Why bother with AML Compliance?

I'd like your thoughts for a webinar on Wednesday

Didn't find your answer?

On Wednesday 6 December I'm joining a webinar with the title "The 'Why' behind AML Compliance". Also on the panel will be Dr Nicholas Gilmour author of 'The War on Dirty Money'. The webinar is hosted by Firmcheck.

There will most certainly be Q+A. I'm expecting it to be lively!

If you can't make it on Wednesday - it's at 09:30 - what would you want to say about "The 'Why' behind AML Compliance"?

If you can make it, it's free and the registration link is

https://app.livestorm.co/firmcheck/the-why-behind-aml-compliance?s=309b2...

David

Replies (55)

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By Tax Dragon
02nd Dec 2023 13:20

Why?

To stop the 1%.

Why do I have to queue up for hours at airports, have to wrap up, pack or hand over my drinking bottle, take off my shoes, have my handbag scanned/emptied, get frisked if a machine beeps at me, etc? Complete waste of everyone's time - I'm no threat to anyone.

But I'm glad to go through the rigmarole every time.

Why?

To stop the 1%.

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Replying to Tax Dragon:
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By paul.benny
02nd Dec 2023 16:45

Not sure I'm glad about the faff, but agree wholly with the sentiment.

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Replying to Tax Dragon:
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By Justin Bryant
03rd Dec 2023 12:29

I would be amazed if 1% of people are money launderers of one kind or another (o.1% possibly). Regardless, the fact is that Bitcoin etc. allows easy peasy money laundering, and all the AML box ticking in the world ain't going to stop a determined money launderer anyway (who can fabricate pretty much anything on a computer). It just adds to unproductivity. I'm sure these people would agree with me. https://www.productivity.ac.uk/news/independent-growth-and-productivity-...

What we need is for the banks to do more. They should spend more on AML AI technology etc. (and spend less time harassing the likes of NF for woke reasons), as that's where all the (dirty) money is after all.

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Replying to Justin Bryant:
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By Tax Dragon
03rd Dec 2023 13:28

It would be interesting to know what percentage of Aweb accountants would actually spot whether a client was engaged in serious money-laundering. (If the AML tests don't help with that, then are they the right tests? See zebaa's comment on that point.)

But, in support of the 1% figure, have you noticed the proportion of threads in which it is suggested that an accountant should disengage?

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Replying to Tax Dragon:
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By Justin Bryant
04th Dec 2023 09:23

That's not great evidence is it of your 1% estimate (it justifies my lower 0.1% figure more - think of the client total of Aweb posters), whereas dodgy Bitcoin etc. dealings are evidenced multiple times a day (in big amounts for serious crimes). See today here for example:
https://metro.co.uk/2023/12/03/hackers-threaten-release-royal-familys-pr...

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Replying to Justin Bryant:
Danny Kent
By Viciuno
04th Dec 2023 10:02

Is tax evasion not money laundering?

If so, then I'd bet an arm and a leg it is significantly higher than than.

Most tradespeople I know who are employees do cash in hand jobs - "homers" as they are known here. Obviously we make it clear to clients that this isn't acceptable, and all income is reportable but who is telling their staff that. Especially when they are higher rate earners making a killing on the side. I know a doctor (not client) who makes 6-800 Euros a weekend doing locom work as a pharmacist. Doesn't pay any tax on it.

Loads of folk on Air bnb not reporting income, even people with rental properties not reporting income.

Gig economy is rife.

0.1% wouldn't touch the sides.

If we are talking about money laundering the proceeds of crime though, then yes I'd completely agree. But then again, I'm probably not in the right circles!

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Replying to Viciuno:
David Winch
By David Winch
04th Dec 2023 10:58

Viciuno wrote:

Is tax evasion not money laundering?

Yes (at risk of stating the obvious), a deliberate dishonest failure to declare taxable income which results in a 'saving' in tax does necessarily involve a 'money laundering' offence.
David

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Replying to davidwinch:
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By NotAnAccountant2
04th Dec 2023 11:21

davidwinch wrote:

Viciuno wrote:

Is tax evasion not money laundering?

