Money laundering reports re offshore disclosures

Money laundering reports re offshore disclosures

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My client is a wealthy businessman and until yesterday I had no reason to believe that he was dishonest. However, following a circular to all clients, he has written to me to advise that he would like to disclose some undeclared offshore bank interest. He telephoned me this morning and said that it was only after the recent publicity given to the "amnesty" that he realised that he should have given me details of the interest (which covers the last three tax years) - he has stated that he previously thought such interest was not taxable.

I now need to consider whether a SOCA report is required. I understand that I would need to be completely satisfied that this was an innocent error if I am not to make a report. I am actually in two minds. The tax unpaid is about £3,000 over the three years, which really is quite small in relation to his entire wealth (probably £3m) so he could certainly have afforded to pay the tax. The lodgements in the accounts came from taxed income and sale of a private residence. In view of his experience in business I feel that surely he must have realised that there was a need to disclose.

How would others deal with this?
John Anon

Replies (6)

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Richard Murphy
By Richard Murphy
25th May 2007 08:28

Maybe not SOCA - but HMRC definitely
I agree with David

But he'd be mad not to delcare to HMRC now

Richard Murphy

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By pauljohnston
30th May 2007 07:52

Roger rabbits comments
I feel that Roger is being particularly hard on you. I too have very wealthy clients whom I ask the questions of each year just as suggested by R Rabbit.

The real problem is that often the affiars are very complex and the client just does not realise that the question 'have you any other sources of income' means 'have you any others ources of income that should be declared to the Inland Revenue'. We have Isa PEPs Tessas and National Savings Certificates that do not have to be declared and many many tax payers still believe that tax is not payable on overseas income.

i am not sure of the reasoning why a SOCA report should not be made especially as you are asked to state on such a report whether the 'tax evasion' is being reported to the Revenue..

Finally I would suggest that a further review with your client is done now to make sure you are aware of all his assets and income.

Good Luck

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By User deleted
25th May 2007 09:24

I agree
with the comments below, but there is more to this. I am assuming that he is your tax client and you assist him in his compliance?

If so, presumably you

1. As standard good procedure confirmed with him that there was no undeclared income when submitting his tax return, confirmed that all his bank accounts etc were disclosed to you? If you did not your procedures are defective.
2. Again as standard good procedure track his money flows, so you could see money received from the business and on the property sale disappearing from the known accounts in the UK?
3. Otherwise do overview analysis on his position, and ask intelligent pertinent questions about his affairs and don't just do bookkeeping on the figures he presents to you?

There is more to client care and tax analysis/compliance than simply totting up till rolls and reconciling the main bank account. Clients, and your own professional standards should deserve and require better than that.

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David Winch
By David Winch
24th May 2007 15:05

I would not report this to SOCA

John

I would not report this to SOCA because:

(i) I would be inclined to accept this as an innocent error, based upon the information you give in your query (I do not think that your client's "experience in business" implies that he should understand the pecularities of UK taxation of offshore income), and

(ii) (if you are regulated by ICAEW or a similar body) I would consider that the information was obtained from a client seeking legal advice and was 'privileged' under Section 330 PoCA 2002 as amended by The Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2006.

David
www.MLROsupport.co.uk

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David Winch
By David Winch
30th May 2007 10:25

Response to Paul

Paul

You said you were not sure why no report to SOCA was required. Please note my original posting includes links to the relevant legislation.

There are basically two reasons why I believe a report should not be made in this case.

The first is that I do not believe there has been tax evasion here - based on the information in the question. Certainly the client has not correctly declared his taxable income and has underpaid tax as a result. However in order to be tax evasion the under-declaration must be dishonest. That means that the client must have deliberately under-declared his income in a way which he realised was unacceptable by the standards of ordinary and decent people.

I think this client's failure was accidental, in which case it is negligent rather than dishonest. If the client did not himself realise that he was doing something wrong then it cannot be tax evasion. It still attracts a civil penalty from HMR&C but does not amount to tax evasion.

If it is not tax evasion it is not reportable to SOCA as no crime has been committed.

The second reason related to legal 'privilege'. For more details on that follow the links in the earlier posting.

David
www.MLROsupport.co.uk

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By User deleted
30th May 2007 11:51

Thanks for the useful comments. I confirm that we have acted for this client for many years. We routinely ask clients to "let us have details of all sources of income and gains" at the time we issue their annual data questionnaire. We also state that "certain sources of income are not taxable such as Tessas, ISAs, PEPs and premium bond wins" and go on to say "if you are in any doubt about whether a particular source is taxable, please provide full details".

When the tax return is issued for signature we emphasise the need for the client to confirm that the return includes "all income and gains" and again ask the client to contact us if they have any doubts.

I feel that the above should be sufficient but have nonetheless recently changed the wording on the standard tax return letter to include "whether from UK or overseas sources".

I am, of course, undertaking a full review of the client's affairs, before finalising the disclosure.

I would be interested to know how many accountants review all their clients' building society passbooks, private account statements on-line account printouts etc. where the client has provided the interest statements or interest figures. We tend to do this in the case of most small business clients and certain other clients who we judge may be unreliable, but we certainly would not do this for all clients. Our engagement letter states that we do not undertake any form of audit or third party checks (except where we deem them necessary) and many of our clients would not be prepared to pay for our time spent on this.

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