Treasury proposals for changes for the UK's Regime

I have just attended the 8th annual conference of IMLPO where two of the key speakers, Edward Garnier QC MP, Solicitor General and Hugh Burns, Head of Financial Crime Team HM Treasury, gave interesting updates to both the international and UK regimes and a time table for new changes.

Firstly, the FATF 4th round of evaluation, which proposes various changes including to the way we approach PEP’s and beneficial owners, reinforcing the risk based approach and importantly, including tax evasion, of both direct and indirect taxation as predicate reportable offences of the money laundering regime. These changes will be formally approved at the February 2012 Plenary.

It is expected the EEC will have the 4th European directive passed by the end of 2012 to reflect those changes, prompting the UK to adopt the 2013 or 2014 Money Laundering Regulations. 

Further to these changes HM Treasury will shortly issue there proposals for changes to the UK’s own regime following their ‘call for evidence’ and other reviews of the regime. These proposals will be made available for review and consultation by all interested parties and on finalisation will be included with the implementation of the 4th directive. 

The proposed changes will include amendments such as including into the regime businesses that offer high value services for cash and a tightening up of how to demonstrate compliance to a supervisor through formal policies and procedures, amongst other adjustments to the regime. 

Also included will be the two proposals made by the Chancellor in his budget speech which caused a bit of a debate. Firstly, it will be the Governments intent to remove criminality from the Regulations aimed at the private sector. This approach was confirmed by the Attorney General and further expanded to aspects of PoCA, namely sections 330 to 332, for the failure to report SAR’s, he stated it would not generally be in the public’s interest to take criminal action against the private sector reporters, but instead law enforcement would make a referral to the relevant supervisor for them to deal with or commence civil proceedings for the breach. We have seen this in action already withe the ICAEW test case fining a member for this offence. S336 concerning consent, is also an area on concern which will see an overhaul making life easier for the reporter. 

Lastly, the one that got everybody excited, is there going to be an exemption to the Regime for smaller businesses? Yes, they want to propose a £15,000 annual turnover exemption from the requirements of the regulations.  This will help many in the accountancy sector who are caught by the regime, such as part time bookkeepers, semi-retired practitioners and those staff members who do a bit extra on weekends and evenings in their own name.  This will also allow new business to get started, before firstly having to the implement ML Regulations.

I would suggest that the accountancy sector more than any other would benefit from this piece of deregulation.

Steve O’Neill FICA Dip.AML
Business Tax Centre Limited
 

Comments
davidwinch's picture

Thanks, Steve

davidwinch | | Permalink

Steve

Thanks, that's very interesting.

David

Some good news, perhaps, at last!

Stephen Morris | | Permalink

 Thanks Steve. Most helpful. perhaps some of the disproportionality, hysteria, and paranoid presumptions will be eliminated if these proposals are implemented. 

cymraeg_draig's picture

Too little

cymraeg_draig | | Permalink

"Lastly, the one that got everybody excited, is there going to be an exemption to the Regime for smaller businesses? Yes, they want to propose a £15,000 annual turnover exemption from the requirements of the regulations."
 

 

Whilst obviously a step in the right direction, it's too small a step.  It would be more reasonable if they put an extra "0" on the end.  Effectively I believe that the sole practitioner should be taken right out of the regime.

The cost of adhering to the regulations for the small practice is grossly disproportionate to the amounts recovered. Indeed that argument is true for any size of practice. I may be old fashioned but we act for those who pay us, the clients, and I don't recall the government paying us to act as financial police, tax collectors, or snitches. How perverse that the police "pay" known criminals for information, yet law abiding professionals are threatened with sanctions if they dont supply information for free.

 

davidwinch's picture

The greatest risks

davidwinch | | Permalink

I have long considered that the greatest risks to accountants (in connection with money laundering) occur when they handle clients' funds, either as accountants or insolvency practitioners.  That will remain the case.

The problem with handling client funds of course is that you may then be accused not just of a failure to report a suspicion of money laundering by your client or a third party, but of engaging in money laundering yourself.  Even under these proposals that would be a serious criminal offence.

But having a failure to report as a disciplinary matter to be dealt with by a professional body would be a welcome change in the law in my view.