Yes (at risk of stating the obvious), a deliberate dishonest failure to declare taxable income which results in a 'saving' in tax does necessarily involve a 'money laundering' offence.
David

That's another abuse of "wording" by HMG, like "illegal tax avoidance".

Every ML training I've had to do over the years has talked about "placing" "layering" and "integration" as the three stages of money laundering.

Indeed, one of the things that the training often emphasises does *NOT* indicate good intent is that tax will be paid on the money. Many launderers are more than willing to pay 40%+ in tax to get clean funds.

99% of the time, money owned due to not paying tax will be clean and not need to be laundered at all. I guess it can be confiscated under the proceeds of crime act - which is where I guess the link to money laundering may happen.

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Replying to NotAnAccountant2:
David Winch
By David Winch
04th Dec 2023 11:31

In the UK the definition of 'money laundering' is very widely drawn (in s340 Proceeds of Crime Act 2002 if you want to look it up!).
So 'money laundering' need not involve either 'money' or 'laundering'. If I steal a pair of jeans from M&S I will necessarily commit a 'money laundering' offence (because as I run out of the shop with the jeans I am in possession of 'criminal property').
You are referring to traditional laundering of money - which typically involves "placing" "layering" and "integration". But in UK law 'money laundering' involves any handling of money or assets derived from any crime (including the dishonest evasion of a liability) so it is much wider than traditional money laundering.
David

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Replying to Viciuno:
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By Justin Bryant
04th Dec 2023 11:09

Well, if you spin it that way, possibly 99% of people are tax evaders re paying traders cash in hand etc. with a 20% discount etc., but that's outside AML laws as far as I'm aware. Also, the AirBnB etc. types you describe don't even declare that income, let alone have an agent. So you're comparing apples with pears here.

Whereas look here how rubbish countries are at policing crypto assets. A 2027 reporting deadline and I bet Russia etc. is not a signatory!
https://www.gov.uk/government/publications/international-joint-statement...

I'd love to know how popular this is: https://www.icaew.com/insights/tax-news/2023/dec-2023/disclosing-histori...

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Replying to Justin Bryant:
David Winch
By David Winch
04th Dec 2023 11:35

Justin Bryant wrote:

Well, if you spin it that way, possibly 99% of people are tax evaders re paying traders cash in hand etc. with a 20% discount etc., but that's outside AML laws as far as I'm aware.


Technically, no. A person dishonestly paying a reduced price as part of a conspiracy to evade tax is committing a money laundering offence (unless they report themselves to the NCA for doing it).
But, real world .....
David
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Replying to davidwinch:
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By Justin Bryant
04th Dec 2023 12:02

Noted, but I meant it's outside what TD was getting at i.e. our clients - who by definition are far less likely to be tax evaders (than the dodgy AirBNB and Crypto etc. public at large) was my point.

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Replying to Justin Bryant:
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By Tax Dragon
04th Dec 2023 12:56

Where's this definition?

Word on the street is having Justin Bryant as your advisor is proof of legitimacy, and many a Bad Person wants to sign up as his client because of it.

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Replying to Tax Dragon:
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By Justin Bryant
04th Dec 2023 13:16

Eh? If you want to evade income tax/CGT, why bother with an SA100 (let alone a tax agent) in the 1st place is my obvious point. I thought it was only RM who disagreed with that logic. See: https://www.accountingweb.co.uk/tax/hmrc-policy/tax-evasion-is-rife-acco...

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Replying to Justin Bryant:
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By Tax Dragon
04th Dec 2023 16:05

Justin Bryant wrote:

Eh? If you want to evade income tax/CGT, why bother with an SA100 (let alone a tax agent) in the 1st place is my obvious point.

For respectability. Some folk are willing to vouch for all their clients, as regards honesty.

