getting the ID is so important

Cutting a very long story short...

Two brothers came to see me the other week. “It’s my son” said one of them “ in trouble with the tax man”. “I need to meet your son and see his accounts” I replied.

They returned a few days later with the books and records and lots of nasty stuff from the tax authorities. “Where is your son?” I asked “I can not act without meeting him”.

The following week they returned with the son who had his passport, drivers license and home utility bills in hand. He also had some tax demands which he had just received out of the blue.

Unbeknown to the son a firm of accountants had been acting for him, they had prepared and filed tax returns for him. Unbeknown to him the VAT man had visited a business, registered it for VAT and issued him with a £60,000 assessment. Unbeknown to him he had been investigated and assessments for underpaid tax of £30,000 had been raised dating back six years.

It was the collector who tracked down his home address and sent the demands.

The son was adamant, he had a full time job (six years of P60s supplied), he had never spoken to any accountants or tax people about anything. He worked in one town and lived in another. He had no time to run a business in a third town.

He had not see any of the paperwork in his name - the tax bills were an obvious shock.

Now I do know who was actually running the business and I’m as sure as one can be that the son really knew nothing about it. I know a Money Laundering report is required here and that there may be serious consequences for one of his relatives.

What I could not believe was that the Inland Revenue had opened, conducted, concluded and closed an investigation without establishing the identity of the taxpayer. Not to mention the failure of the Chartered Accountants assisting them. You can not open a bank account or become a client of mine without proving your ID.

If I had not stuck to my guns about meeting the client (the Son) and checking his ID I could have got myself into a real mess. By forcing the issue the story changed and the truth came out.

Should I be reporting the Accountants?

Comments

ID

georgeford | | Permalink

Hi there,

Well, I for one would report the whole affair, not just the accountants, as you have uncovered a fraud and, quite clearly, the previous accountant sounds like he/she was either duped and didn't take care or a bandit. (For all those cringing now - I am an ex BBC Journalist and I know what libel and slander are and where the line lies)

You have a legal duty to report crime - here is the rub: I very much doubt the people involved will be pursued let alone prosecuted.

Just keep yourself in the clear. Report it, don't tip the client off that you have and let the law / investigations take their course - at least then you are in the clear and can sleep at night.

Cheers
George
Veriphy Ltd

davidwinch's picture

Reporting obligations

davidwinch | | Permalink

Mickey

You are quite correct that you have an obligation to report your suspicions (effectively of tax evasion and hence money laundering) under s330 PoCA 2002 and MLR 2007.

As part of that report you are likely to identify the accountants as an "associated subject". Fair enough.

I was a bit perplexed by the assertion by another poster that "you have a legal duty to report crime". I would not make such as sweeping statement myself! However as a person in the 'regulated sector' you do have a duty to report a suspicion of money laundering - and that duty is triggered here in my view.

David Winch

Force Majeure

georgeford | | Permalink

Hi Mickey,

As the subject says: there is an overarching force in this - you know of a crime; you report a crime.
This is overarching of any money laundering; proceeds of crime et al acts - This is, as they say in Star Trek, the prime directive. (sorry - turned into a geek there)

I may sound like a lawyer, but the majority of my professional life was being trained in how not to be taken to task by them so I know a little bit about what you are likely to be hit with!

On a lighter subject - we have just been sent the new list of databases that are referenced as part of the sanctions check if you do electronic AML - did anyone out there know that there was a 'Department of Thrift' in the US.

Will think of a prize if someone comes up with a witty description of what one of their enforcement officers does!

Cheers

George
Veriphy Ltd

davidwinch's picture

Confidentiality and disclosure

davidwinch | | Permalink

George

Coming at this from the perspective of an accountant who has spent some time dealing with journalists, I do think that the natural leaning of an accountant is towards confidentiality (it is 'in his blood' to keep information about his clients' financial affairs strictly confidential) and the natural leaning of a journalist is towards publication (surely publishing information and opinions is the lifeblood of a journalist).

