Let's talk… How to comply with anti-money laundering regulations with Steve O'Neill
STEVE O’NEILL clearly likes to keep busy. The Corporate, Legal and Anti-Money Laundering Compliance Specialist and Managing Director of Business Tax Centre (BTC) is to take centre stage at Lifecycle’s CPD seminars in May.
As MD of BTC - a trusted partner of the Leonard Curtis Business Solutions Group (LCBSG), providers of the Lifecycle network - Steve and his team support accountants in dealing with a wide range of compliance matters.
At the Lifecycle seminars, Steve will deliver to members an update on the latest anti-money laundering legislation before the introduction of the EU 4th Anti-Money Laundering Directive, which must be implemented by 26 June 2017.
Money laundering is an area of economic crime that costs the UK economy more than £24billion a year. Its severity - and the role that accountants must play to help eradicate it - is highlighted by Anthony Harbinson, chairman of the Consultative Committee of Accountancy Bodies (CCAB) anti-money laundering task force.
He said: “For economic criminals to succeed, they must be able to conceal the origins of their ill-gotten gains.” He continued: “Professionally qualified accountants have a key role to play in combating economic crime.”
Unintentionally facilitating money laundering is a risk for every accountant. So in advance of his UK wide seminar programme where he’ll provide an Anti-Money Laundering Update, Lifecycle met with Steve to talk about his upcoming CPD sessions, current AML legislation and changes to it as well as the red flags of dubious bookkeeping or unusual transactions and what to do about them.
Here Steve shares his five top warning signs for accountants to look out for and what to do next.
1. Evasiveness or reluctance to submit information
Secrecy and evasiveness should be key areas of concern for accountants when taking on new clients. This could include reluctance to disclose detailed information or to provide any data or documents usually required to enable the process of a transaction. In many instances this can be for the purpose of tax evasion.
In response to international concerns over evasion of Government taxes across many developed jurisdictions, robbery or theft (i.e. smuggling, including evasion of customs tax) and tax evasion (both direct and indirect) have been added to the reporting requirements of all Financial Action Task Force members and states.
Needless to say, it’s more important than ever that accountants provide the highest standards of client care and due diligence. Those who facilitate tax avoidance - even unwitting professional enablers - will be subjected to tougher financial penalties for ploys that have been defeated in court. In the Spring Budget, the Chancellor announced plans to “enhance the fairness” of the system with new measures that will be introduced in July and are expected to raise £115million by 2022.
The Finance Act 2016 has specific offences in relation to offshore tax evasion. The taxpayer caught by this legislation will be entitled to mitigation of his or her own penalty if he or she provides information about any enabler.
2. Complex, unexplainable group structures
The CCAB warns that criminal schemes are often very sophisticated, with “complicated management structures designed to disguise the true source and ownership of money and other assets even from expert eyes.”
They are frequently made up of “unnecessarily complex group structures” and make “investments in areas with no obvious geographical connection.”
Both could be indications of money laundering, according to the CCAB - “that they are being deliberately set up to confuse and obscure.”
To tackle many of these issues, in April 2016 the register of Persons with Significant Control (PSC) was introduced to improve corporate trust and transparency - making it clear who ultimately owns and controls UK companies to improve corporate behaviour and deter money laundering. This is enforced within Article 42 of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. The recent amendment obliges corporate bodies that form a business relationship - or has a relevant transaction - with a relevant person to supply beneficial ownership information within two working days.
Although the full extent of imminent AML changes are not yet confirmed, bringing the PSC legislation in line with the EU 4th Anti-Money Laundering Directive is in hand. Companies House anticipates that PSC notifications and forms are likely to be affected - becoming ‘event driven’ in the same way that director/secretary appointments and changes are currently notified.
The 4th Directive states that for quality purposes, Member States must ensure that adequate, accurate and current information on the beneficial ownership of entities incorporated within their territory is held on a central register. Current PSC registers are adequate but work still needs to be done to make them more effective, an announcement on this will be made by the Department for Business, Energy, and Industrial Strategy in a ministerial statement shortly.