Also... our local chip shop was part of a professional money-laundering operation. It used/approached an accountant - presumably for credibility/respectability as noted. The accountant was no fool, submitted a SAR, and chip shop is no more.

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Replying to Tax Dragon:
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By Roland195
04th Dec 2023 16:18

I would have thought chip shops would have made a relatively poor choice for a money laundering front - even HMRC have a lot of specific expertise in this area.

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Replying to Roland195:
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By Tax Dragon
04th Dec 2023 17:00

And so it transpired.

But the point is to maintain a degree of professional scepticism when dealing with clients - Justin has upped his estimate of the dodgy ones from 0.1% to 99% during the course of this chat.

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Replying to Roland195:
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By Yossarian
04th Dec 2023 18:18

Roland195 wrote:

I would have thought chip shops would have made a relatively poor choice for a money laundering front - even HMRC have a lot of specific expertise in this area.

It was the Russian oligarch regularly ordering 45,000 portions of haddock & chips and paying in Bitcoin which finally gave the game away. (Everyone knows that Russians prefer herring.)

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Replying to Yossarian:
paddle steamer
By DJKL
04th Dec 2023 20:14

Especially a red herring.

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Replying to Justin Bryant:
John Toon
By John Toon
04th Dec 2023 12:59

The good thing about Airbnb, crypto exchanges etc are that eventually HMRC catch up with the modern world and get disclosure and data exchange agreements in place. The same happened with eBay etc back in the day, it's just a shame it takes HMRC so long to get there. But I guess, at least, it gives them a great excuse to open up historic investigations.

For anyone with a client using Airbnb to rent out property they'd have received an amnesty letter recently from HMRC.

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By Postingcomments
02nd Dec 2023 13:55

My clients are honest, so I do the minimum needed to tick the boxes. I'm not going to get excited about it or get into endless debates. But, sure, if that's your thing.

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Replying to Postingcomments:
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By Tax Dragon
02nd Dec 2023 20:10

To me, that suggests one of the following:
- you are right but lucky to be so
- you are right because your AML procedures work and the 1% has been kept at bay/sacked
- you are wrong, your AML procedures don't work, but you are unaware of this as you are gullible/easily fooled
- you are wrong and complicit
- you have no more than 99 clients

[For the more statistically aware, feel free to replace 99 in that last line with the maximum number at which the expectation of acting for one of the 1% is less than 0.5]

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Replying to Tax Dragon:
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By Postingcomments
04th Dec 2023 09:34

I have a relatively small number of good quality clients. I know them, their finances and their businesses well, as that is my job. I haven't taken on unreferred/unknown people for a long time. Haven't needed to. That isn't luck. I'm in a different market to a lot of people.

To the extent that any clients are not honest, checking their name and address and ID a second time isn't going to uncover anything.

Looking fwd to my AML update at 12 and listening to the speaker audibly salivate at the prospect of new rules and additional penalties. I'll carry on ticking the boxes, but I'm not going to get passionate or excited about it. It just isn't that relevant to me. Nor is it a moneyspinner, as it is for some.

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Replying to Postingcomments:
David Winch
By David Winch
04th Dec 2023 11:12

Postingcomments wrote:

I have a relatively small number of good quality clients. I know them, their finances and their businesses well, as that is my job ...

To the extent that any clients are not honest, checking their name and address and ID a second time isn't going to uncover anything.


Just to be clear, if you identify clients whom you consider to be high risk from an AML perspective you will then apply 'Enhanced Due Diligence' to those clients. The nature of that EDD will depend upon the nature of the risk. If you are concerned that the client may not be who he claims to be then you will seek additional ID documents or information. If, for example, you are concerned that there may be cash takings not going through the 'books' then you will do additional work on the takings records and consider whether you have received evidence which indicates the client's lifestyle expenditure is inconsistent with his declared income.
As you put it absolutely correctly, "I know them, their finances and their businesses well, as that is my job". That is the essence of CDD.
David
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Replying to davidwinch:
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By Postingcomments
04th Dec 2023 12:13

I really wonder about the people who seem to revel in learning about all this and all the delicious requirements, crimes and penalties. And then writing about it at every opportunity.