The accountant's attachment to confidentiality is now tempered by a legal obligation in specified circumstances to pass information to the Serious Organised Crime Agency and typically to do this without his client's consent and even without his client's knowledge. In some cases it may be that the accountant will be of the opinion that his client would refuse consent for such disclosure to the authorities if he were asked. This goes very much 'against the grain' for many accountants who would regard this disclosure to the authorities as duplicitous and virtually dishonest.

Not so many years ago the ethical guidance for accountants who discovered criminal conduct by a client was that they should not disclose this to the authorities without the client's authority because to do so would not be in the public interest in view of the damage it would do to the professional relationships between accountants and their clients. That guidance has had to be modified in relation to suspected money laundering.

But relatively few accountants are comfortable with 'shopping' their clients.

David Winch

Confidentiality

Anonymous | | Permalink

I agree with David. Journalism is not the same as Accountancy for one libel and slander are completely different areas of the law to the proceeds of crime and money laundering. It just goes to show that we are a misunderstood bunch which is probably why these draconian laws were introduced by people who had not read our professional rule books, where there were adequate proceedures for dealing with dishonest clients, although in practice many firms sailed close to the wind and this was not enforced adequately by the professional bodies.
Confidentiality is paramount if we are to be considered trustworthy, this gives us the unique role in society to assist clients in doing the right thing, we do not need the assistence of incompetant size ten boots.
As for ID may be the Chartered Accountants above did check the ID and may be the relative looked like a real man on his passport (do you look like your passport photo ?) and in any case a real crook will find his way round the system with ease. Until we are all tatooed with numbers we will never be certain.
If in doubt report, the information will not be used and HMRC already know about the crime so you are not breaching any confidentility.

futher explanation

georgeford | | Permalink

I think that what I wrote has been somewhat misconstrued.
In my post I called implied someone was a bandit - hence the journalism/libel comment.
Reporting someone was not likened to publication.
If you report someone you should not tell them that you have - that is tipping off and is an offence.
If you come across a crime you should report it.

I hope this clarifies what I meant.
Cheers
George

tysonn's picture

Re Confidentiality

tysonn | | Permalink

I do agree with a concern aired in another post regarding the burden placed on small practices, however if I was a crook I might be more inclined to go to an SME rather than one of the bigger boys. That said if I was a crook I would only go to someone I knew was dodgy rather than risk going with someone I didn't know!

I think it is true that these issues have not been adequately dealt with by the professional bodies and authorities in the past (this is true of other professions too e.g. solicitors). Although relatively few in number, too many dodgy professionals have been allowed to continue in business and this is now having a knock on effect for the majority who are honest. We need to find a way of appealing to that honest majority to help deal with the problem few. Unfortunately the professional bodies and the authorities seem to be doing the exact opposite by alienting the honest majority!

The answer has to be in ensuring that the supervising bodies as well as firms do take a truely risk-based approach (as allowed by the law) to this so that we can focus in on the problem. However we also need to recognise that fellow professionals (I'm not just talking about accountants ) have to play a part in this. Too often colleagues turn a blind eye to incompetence and dodgy practices. Often this is due to misconcieved allegiance to fellow professionals, sometimes its because junior members of staff fear reporting a more senior colleague, sometimes there can be genuine confusion about what is acceptable behaviour. An effective whistleblowing process has to be established and I fear we are a long way from this.

That said I don't think there should be any confusion when it comes to suspicions around dishonesty. If someone genuingly suspects that their client or colleague has been dishonest then surely they would want to terminate their future association with them? If that is the case then where is the problem in reporting your suspicions - honest clients need not fear knocking at your door. In addition it might make CDD easier - dishonest clients would be less likely to knock on your door because they would think it was too risky. In addition if CDD is effective then this should reduce the number of dishonest clients you deal with, hence reducing your dilema of having to report your suspicions - because you won't be doing business with them in the first place.

In the particular example referred to above the suspicion does not appear to be with the client but with the family member and therefore client confidentiality doesn't seem to arise in any event. In actual fact reporting in this case may actually help the client clear their name!