3. Inconsistent or incomplete information
The PSC register - and imminent enhancements to it - have provided accountants with an effective way to overcome many of these issues.
However, accountants should remain vigilant for clients’ documents that cannot be verified, multiple tax IDs, and protected identities of business beneficiaries, partners or owners.
Verification of a client’s ID is being satisfied that the applicant is the person stated following verification from reliable, independent source documents, data or information and satisfactory evidence of appropriate parts of the individual’s accumulated profile. Data - or electronic searches - are proving to be the way forward by providing the clearest identity verification whilst also performing negative politically exposed persons (PEP) and sanctions searches.
4. Unusual money transfers or transactions
2007 Regulations currently in place impose obligations for all businesses to be aware of their responsibilities under the UK anti-money laundering regime. This includes putting anti-money laundering policies and procedures in place - ensuring that relevant staff are aware of them and are appropriately trained in their implementation.
Businesses are then explicitly required to monitor and manage their compliance to ensure continued observation of their policies and procedures.
Clients’ money changing hands in unusual ways should be a warning to accountants, as should the transfer of funds to or from “locations of concern” - both being possible red flags to look out for.
Identifying transfers of money or assets where there is no apparent business relationship between the parties - or loan transactions between entities that do not match normal commercial arrangements - should also be seen as reasons to investigate further.
Likewise, further explanation may also be required for any unusually high sales for cash-based businesses that do not correspond with other similar-sized enterprises within the same sector.
It’s the responsibility of all of us to manage this. In the March 2015 Budget, the Government announced that it would make it a crime for corporations to fail to implement reasonable procedures to prevent advisors and employees from criminally facilitating tax evasion.
From this autumn, HMRC’s campaign against tax evasion will be bolstered by a new corporate offence of failing to prevent facilitation of tax evasion.
The offence is loosely modelled on Bribery Act 2010. A ‘relevant body’ is guilty of the offence where a person associated with it (acting in that capacity) commits a ‘UK tax evasion facilitation offence’ or a ‘foreign tax evasion facilitation offence’. Liability is strict and no criminal intent, knowledge or condonation by senior management is therefore required.
The Criminal Finances Bill, which cleared Parliament on 20th February this year, includes the Corporate Criminal offence for Facilitation of Tax Evasion and introduces two new criminal offences to tackle corporate facilitation of tax evasion - the domestic fraud offence and the overseas fraud offence. Both will criminalise corporations, based in the UK or anywhere in the world, who fail to put in place reasonable procedures to prevent their representatives from criminally facilitating tax evasion.
The risk policies, reporting procedures and record keeping in place will be subject to some change with the introduction of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. Article 18 of the new Regulations requires all obliged entities to identify the risks and keep an up-to-date written record of the steps taken. Importantly, the relevant person must provide the prepared risk assessment to its supervisory authority upon request.
Lifecycle’s seminars will look at the current AML Systems and Controls and the predicted amendments to come throughout the course of 2017.
5. Negative information and reputation of the client or company
A simple internet search often reveals information about a client or company that could suggest unusual business activity. While unfavourable media coverage in itself is not evidence that the client is laundering money, any concerns raised during due diligence should certainly be assessed and investigated.
By taking on a client, an accountant is putting their own reputation and livelihood on the line. Carrying out appropriate due diligence, following up any red flags until resolved or reporting any implausible figures to the NCA will protect both the reputation of the advisor as well as the UK economy.
The introduction of the offshore tax evasion offences, the criminal offences of failing to prevent facilitation of tax evasion and also new pending legislation of penalising those accountants who fail to comply with Professional Conduct in Relation to Taxation rules, specifically refers to those who promote, help put into place or advise on tax avoidance schemes. They will also penalise those who put the good name and the reputation of the accountancy profession at risk from poor compliance.
Find out more and book your place at the seminar here.
About the Lifecycle network
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