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Replying to Postingcomments:
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By Tax Dragon
04th Dec 2023 12:54

One of the reasons for writing about such things is to help people like me avoid committing crimimal offences. So I am grateful to the OP.

You don't have to be grateful. Nor do you need to post about your ingratitude. I wonder why you did.

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Replying to Tax Dragon:
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By Postingcomments
04th Dec 2023 12:58

Going on about the "why" is the pointless bit. I accept that the "how" is necessary.
Enjoy revelling in all that. I'll just stick to the how.

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Replying to Postingcomments:
paddle steamer
By DJKL
04th Dec 2023 13:44

We once had a partnership client, all three partners upstanding citizens, elders of Kirk etc. Turned out they had been on fiddle for years, suppressed retail sales, Saturday jobs using partnership plant etc, material costs through business re their private homes, we thought we knew them, Special Compliance, it turned out, knew them better as they eventually assessed 20 years worth.

The difficulty about your confidence in your clients being upstanding is you only get to see what they give you, it is the unknown unknowns that bite.

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Replying to DJKL:
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By Postingcomments
04th Dec 2023 14:07

So what should I do? I can have another look at all their passport photos, but I'm not sure that will help me to detect whether they are brilliantly concealing a load of dodgy stuff.

I'm not the Fraud Finder General, nor am I required to be.

Not always sure of the point of the war stories some of you lot trot out. I think you enjoy telling them so much that you forget to ask yourself whether it's relevant. You just see a trigger word, then that record in your internal jukebox starts playing. Does that happen post 50?

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Replying to Postingcomments:
paddle steamer
By DJKL
04th Dec 2023 14:23

The point is really simple, you think you know clients but you really do not.(to be clear, You here is everyone)

At least after 50 you maybe have the years in and past experiences to demonstrate this near universal truth, in addition advancing age may also make one slightly more intolerant of rudeness from *****.

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Replying to DJKL:
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By Postingcomments
04th Dec 2023 14:31

Well, the point you're making is beside the point.

It doesn't explain why I would want to spend an hour discussing the whys of AML. Hint: The answer probably includes tewwurwism.

It also doesn't explain how my AML work might prevent it. Yours didn't prevent your case did it? No. Did you go to prison? Also no.

Your little story added nothing.

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Replying to Postingcomments:
paddle steamer
By DJKL
04th Dec 2023 14:41

Mine was before MLR even existed. (1990s)

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Replying to Postingcomments:
David Winch
By David Winch
04th Dec 2023 14:31

Hi, in answer to your question "So what should I do?"
As you said earlier, you know your clients, their finances and their businesses well. I assume that you have turned your mind to the question of whether that knowledge leads you to suspect they are engaged in (or a victim of) any reportable 'money laundering'.
I also assume that if you have concluded that you suspect they are, then you have reported that suspicion. So all good.
Of course it may be that one or more clients have successfully concealed things from you - but there is nothing more you can be expected to do about that.
You also need to ensure that you have in place the documentation which MLR 2017 requires.
That means a Firm-wide Risk Assessment, an AML Policies, Controls and Procedures document, records of AML training undertaken by yourself and relevant staff, records of client ID checks and copies of supporting documents, and records of your AML risk assessments of clients.
Some supervisory bodies will expect you to have DBS basic checks (or Scottish equivalents) on file for your firm's owners, officers and AML managers - and some will expect you to be able to evidence a regular independent review of your AML function (that means either a review by someone senior within your firm who is not the MLRO, or a review by an external reviewer).
So if you can tick all those boxes you should be in good shape when your supervisory body gives your firm an AML review.
David

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Replying to Postingcomments:
By Ruddles
03rd Dec 2023 16:07

Postingcomments wrote:
My clients are honest

How do you know?
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By zebaa
03rd Dec 2023 10:17

It might be useful if a recording could be downloaded for listening later. I suspect 'the why ? ' also poses the question of 'how effective is this ?' And set against the background of the big stick ( do this, or else ) of regulation.