As far as reporting the accountant - if you genuingly believe they have been duped, then what is there to report? If however you suspect they have acted inappropriately or illegally then you need to think what kind of profession you want - and report it. In my view if people let these things slip by then we are hardly in a position to complain about overly bureaucratic regimes.

Regards
Neil

www.gntfraudsolutions.co.uk

Getting the ID is impotant, meeting the client is VERY VERY VERY

Mouse007 | | Permalink

I have learnt over the years not to believe without question what I am told. Indeed my children (7, 11 and 13) are now well trained to pause and think whenever I tell them something.

I have learnt not to jump to conclusions nor judge. As an accountant and auditor I seek evidence to support information given and accordingly will (with respect) reject the “bull in a china shop approach” to reporting the whole affair.

Thank you David for your comments. It’s not just a natural leaning towards confidentiality, we also draw upon observation, experience and reflection. Skills which too many journalists appear to be devoid of. Theirs is the pursuit of telling a “good” story, ours is getting to the truth and, dare I suggest, the lawyers don’t care either way so long as they win.

Ask each what his most valuable asset is, the answers will confirm my observation.

Just to confirm to Anonymous and any others, HMRC knew nothing about this - they assumed son was guilty and they were demanding that he paid up. I’ve put a stop to that, the fun bit will be justifying it. And no, the relative looks (and sounds) nothing like the son, big time.

Neil was spot on, the client (son) has done nothing wrong. Indeed the solution lies with Neil’s exact suggestion, a point raised with the client and his family members. I approached the matter by asking “which one of you is going bankrupt then?”. That flushed out a result, other consequences are (perhaps) not my concern.

So my point remains (to counter a reply in another post on getting ID): you can not rely upon another firm’s ID checks - they missed this one big time; the shocking news is (as a journalist would put it) the Inland Revenue DO NOT do ID checks and never assume what you are told is true.

Do your own ID checks, because you can not rely upon anyone else to do it.

Do I report the other accountants? Well, so far I have no evidence to suggest they were anything other than sloppy with their ID checking procedures, is that a matter for the ICAEW? I’m not sure it will form part of my money laundering report at this stage. Their reply to my professional enquiry letter may however change that.

All I will reveal is that they are a BIG firm - of sorts. (Audible sigh of relief heard from all sole practitioners)

memo to self: better recheck all those ID checks pronto

Pirate Mouse

davidwinch's picture

Associated subject in a Suspicious Activity Report

davidwinch | | Permalink

Just to be clear, an 'Associated Subject' in a Suspicious Activity Report (SAR) is simply a person / company / organisation mentioned in the report who is identified (i.e. usually at least his name and address are given by the reporter) but who is not the 'Main Subject' of the report.

The role of the Associated Subject will be described by the reporter in the 'white space' free text area of the report - he may be an accomplice, a victim, a witness, etc.

So I do think you will be naming the accountants in your report to SOCA and that they will be an 'Associated Subject' in that report. But that does not imply any criticism of their integrity.

It is, I hope, an obvious point - but it is equally true that the 'Main Subject' of a report may be a victim rather than a wrongdoer or suspected wrongdoer.

The obligation under PoCA 2002 / MLR 2007 is to report suspicions of money laundering - not suspicions of clients! Therefore the suspicion you are obliged to report may involve your client only as the victim (as in Mickey's case here) or may not involve your clients at all. But you are only obliged to report information which comes to you in the course of your work in the 'regulated sector' - you are not obliged to report what you read in the newspaper or overhear in the pub!

As a final tip, when completing your SAR do quote the appropriate XX code from the glossary at
http://www.soca.gov.uk/financialIntel/SARglossary.html

In this case it looks like

XXF4XX
Tax Fraud - Personal

will be the one you need.

David Winch

fiends...

Supotco | | Permalink

what a rotten thing to do to your son/nephew/whathaveyou though.

Mind you, I did once act for someone who before I started working for her had opened up a partnership with her mother. Mother did not know she was in partnership and certainly had never seen any of the money. Mother, apparently, went ballistic.

