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Disengaging a new client and report them?

Disengaging a new client and report them?

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I have a new client who is a courier. I met him a couple of weeks ago, seemed slightly shadey perhaps, but handed over all records, asked questions etc all seemed above board. I have prepared his accounts, with less than £2k turnover for 5 months, expenses of a similar value. I had written to ask for a few further records, and when he came in today, I also asked if he had any further income as a final question he hadn't answered from my email. He then replied it was majority cash jobs and he invoiced as little as possible, he tries to run the business as a loss so they can claim tax credits. He doesn't bank any cash at all so there was no trail of bankings. 

I am already looking to disengage this new client, but my question is do I need to tell anyone? I don't think it is laundering, but it is benefit fraud and do I have an obligation to report this? The other question is if I do, will he know it came from me as i have disengaged following this information and he now has tax/benefit/etc on his door asking questions? I work from home so now he knows where I live.  I have never had a client of this nature before, so I have no idea what I need to do next apart from not work for him anymore. Any help or support on this would be gratefully welcomed!

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By mrme89
27th Jun 2014 17:22

Have you tried asking him to declare the cash jobs yet?

 

If you explain the potential consequences of his actions, he might reluctantly agree to declare the income.

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Replying to neiltonks:
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By lizp
27th Jun 2014 17:28

Possibly but I very much doubt it...

No I didn't, I wasn't sure what to say! Perhaps thats the first port of call, although I am very reluctant now to do any work for him.

The accounts took a couple of hours but I will write that off as experience as I can't do anything with them when they miss almost all his income. 

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By andy.partridge
27th Jun 2014 17:52

What?

You say 'he tries to run the business as a loss'.

You also say that most of his jobs are 'cash' which he doesn't invoice, he doesn't bank the cash and there is no record of cash receipts.

Why do you not think this is fraudulent activity and how does it allow you to turn a blind eye?

I agree with mrme89, but if your client doesn't agree I don't see how you can simply walk away and pretend it was all a bad dream.

Sadly, we all come across these characters from time to time. It is part and parcel of running your own professional business.   

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By John R
27th Jun 2014 18:20

No proceeds of crime yet

Is this the first accounting period? If so, the income tax has not yet been "saved" so there are no proceeds of crime there (yet). If the client is indeed claiming tax credits he should have given HMRC an estimate of his profit/loss for the first year and if the estimate was given in good faith, it is only the final details that will create an overpayment of tax credits and as you are still working on the accounts, surely, there cannot have been any loss arising as a result of a crime. so no ML report should be made.

I would advise the client that if I am to act for him then he must provide details of the additional income and that I must include it in his accounts. I would advise him that these days no professional accountant would be able to act for him unless he made an honest disclosure of all income. I would emphasise that tax credits will not necessarily be lost even if there was a profit (but this depends on other income of self and spouse). I would also tell him that there are plenty of legal ways that I can help him keep his tax down to a minimum. I would also recount a couple of stories about clients I have come across in the past who ended up paying huge back taxes and penalties and suffered long investigations by HMRC. If he or you decide that the engagement must come to an end, then you will never know if he has received the proceeds of crime as he may well disclose the correct figures without your knowledge.

If this is not the first accounting period so that he has already benefited from previous criminal proceeds then I would agree that you have no option but make a report.

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By Moonbeam
27th Jun 2014 19:43

And in future...

Just don't take on people you think aren't kosher. This is the sort of situation that is likely to arise with these people and life's too short and your time too precious.

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David Winch
By David Winch
28th Jun 2014 10:42

Definition of "money laundering"

lizp

I think you may need a bit of a refresher on the technical meaning of "money laundering" in the context of reporting. Remember that "money laundering" as defined by s340 Proceeds of Crime Act 2002 is widely defined - it need not involve either "money" or "laundering", mere physical possession of a stolen item will be a "money laundering" offence if the necessary mental element (that the offender knows or suspects the item to be, or represent, a benefit of criminal conduct) is present.

So your comment "I don't think it is laundering, but it is benefit fraud" makes no sense (except in the unusual circumstances of a fraudulent act done "with a view to obtaining" a benefit which has not yet been obtained).

If there is benefit fraud then the fraudster will be committing a criminal offence from which (usually) a benefit is being obtained. (The offence itself might be under s111A or s112 Social Security Administration Act 1992 (as amended) or s1 & 2 Fraud Act 2006 or s24A Theft Act 1968 or s35 Tax Credits Act 2002 (as amended) or some other legislation, or even under common-law, but it doesn't matter what the offence is.)

The benefit obtained is then a benefit of criminal conduct.

Most likely that is received as a credit to a bank account held by the client. If the client then draws cash from that account that will be a money laundering offence under s327 POCA 2002 (converting criminal property), using the money in the account to pay a bill (for example paying with a debit card on the account) will also be a money laundering offence under s327 (transferring criminal property), purchasing anything using money from the account will be a money laundering offence under s329 (using criminal property).

So it is virtually impossible for the client to obtain money from a benefit fraud and not then to go on to commit a "money laundering" offence.

You are required to report your suspicion of the "money laundering". You are, technically speaking, not required to report benefit fraud. However in your "money laundering" report you need to explain the basis of your suspicion of money laundering - which is that you also suspect benefit fraud. OK?

(The same logic applies in other circumstances, for example tax evasion. The tax evasion, technically speaking, is not reportable - but the consequent "money laundering" is.)

Now the question is, has your client yet committed a criminal offence (benefit fraud) from which a benefit has been obtained? You may conclude that no offence has yet been committed, or that an offence has been committed but no benefit has yet been obtained from it - you know the facts, I do not.