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Replying to zebaa:
David Winch
By David Winch
03rd Dec 2023 10:24

zebaa wrote:

It might be useful if a recording could be downloaded for listening later.


If you register for the webinar you can access the recording afterwards (even if you don't attend the webinar).
David
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By AdamJones82
03rd Dec 2023 13:42

As someone who deals wholly with micro businesses I often ask that question

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By paul.benny
03rd Dec 2023 15:59

I previously worked for a manufacturer of respiratory protection products. Not only did we screen new customers, we also screened end users for some products. One time, the screening threw up a red flag leading to the would-be buyer receiving a visit from the anti-terrorism branch.

Not all Bad People are smart enough not to get caught by basic screening.

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By Calculatorboy
04th Dec 2023 17:49

If accountants reported all clients based on suspicion irrespective of the real quantum and evidence

(ie gossip or a feeling without real sufficient evidence to convict in a criminal court where the bar is extremely high , even after the CPS consider it a done case )

...then most accountants would have few clients left .

MLR is simply the act of a failed government shrugging off its responsibilities onto the private sector and expecting them to pay for it .

In a nutshell its about as effective as the Rwanda scheme has been against illegal immigration .

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Replying to Calculatorboy:
David Winch
By David Winch
04th Dec 2023 18:50

Calculatorboy wrote:

If accountants reported all clients based on suspicion irrespective of the real quantum and evidence

(ie gossip or a feeling without real sufficient evidence to convict in a criminal court where the bar is extremely high , even after the CPS consider it a done case )

...then most accountants would have few clients left .


It might be helpful (or not!) to indicate the view that the criminal courts have taken with regard to the meaning of "suspicion" in the context of money laundering prosecutions.
The courts set the bar rather low.
They say that an "inkling" or "fleeting thought" or a "vague feeling of unease" do not amount to a suspicion.
But they say "the defendant must think that there is a possibility, which is more than fanciful, that the relevant facts exist". They go on to say that "the statute does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts'".
In practice I think accountants would generally think of a suspicion as something which is based on specific facts or information (and not just on gossip).
But a suspicion is something which triggers an investigation - proof, in contrast, is the result of an investigation which was triggered by a suspicion. So if you are thinking, "If someone looked into this they likely would find something wrong" then you certainly have a suspicion and you may be obliged to report that suspicion (for example if the suspicion is based on information which has come to you in the course of your work in the regulated sector).
So if your criterion is that you have "real sufficient evidence to convict in a criminal court" you are setting the bar much higher than the court would.
David
P.S. If you want to look up the court case to which I am referring it is R v Da Silva [2006] EWCA Crim 1654.
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Replying to davidwinch:
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By Tax Dragon
04th Dec 2023 19:48

On the "no clients left" point... is it possible to have grounds for suspicion that clear the low bar required to report as set out in statute (and confirmed/interpreted in the courts) without having to disengage?

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Replying to Tax Dragon:
David Winch
By David Winch
04th Dec 2023 20:04

It does not automatically follow that making a Suspicious Activity Report means losing the client. However you are not going to want to submit returns / accounts to HMRC which you believe to be incorrect and you are not going to want to continue to act for a client whom you believe is lying to you.
So in the majority of cases I would expect you would want to disengage a client about whom you have submitted a SAR.
Obviously you might, for example, submit a SAR where a client has been the victim of a theft / fraud by his employee - I don't see any need to disengage there.
Another example, suppose a client will not declare a one-off capital gain in an earlier year but you believe their returns are otherwise OK. You might submit a SAR but continue to deal with future returns. (But if HMRC pick up the client for enquiry you might have to keep a straight face as he asks you how they found out!)
David

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Replying to Tax Dragon:
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By Roland195
05th Dec 2023 09:08

I suppose that this will come down to the view and perhaps rules of whichever institute provides your overview but I can't quite reconcile the idea that you have enough suspicion of a client to warrant making a report but are still prepared to act for them regardless.