David

davidwinch's picture

Getting ahead of myself

davidwinch | | Permalink

Looking again at what Steve wrote I have rather got ahead of myself!

What is being said, on reflection, is that where an accountant (or solicitor or bank or whatever) fails to make a Suspicious Activity Report due to negligence, or ignorance, or it simply not having occurred to him that a report might be required, then it would be better for that failure to be dealt with by his supervisory body (including, if appropriate, a civil penalty) than by prosecution through the courts.

But it is not being suggested that the legislation in PoCA 2002 ss330 - 332 be amended so that the failure ceases to be criminal. 

So the suggestion is that if, say, the police come across such failure (and do not regard it as indicative of some more serious and deliberate criminality, such as knowing assistance to a client in the planned laundering of proceeds of crime) then they will simply refer the matter to the supervisory body for further investigation and civil action.

In practice where I have seen accountants / solicitors etc prosecuted for failure to report it has been in circumstances in which the police have been of the opinion that the accountant / solicitor was 'up to his neck' in the client's criminality - but this could not be proved.  So the police have adopted a 'fall-back' position of prosecuting for a lesser offence (the failure to report).  It seems to me that the police may continue to do that.

David

Great?

mgh | | Permalink

The proposed changes will include amendments such as including into the regime businesses that offer high value services for cash and a tightening up of how to demonstrate compliance to a supervisor through formal policies and procedures, amongst other adjustments to the regime. 

So we could find these "adjustments" will result in more time and paperwork, while the headlined items will be just that - headlines rather than much actual change (other than the exemption for very small businesses)?

part time accountants and bookkeepers exemption

The Black Knight | | Permalink

Are these the same Agents that HMRC are concerned about, as in, not registering as agents, not paying their tax either, and giving advice which causes the loss of tax ?

Not very joined up this thinking ?

steveoneill's picture

Using the Risk BAsed Approach

steveoneill | | Permalink

 

A couple of further points have been raised, which I will try to answer, the MLR’s only classify payments of cash for products, not services and that does cause concern. There are already a number of universities; for example, who file SAR’s concerning the payment of tuition and other fees.  Cash generated from a UK business to pay the fees of an overseas student, as an example. These types of entities file more SAR’s than estate agents despite not being in the Regulated Sector. The other more common one would be private health care and of course most local authorities already have SAR’s teams for the services and benefits they provide.  This widening of the scope is in response to FATF and international pressure as the methods of the money launderer are more widely understood. So the simple way of looking at this is that if you are prepared to accept more than 15,000 euro in cash for goods or services you will be bought into the regime.When I was involved in the call for evidence with a HMRC supervisory forum, one of the concerns was that the MLR’s do not actually state in what format your policies and procedures must take. So a HMRC supervisor would ask to see them and they quite often got told ‘in my head’. When you have a sole trader who has no staff or low risk staff it is hard to enforce supervision in those circumstances.  Supervisors work like us, on a risk based approach, so being able to see your specific policies and procedures unique to your firm, helps demonstrate your compliance, and these have very often been asked to be emailed in advance so the supervisor could decide if any visit was even necessary. Most of the consulting works I now do centres around getting them right for firms.Jurisdictions also adopt a risk based approach and UK PLC has assessed the risk from those turning over less than £15,000 to be disproportionate to the cost and benefit of compulsory supervision from those small businesses. The cost of compliance is disproportionately higher the smaller the firmTwo words of caution, I would expect the standard of compliance to be enforced at a higher standard than present, since those small entities are removed from the equation and the cost of supervision in the accountancy sector to rise because there are less firms contributing to the costs, of the 90,000 potentially identified accountancy sector businesses I would expect a decrease of around 40,000. You have 15 separate supervisory bodies each with central costs for supervision which must be maintained to keep the standards necessary for supervision.Steve O’Neill FICA (Dip.AML)Business Tax Centre Ltd

costs

The Black Knight | | Permalink

Is this just an acknowlegment that our supervisory bodies should have always have been responsible not the plod, or is it just that the police cannot afford to police the system so will move the cost to our membership subscriptions.

What will happen to the HMRC registered agents (those that do not have a supervisory body), do they have rules a discipline process and fines ?

 

 

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