If you conclude that no offence has yet been committed, or no benefit has yet been obtained, then you have no suspicion of money laundering to report.

If you do make a report then ordinarily the (ex) client should not get to know that there has been a report (or that you have made the report). However the client might guess this. There are some, relatively rare, circumstances in which the (ex) client might get to know the content of your report (see references to the Hillgrove case here on AWEB).

If you fear that you may be in physical danger if you make a report & the (ex) client finds out then that might provide you with a "reasonable excuse" not to make a report, see s330 POCA 2002, but that is rare. An alternative would be to advise the NCA that the suspect is a danger to you when making a report.

I hope that helps.

David

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By The VAT Doctor
29th Jun 2014 07:15

Brazen

It's the completely brazen attitude that's surprising.  He seems to think you are his mate down the pub not a professional.  Ditch him fast and do a MLR.

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By HUGH W DUNLOP
01st Jul 2014 12:29

BRAZEN

I have a similar problem, but fear reprisals, My ex client has informed me that he has given up work, sold his van, and informed HMRC of this. He is still working, has his van and is contracted as emergency plumber to a large estate agent.

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By [email protected]
01st Jul 2014 12:33

I think its a blatant fraud and this is money laundering as well as he is not paying taxes on cash income.

I would report this client under Money Laundering and then wash my hands with simple termination letter.

 

This is benefit fraud, Money laundering it does not counts if sums are not huge but fundamentally and principally this client is the biggest cheater of the system and as an accountant I will stay miles from him as simple as that.

 

Sumit

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By PMilton
01st Jul 2014 12:33

Money laundering

It's actually quite simple.

You have an obligation under the rules to report such behaviour.  You do not alert the individual to the report.

You are not responsible for what action the authorities take or not. (I have made reports in the past and then sense that 'they' do nothing about the reports anyway but I've done my job!).

However, you then advise the client that all income must be declared and therefore he is still within his tax periods, etc.

Indeed, a 'good accountant' may well be able to create an initial set of accounts which shows little in the way of profit anyway after expenses ordinarily incurred in establishing a business, the assets injected, etc, etc so there may be no problem 'legitimately'.

He should still 'declare' what he is doing to the Taxman and the Benefits Agency but he may find that certain benefits are not affected immediately by his income anyway.

All that said, do you want a client who is prepared to be dishonest with you and thus implicating you in his fraud as your name will appear on his accounts as a 'washing' exercise?

 

 

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By Moonbeam
01st Jul 2014 12:42

If only it were so straightforward

I worked for a violent client before the money laundering rules came in and it was a frightening experience that I wouldn't wish on anyone else. SOCA or whatever the new regulators call themselves have occasionally given the miscreant details of who reported them. Maybe it will never happen again.

It will still be pretty obvious who did the reporting.

That's why I take a good look at all prospective clients before signing them up now I can't run so fast.

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By John R
01st Jul 2014 13:37

Amazing the number of respondents that would make a report when as far as I can tell from the OP, no proceeds of crime have (yet) arisen!

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By birdman
01st Jul 2014 14:57

If you make a point of discussing how HMRC discover unrecorded cash income if not banked (lifestyle questions, no weekly grocery shops by debit/credit card but no cash drawn from bank, unexplained jumps in loyalty card points etc) you might find that reluctance to declare is reduced. If not, dump the client and make an MLR if appropriate (unless you've seen an incorrect Tax Credit declaration I suspect you have no reportable knowledge yet - see David Winch's post for clarification).

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By The Black Knight
01st Jul 2014 16:18

Fraud

Benefit / child tax credit fraud and tax evasion is money laundering!

Unfortunately this is commonly what is referred to as a good accountant if they can facilitate this.

The sad thing is the client is so thick that he doesn't realise that the authorities don't care and he doesn't need an accountant to fill in a dodgy tax return.

If in doubt report! They don't do anything with the reports anyway.

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By Carolynne
01st Jul 2014 18:11

Dodgy client

I visited a client recently, and although this is no help to your current situation. I hope you don't mind me mentioning, that I ask specific types of questions when visiting the prospective new client.  A recent case was a sandwich shop whereby the man told me that he has no business bank account as everything that comes in goes out.  He owed money left right and centre and needs to get a handle on his business to see if he is actually making a profit or sinking.  He also mentioned that he hadn't taken a wage, and owed council tax and water rates bills at home.  I  said I would go away and have a think and be in touch soon.  I thought about it over the week-end, and wrote a letter, listing out my fees and also explained how I would require a retainer before I started his years worth of work for him.  The fees were way over the odds, so without saying no, I actually ensured he didn't choose me.  He knows where I live, because I work from home and it is on my letterhead.  However, I played it so he didn't choose me.  I also find that if I take on a client I don't like after a while.  You know the ones who always keep ringing you asking questions and telling you how they think you should be doing things.  But the fee doesn't cover all the extra work they keep asking for.  I just do the work slower and slower (without missing official deadlines though), and don't call back too soon when they phone me.  It takes about a year, but they soon move on to someone else without me having to cause any disgruntlement.

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By ShirleyM
01st Jul 2014 19:09

I end up being blunt ... in typical Yorkshire fashion

I try to be diplomatic and persuade them to be honest, and if that fails I just tell them the truth, that they are tax evaders and if they want to break the law then that is their choice, but I won't help them as it could damage my livelihood.

If they go tattling to their mates that I won't fiddle their tax, then they are doing me a big favour.

If they spread gossip to all and sundry that I am too expensive, too slow, too unhelpful, then that may cause loss of business from any decent folk they speak to.

The above is on the assumption that they are honest when chatting .... but I am fairly sure they will all recommend a dodgy accountant (when they find one) to their dodgier mates.

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