Up to Date ML Examples

Anonymous | | Permalink

Does anyone know of an up to date examples guide similar to Taxline Tax Practice Money Laundering Sept 2003 written by Robert Maas?

davidwinch's picture

Changes since 2003

davidwinch | | Permalink

Whilst there have been numerous changes to the law since 2003 (of which the Fraud Act 2006 and the Money Laundering Regulations 2007 are the most obvious examples) it remains the case that what is reportable is suspicion related to acquisitive crime.

'Acquisitive crime' is crime from which someone gets a benefit. So for example if I steal my neighbour's bicycle that is acquisitive crime - but if I murder my neighbour's wife that is not (unless I get paid for doing it!).

Almost all acquisitive crime involves dishonesty. So suspicion of dishonesty is the key.

Dishonesty has two necessary ingredients:

  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.

If you keep that in mind you will have a pretty good idea when a report is required. So, for example, an accidental under-declaration of income is not dishonest and not reportable.

There are occasions when something which you might expect to be reportable is actually not reportable. For example where you have no information which could assist the authorities - such as where, as auditor of Tesco or M&S, you are aware that there has been stock 'shrinkage' due to theft but have no more specific information about who might have been responsible or where the stolen property may have gone.

There is also the 'legal privilege' exception where information has come to you in 'privileged circumstances' in connection with the giving of legal advice or in connection with legal proceedings. But I would recommend you to get specialist advice on a case by case basis before relying on that.

Of course once there has been an acquisitive crime (and so there is a benefit of that crime) then anyone who (knowing or suspecting that an asset is, or represents, a benefit of a crime) has any involvement with that benefit will also commit a reportable money laundering offence. So if I steal my neighbour's wallet and then hand on to my mate the driving licence out of that wallet, my mate commits a money laundering offence by the mere possession of that item (which he knows or suspects to be stolen).

Does that help?

David Winch

LPP

Anonymous | | Permalink

Thanks for all comments David.

In an article in Best Practice Magazine in April 2006 Felicity Banks (then Head of Business Law at the ICAEW) stated on LLP "Obviously a major benefit to accountants with back duty tax cases, reports will not have to made where clients seek to regularise their affairs"

The latest guidance (25/06/09) says LPP MIGHT apply. What use is that? Does it or doesn't it?

Can anyone out there say whether LPP does or doesn't apply when someone has not completed returns, seeks your professional advice re their legal responsibilities and instructs you to help them put it right?

The ICAEW anti ML helpline justs sits on the fence and says seek legal advice.

davidwinch's picture

Legal privilege

davidwinch | | Permalink

If you are a member of a qualifying body, see s330(14) PoCA 2002, and a client approaches you, tells you that there are irregularities (or what he thinks may amount to irregularities) in his tax affairs and asks for your advice on them, then he is asking (initially at least) for your advice on what the law requires of him (and what the law may do to him in terms of punishment). That is legal advice. The information has therefore been received by you in 'privileged circumstances' and should not be reported to SOCA**.

That information continues to be non-reportable** whether or not, in the event, the client accepts your advice (i.e. that he should instruct you to disclose the full facts to HMRC).

Contrast this with the position of a client who instructs you to deal with his tax affairs. In the course of your work you discover irregularities or possible irregularities in his tax affairs. That information is received by you in the course of accountancy / tax services - not in the course of your giving legal advice. That information has not been received by you in 'privileged circumstances' and is reportable to SOCA (if you suspect that the client has been dishonest).

The information remains reportable to SOCA even if you then go on to give the client legal advice in relation to his tax responsibilities and likely penalties.

A third scenario is that you find errors in your clients tax affairs, which you believe to be accidental. That is not dishonest and so is not reportable. You will advise the client that the errors should be corrected. If the client refuses to correct the errors, that refusal is dishonest. The matter (which now does involve dishonesty) therefore now has become reportable to SOCA.

Does that help?

David Winch

P.S. The CCAB / ICAEW Guidance applies to all accountancy service providers, including those who are not members of a professional body which satisfies the criteria of s330(14) for whom legal privilege does not operate.

