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Accountant reprimanded for AML reporting failure

19th Dec 2016
Freelance journalist
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Inspector find fraud in company documentation
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The ICAEW has severely reprimanded the director of a Leeds accountancy firm for failing to report suspicions that a client was engaged in money laundering activities.

The ICAEW’s disciplinary committee heard that between 1 November 2013 and 11 June 2014, Simon Charles Rothwell had reasonable grounds for knowing or suspecting that Ms ‘A’, a director of ‘C’ Limited and client of his accounting firm, was money laundering but failed to disclose it to a nominated officer or authorised person.

Along with issuing Rothwell with a severe reprimand, the ICAEW ruled that he should get training about money laundering within six months and pay for it himself, and also pay costs of costs of £3,279.

Background

Between January 2009 and November 2013 Rothwell provided tax and accountancy services to ‘C’ Limited, the ICAEW said. During this period HMRC started an enquiry into the corporation tax return of the company, which continued into November 2013.

On 1 November 2013, Ms ‘A’, the sole director and shareholder of ‘C’ Limited, told the defendant that she had engaged a firm of tax specialists to deal with the enquiry. She also disclosed that she had over-claimed her mileage expenses and was asking the new firm of tax specialists to negotiate a settlement with HMRC on her behalf.

Rothwell ended his business relationship with the defendant on this date.

 ‘C’ Limited supplied of consultancy and training services to the National Health Service.

In July 2014, police interviewed Rothwell under criminal caution. He was told that Ms ‘A’ had been involved in a large fraud against the NHS, using her company to generate fake orders for training provided by her husband, who worked within the NHS.

There was no evidence that Rothwell had any involvement or knowledge of the fraud, the ICAEW said. But he was charged with failing to disclose to the authorities his knowledge of the over-claim for expenses which Ms ‘A’ had disclosed in November 2013.

In April 2015 Rothwell, who has been in practice for 26 years, was convicted at Leeds Magistrates Court of a single offence under Section 330 of the Proceeds of Crime Act (POCA) 2002.

In October 2015, he was sentenced at Leeds Crown Court to pay a fine of £5,000 and ordered to pay a victim surcharge of £120.

Under section 330 is a criminal offence in England and Wales to know, suspect or have reasonable grounds for suspecting (during business in a regulated sector) that another person is engaged in money laundering and to then fail to disclose that to a “nominated officer” in the business.

Exclusion for jailed accountant

In another decision, the ICAEW excluded an accountant and sole director of a company who, in 2014, had been sentenced to three years in prison for conspiracy to defraud.

In July 2014, Nicholas Stephen Pomroy from Reading was convicted in Southwark Crown Court of two counts of conspiracy to defraud ‘A’ PLC of £3,562,500 and ‘B’ of £1,600,000.

As an accountant, Pomroy provided false and untrue information to enable others to obtain mortgage advances, the court ruled.

Pomroy said did not admit the complaint because he was preparing a case to be put before the Criminal Cases Review Commission and did not want to prejudice that. A plea of not admitted was recorded.

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By ireallyshouldknowthisbut
19th Dec 2016 14:36

Unless this article misses some key points this seems really harsh.

Do we really need to file an AML if - during a tax investigation - the client tells you that something is wrong with the return?

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Replying to ireallyshouldknowthisbut:
David Winch
By David Winch
19th Dec 2016 19:59

ireallyshouldknowthisbut wrote:

Unless this article misses some key points this seems really harsh.

Do we really need to file an AML if - during a tax investigation - the client tells you that something is wrong with the return?


See my fuller response below.
This was not just "something wrong" this was deliberate dishonest tax evasion (not an error or a misunderstanding by the client of what was required).
Also, although he was a "relevant professional adviser" within the meaning of s330, Mr Rothwell could not claim to have received the information in 'privileged circumstances'.
David
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David Winch
By David Winch
19th Dec 2016 19:54

