citizen. Lucky we haven't seen the Police arrest opposition politicians in Parliament and threaten them with life imprisonment for holding an incompetent, dishonest and imho morally bankrupt political party to account.

My concern, as an AML specilaist, is that police forces will probabably always try and police (arrest) the easy to catch low hanging fruit of any criminal activity, whilst trying to extinguish legitamate overisght and questioning as to what they are doing and why. In short its much easier to nick an established businessman or woman who has made a mistake in trying to apply complex AML law and regulation than to send an officer to Bogota!

I'd welcome your thoughts

Mark

carnmores's picture

thank heavens we dont live in a police state said the last contr

carnmores | | Permalink

well i must be living somewhere different to you - this case shows what a load of nonsense so much of the MLR ules are - the implemantation of the rules makes people act as if they were a member of the Stasi - we realy should have a de- minimis rule to make the rules relevant , too much to hope or expect from Cameron, and on second thoughts the MPs who complained about not breaking the laws on e xpenses were possibly all guilty of MLR offences - now i think i will email all MPs !

PS if this blokes wants our help we would gladly give it if we didnt havethe worry of immaterial amounts lots os useless paperwork and constant worries http://www.accountancyage.com/accountancyage/news/2246591/sfo-chief-invi...

what a state!

Anonymous | | Permalink

These systems worked perfectly well for the Nazis.
Don't panic its just history repeating itself !
Makes you wonder whether Osama Bin laden has got a bad press ??
Politicians should be made to read and understand the rules before they pass them !

davidwinch's picture

Cash seizure and contamination

davidwinch | | Permalink

My understanding is that about 5% of banknotes in general circulation are significantly contaminated with drugs. If over 90% of the banknotes in your possession are heavily contaminated then you are likely to have a problem with the police if that comes to light!

It is certainly true that legislation is always coming on to the statute book - which is sometimes described as 're-balancing the criminal justice system' - which creates new offences and new powers for the authorities. Whether that should be happening is a political issue.

One could also debate whether 'anti-terrorism' has been used as a convenient cover for legislation primarily used in connection with other crimes.

However there is unlikely to be much appetite amongst politicians for any legislative changes designed to be 'softer' on crime or criminals!

It is also the case that the police are being encouraged to meet targets and to demonstrate successes in tackling crime. Cash seizure and confiscation of alleged proceeds of crime are a significant feature of that. Whether this serves the interests of 'justice' in a broader sense is again a political debate.

It would be surprising if the police were not, in the circumstances, grasping the 'low hanging fruit' and squeezing it 'till the pips squeak'. In the time it takes to investigate and prosecute one complex fraud the police could probably undertake hundreds of cash seizures and those seizures would not require the sort of technical financial skills which the police would require to deal with the fraud. So what are the police going to do?

There is however a danger that police may focus on the measured targets rather than the genuinely important issues in society.

In an entirely different context, our schools have gone through a process of being more and more measured and urged to hit strictly defined targets, but this approach is now being recognised as significantly flawed - and the tide now is running towards fewer measures and more flexible targets.

Personally I do not believe that 'what cannot be measured does not matter'!

David Winch

Possible final word?

jpwattam | | Permalink

Firstly thanks for all your comments.

Unfortunately I am getting information second hand from another, but having sent my colleague away after the first responses to tell the supplier to get a bank account with the helpful suggestion of A&L, I've heard nothing back. But they don't get paid if I don't approve it...

There was a comment somewhere to get on and report it and stop ruminating (or something on those lines) and I agree - if/when it comes back to me I'll approve it and initiate the report.

It is a bit sad that these rules must be putting companies off supporting the little man who's been unfortunate enough to go bankrupt when he may be perfectly honest and a pretty good supplier too. A report is not something to be taken lightly and while not wanting to refuse to do business because of the need to make a report based on a possibility, time is money. If I can do something to prevent a crime, I want to, but I struggle to get into the Superman costume these days!

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