**Subject to the crime / fraud exception. Where information is communicated to you with the intention of furthering a criminal purpose then that information cannot be protected by legal privilege and so is reportable to SOCA. For example, a new client approaches you and says, "I have some money in a bank account in the Channel Islands which is undeclared business takings. In view of HMRC's success in obtaining information from banks in the Channel Islands where should I move the money so that it will remain undiscovered by HMRC?" Because of the criminal purpose you are obliged to report this information to SOCA.

Liberty at stake!

Anonymous | | Permalink

I would not assume legal privelage, when your liberty is at stake! You are reporting the matter when you come clean with HMRC which should be enough, but I would make the additional report as well to be safe, what harm can it do?

LPP Again

Anonymous | | Permalink

LPP Anon here. Thanks again David. You have confirmed my understanding of LPP.

We always read out a prepared statement that we are giving legal advice (re taxation and statutory obligations), and that they should make a full and complete disclosure of all irregularities to HMRC. If they don't wish to we do not act and report.

With regard to Liberty at stake's comment the harm it can do is that you are breaching the client's confidentiality (they are making a disclosure to you under privelged circumstances). Imagine HMRC launch a criminal prosecution against your client based on information in your report prior to you obtaining Code of Practice 9. The damages due from you to your client could be astronomical!

davidwinch's picture

Reporting a client who does not accept your advice

davidwinch | | Permalink

I may have misunderstood you, but I think you are saying that if a client approaches you to act, makes a 'confession' (if I may use that shorthand), then decides to keep quiet about what he has done (against your advice), then your normal practice is to report him to SOCA.

My view is that you should not report to SOCA in these circumstances unless the crime / fraud exception arises (in other words unless he was intending to pick your brains to further a criminal purpose such as evading more tax in future or taking steps to better conceal his past evasion).

If he simply thinks, 'Gosh that would cost a lot in tax, interest and penalties so I will simply do nothing and let sleeping dogs lie (and keep my fingers crossed)' then I think you should simply close your file and 'forget' you ever saw him (apart perhaps from billing him for the advice he has decided not to accept).

I think if you report to SOCA in such circumstances you are breaching your duty to the client because legal privilege applies.

Having said that, the legal point is not entirely free from doubt as to whether (i) you MUST not report it to SOCA (which I understand to be the ICAEW view), or (ii) you NEED not report to SOCA (which I understand is the ICAS view). Scottish law is, as you will be aware, different from English law in many respects. If you are in England I suggest you should adopt the ICAEW view.

David Winch

P.S. My difficulty is that you say "If they don't wish to we do not act and report". Do you mean: "If they don't wish to we do not act and [we do not] report" or "If they don't wish to we do not act and [we do] report"?

carnmores's picture

fascinating David

carnmores | | Permalink

always enjoy your contributions

davidwinch's picture

The purpose of legal privilege

davidwinch | | Permalink

Just to clarify, the purpose of legal privilege is to allow and encourage individuals to get competent professional legal advice where they are worried about something.

So it must be the case that a person who approaches a suitably qualified person for legal advice in relation to a 'confession' has to be sure that the adviser will not (without his permission) disclose anything which he says to the authorities.

If the individual were put in a position where his confession would be passed on to the authorities whether or not he agreed to that, then he would not 'confess' to the professional adviser in the first place. If that were the position then 'legal privilege' would effectively be a worthless charade!

Imagine this situation. Last week you (foolishly, or worse) drove to a pub and had a few drinks before driving home. On the drive home you heard / felt a bump but thought you had hit a pothole. You now read in your local newspaper of a body found in the road that evening - someone had apparently been run over. You are worried that you may have been involved in a fatal hit-and-run without realising it. What should you do? What offence may you have committed and what punishment might you face?

It would be sensible to talk this over with your solicitor. Would you do that if you knew that the solicitor would inevitably inform the police of what you told him? No way!