Personally, I also don't see how in anything other than obvious & blatant examples, you could possibly get a fair outcome in someone reviewing your file after the event - of course they will say you should have had grounds for suspicion at that point, like pretty much every cold file review in history,

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Replying to Roland195:
paddle steamer
By DJKL
05th Dec 2023 09:55

Not sure the issue is you drew the correct conclusions, the issue seems to be more having the correct bits of paper/comments on the file- in effect you probably do not need to do the job well but do need to be seen to have done the job well and have the paper trail to confirm what you have done.

I used to waste so much time writing up business notes on a permanent file as part of my client risk assessment process ,it was one significant reason (with MTD) that in 2019 I gave up my part time practice, effectively strangled by compliance. I don't miss it and my evenings and weekends are now mine.

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Replying to DJKL:
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By Roland195
05th Dec 2023 11:08

But other than the obvious ID/KYC requirements, what could you put on a file to document your lack of suspicion - by the act of making a file note, you would be demonstrating that you did in fact have suspicion.

In the example of the chip shop mentioned, say during the course of your work you identified that profit ratios seemed unusual, staff costs seemed low for the turnover etc but then were reassured by explanations offered. In the cold light of day & after the event, that file note is probably going to do you more harm than good (although I have not heard of this happening in real life yet).

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Replying to Roland195:
paddle steamer
By DJKL
05th Dec 2023 11:29

Record things like cash control, how recorded, controls and checks, systems used, risks etc, just like an audit file where you studied processes for weakness when planning your audit. Evaluate risks, document, job done. If it turns out client is fiddling figures you can demonstrate you took reasonable steps to evaluate the risks, which is all you are asked to do.

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Replying to DJKL:
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By Roland195
05th Dec 2023 11:59

But who is going to pay me for effectively conducting an audit on an engagement for preparing accounts?

Not trying to be argumentative as this sounds much the same reason you retired.

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Replying to Roland195:
paddle steamer
By DJKL
05th Dec 2023 16:31

You are not performing an audit but you are partly preparing systems notes f similar to those compiled for an audit.

I did not mind doing this except for time uncharged, when I worked for firms in the 80s/90s we always had a permanent file with this sort of thing within (used to even keep a Co Hse fiche envelope stapled inside), notes on family relationships etc, so I am used to the idea, it was really there so that advice suitable to client might be offered at year end meetings- in effect fact find with an assessment of risk, and frankly how good it is is probably not on point, all that is likely on point is it or similar exists.

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Replying to Roland195:
David Winch
By David Winch
05th Dec 2023 11:37

Roland195 wrote:

But other than the obvious ID/KYC requirements, what could you put on a file to document your lack of suspicion - by the act of making a file note, you would be demonstrating that you did in fact have suspicion.

In the example of the chip shop mentioned, say during the course of your work you identified that profit ratios seemed unusual, staff costs seemed low for the turnover etc but then were reassured by explanations offered. In the cold light of day & after the event, that file note is probably going to do you more harm than good (although I have not heard of this happening in real life yet).


If you ask the client and he says "I have very good / very bad portion control and my family members work for me for free because its the family business" and those explanations seem reasonably credible and you accept them and make a file note (but the explanations later turn out to have been false) I would say you did a reasonable AML job.
I would expect your AML supervisory body to say you identified a risk & took appropriate steps to mitigate that risk. That is what we are supposed to do.
David
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Replying to davidwinch:
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By FactChecker
05th Dec 2023 14:49

Slightly tongue-in-cheek (and probably mostly a reaction to being pushed from pillar to post by our wonderful NHS all day), but ...
... doesn't your example of "a reasonable AML job" actually read more like 'effective protection of one's own posterior' rather than anything likely to contribute to a reduction in money laundering?

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