One might feel that Mr Rothwell was a bit unfortunate here.
The director of his client company told him that she had falsely over-claimed business mileage. She also told him that she was instructing another firm of accountants (more experienced in tax investigations, apparently) to deal with HMRC over this.
He perhaps assumed that, although he now suspected she had deliberately dishonestly evaded tax, because her new accountants were going to deal with it then he need not report it to the NCA under s330 Proceeds of Crime Act 2002 / Money Laundering Regulations 2007.
We know that the new accountants did indeed report the matter to HMRC.
But the court did not consider that Mr Rothwell had any defence to to a charge of failing to report to the NCA.
It seems that the court did not accept that Mr Rothwell had, in the circumstances, a "reasonable excuse" for not reporting.
Also it appears that as the suspected tax evader was not asking Mr Rothwell's own firm to deal with HMRC on her behalf he could not say that the information had come to him in 'privileged circumstances' - he was not being asked to advise the suspect on her own & her company's legal obligations.
So Mr Rothwell rather fell between two stools. Had his firm been dealing with the matter itself then he could probably have argued 'privilege'.
A further misfortune was that, unknown to Mr Rothwell & unsuspected by him, the client company and its director were actually engaged in much more serious criminality which brought them to the notice of the police. They in turn looked at Mr Rothwell - with the result we see here.
David

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By North East Accountant
20th Dec 2016 10:27

I would have thought that the new accountants, being experienced in tax investigation work, would have ensured that they were working in privileged circumstances to enable them to not report.

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Replying to North East Accountant:
David Winch
By David Winch
20th Dec 2016 12:01

North East Accountant wrote:

I would have thought that the new accountants, being experienced in tax investigation work, would have ensured that they were working in privileged circumstances to enable them to not report.


It may well be the case that the new accountants did not report the matter to the NCA & were not obliged to do so. The ICAEW report indicates however that they reported the matter to HMRC (i.e. they dealt with HMRC regarding the previously incorrect claims).
David
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By justsotax
20th Dec 2016 10:48

wow...I wonder how much was over claimed....£000's?....or were the authorities more concerned that the client was defrauding the NHS (who were seemingly clueless and should not take any responsibility for the loss to the public purse) and felt they needed to blame someone (by association or otherwise).

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Replying to justsotax:
David Winch
By David Winch
20th Dec 2016 12:05

justsotax wrote:

wow...I wonder how much was over claimed....£000's?....or were the authorities more concerned that the client was defrauding the NHS (who were seemingly clueless and should not take any responsibility for the loss to the public purse) and felt they needed to blame someone (by association or otherwise).


We know that the police interviewed Mr Rothwell under caution. We are not told what they interviewed him about. They may have suspected that he was involved in the NHS fraud. In explaining his role for his client & his disengagement from the client Mr Rothwell may have provided all the evidence the police needed to prosecute him under s330. We don't know.
David
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Replying to davidwinch:
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By justsotax
20th Dec 2016 13:10

Do we know how much mileage was over claimed - would be good to get some perspective (or not) on the 'fraud' involved.

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By adam.arca
20th Dec 2016 13:01

Well, I'm glad it's not just me. I read this article yesterday before there were any comments and thought it sounded very harsh: it seems that's the universal view.

The unfortunate Mr Rothwell made an error in not reporting the mileage fiddle when he became aware of it but does that oversight really justify the punishment he has received? This has all the hallmarks of a "pour encourager les autres" judgement. It appears we have been warned!

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By martin.curtis
21st Dec 2016 11:18

I believe in MLR and the concept behind it. I have sent in quite a few reports, in every case it is black and white that the taxpayer (tax avoider) is guilty of an MLR offence. The crimes are not sophisticated and the information I have given makes this clear. In many cases I suspect simply opening a tax enquiry would be sufficient for the taxpayer to confess
And yet nothing, in any of the reports submitted has resulted in any reaction whatsoever from the authorities. I will continue to submit reports but more than a little disillusioned with it all

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Chris M
By mr. mischief
26th Dec 2016 19:23

I agree with the last post. I've submitted a couple of MLRs.

The way MLR is going seems to me to be similar to the way ICAEW and other disciplinary processes run. So we haul this guy over the coals for a mileage inaccuracy, or chuck some other guy out for pp-ing a document he should have got his client to sign.

Yet the big guys that signed off all the dodgy audits in 2007 and 2008 - dodgy audit reports which played no small part in a massive recession - never appear in these cases.

Unless and until the dodgy audit partners in the Big 4 go to jail like they do in the USA I shall continue to believe our system is just box-ticking and focusses all the effort on the little fish.

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