But because of legal privilege you can safely get legal advice - and your solicitor will keep your 'confession' confidential whatever you decide to do (or refrain from doing) after you have spoken to him.

It's the same for accountants in relation to money laundering 'confessions'.

Does that help?

David Winch

Great Help

Anonymous | | Permalink

It does help.

Generally, if they do not take our advice we suspect that they carry on in their old bad habits (ie. irregularities continue) and therefore we have taken the view that the crime/fraud exception applies and report.

Once again many thanks for all your excellent contributions.

tysonn's picture

LPP and privilaged circumstances

tysonn | | Permalink

Just to add further to the confusion - The Law Society draws a distinction between Legal Professional Privilege (LPP) which is a common law principle , and the provisons of POCA relating to 'privilaged circumstances'. The Law Society implies that LPP can only apply to advice provided by a professional legal adviser which does not include accountants but could include licensed conveyencers (see practice note at http://www.lawsociety.org.uk/productsandservices/practicenotes/aml/458.a...). Obviously the provisions of POCA relating to 'privileged circumstances' would cover accountants but this would not appear to be anything to do with LPP? Have I missed something here?

The Law Society has also issued a practice note to solitiors providing some further examples covering both LPP and privileged circumstances which you may find helpful these can be found at http://www.lawsociety.org.uk/productsandservices/practicenotes/aml/464.a....

Regards
Neil
www.gntfraudsolutions.co.uk
www.linkedin.com/in/ntyson

davidwinch's picture

LPP v 'PoCA privilege'

davidwinch | | Permalink

Neil

The Law Society are correct. There is a longstanding principle of law that a client can consult his solicitor for legal advice or in connection with litigation without the solicitor disclosing to the authorities what his client tells him. That age old principle is not found in any statute - it is the law simply because it has always been recognised to be the law. Such law is called 'common law'. To find out what the 'common law' actually says in detail one has to consult a succession of judgments in hallowed cases down the centuries which have set out and interpreted the principle (or read a good text book!).

LPP is far from being the only example of 'common law'. Closer to home, the offence of 'cheat' or 'cheating the public purse' is another example of 'common law'. There is no statute defining the offence - but you can still go to prison for it! (By way of a digression - in Scottish law, unlike English law, there is no statutory offence of theft or fraud, but theft and fraud are nonetheless offences in Scotland.)

Legal Professional Privilege is a common law principle and it applies to lawyers, but not to accountants.

When the Proceeds of Crime Act 2002 was passed it included in s330 an exemption from reporting information received in 'privileged circumstances'. In enacting this statutory exemption Parliament mimicked the key points of common law legal professional privilege, but did not delve into the nuances. So this exemption, sometimes referred to as 'PoCA privilege', is similar to (but not exactly the same as) LPP in many ways.

However PoCA privilege also applies to (some) accountants (section 330 has been amended to make this absolutely clear).

The legislation created some excitement amongst lawyers. Some did not feel that anything like LPP should be extended to non-lawyers. Others were concerned as to the effect of the new statute. Did the existence of PoCA privilege in relation to s330 mean that common law LPP was excluded from applying to s330? What about sections 327 - 329 to which the PoCA privilege of s330 does not extend? Does that mean that LPP does extend to ss 327 - 329 or that it does not?

The position was resolved in subsequent court cases which held that PoCA privilege applies in addition to common law LPP and not instead of it. So LPP covers s330 and ss 327 - 329 (for lawyers).

So a lawyer has to consider (i) am I exempt from reporting under common law Legal Professional Privilege and if not (ii) am I exempt from reporting under PoCA privilege?

Many accountants refer to "LPP" when what they really mean is 'PoCA privilege'. An accountant only has to consider whether he is exempt from reporting under PoCA privilege (because common law LPP does not extend to accountants).

So, Neil, when you say "the provisions of POCA relating to 'privileged circumstances' would cover accountants but this would not appear to be anything to do with LPP" you are right that the sources of PoCA privilege and LPP are quite different - but, as I have described, PoCA privilege mimics LPP and the two are similar in effect.

David Winch

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