Director JS Penny Ltd
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Accountants have a duty to report suspicions about money laundering
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AML and Covid support: Get the details right

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After more than a year of Covid loans, furlough grants and self-employed income support, evidence of illegal gains is likely to rise. Julia Penny advises accountants on how to act if they have any suspicions.

16th Aug 2021
Director JS Penny Ltd
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The anti-money laundering (AML) regulations which apply to accountants are not new. However, the haste that was necessary to support businesses during the pandemic and the consequent lack of checks led to a much bigger risk that accountants will have suspicions of money laundering.  

So what should accountants be doing?

The accountant’s role

In simple terms, any suspicion of money laundering must be reported internally to the Money Laundering Reporting Officer (MLRO). In turn, the MLRO must report to the National Crime Agency (NCA).

However, there are a few complexities to watch out for:

  • Did the information giving rise to your suspicion come to you through your work? If not, you don’t need to report. Note that the information doesn’t need to relate to a client, it could be a potential client or someone who is a contact of your client.
  • Is it an error, where the business or individual didn’t realise they weren’t eligible for support and are now making amends? Money laundering offences require the individual to know or suspect they are committing an offence.
  • Did the information come to you in a privileged situation? This means that legal advice, for instance about tax affairs, was being specifically sought from you by your client. In this case no report to the NCA should be made. The rules on this point are complex, so check with your MLRO or take legal advice.

Covid support abuse

This article won’t go into the details of the eligibility criteria for Covid support, that is available elsewhere for both the furlough scheme and self-employed income support scheme (SEISS).

Most schemes, however, require the business to have been adversely impacted by Covid-19. Additionally, the money from loans needed to be used for business purposes.

For SEISS there had to be an intention to continue in business, as well as a negative impact on the business caused by Covid.

Red flags

Various information might constitute a red flag indicating a potential suspicion of money laundering in relation to the COVID support, including the following:

  • The business or individual appears to have lied about:
    • the date on which the business started to trade
    • the impact Covid has had on their business
    • their need for support
    • their financial position
    • the hours worked by employees when furlough money has been claimed
    • the nature of tasks conducted by directors when furlough money has been claimed.

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Replies (20)

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By GHarr497688
16th Aug 2021 20:25

what a load of rubbish this article is.

Thanks (1)
Replying to GHarr497688:
Quack
By Constantly Confused
17th Aug 2021 15:34

GHarr497688 wrote:

what a load of rubbish this article is.

Gosh that was jolly rude.

Thanks (2)
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By Paul Crowley
16th Aug 2021 20:58

You really think I should report based on what client Fred thinks that competitor Frank did.
No evidence?
Just "that is what Fred thinks"

Thanks (5)
Replying to Paul Crowley:
By Brian Ogilvie
17th Aug 2021 10:41

I agree...'you only have to be suspicious that a money laundering offence....has taken place'

However it is my (jealous?) client not me who suspects a competitor appears to have been receiving Covid support to which they are not entitled

BUT I personally have never met the competitor nor know anything about him or his business.How then can I myself also be suspicious of his actions ? Clients can and do tell me all sorts of nonsense and always have done !

Thanks (3)
Replying to Brian Ogilvie:
David Winch
By David Winch
17th Aug 2021 11:21

You need to exercise your professional judgement based on your experience and knowledge. Do you suspect the third party of money laundering? If you do, then you are obliged to report. If you don't, then you need to ask yourself if you have reasonable grounds to suspect the third party of money laundering. If you do, then you are obliged to report.
Of course, if you neither suspect nor have reasonable grounds to suspect, then you are not obliged to report. You are not obliged to regard mere gossip as reliable information. Nor are you obliged to mount an investigation or make enquiries to seek out possible money laundering which you have no reasonable grounds to suspect based on the information which has come to you.
The CPS have recently made clear that, in their view, an offence of failing to report a suspicion can be committed even where, in fact, no actual money laundering has occurred (but there was a reportable suspicion that it might have occurred).
So it is a matter of exercising your judgement and forming an opinion.
Do remember that evidence is not limited to documentary evidence. Evidence includes words spoken, body language, etc. Your understanding of the intentions and (dis)honesty of others is also vital in this area.
David

Thanks (1)
Replying to davidwinch:
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By Justin Bryant
17th Aug 2021 14:25

David, is this suspicion on a balance of probabilities (i.e. if you suspect it's more likely than not, as opposed to things being proved legally in court on a balance of probabilities on the basis they are more likely than not to be the case) and if not what is the probability, if any (presumably it must be something more than zero)? In this regard, are the comments at para 116 - 118 of the case below re the "starting point" re such allegations relevant to one's suspicions (since mere suspicions are necessarily the starting point re the same)?

https://www.bailii.org/ew/cases/EWHC/Ch/2021/2272.html

Thanks (1)
Replying to Justin Bryant:
David Winch
By David Winch
17th Aug 2021 15:00

In relation to a suspicion of money laundering (and it is only suspicions of money laundering which are reportable) the issue is typically not whether the suspected person has possessed / transferred / etc the 'property' (usually the 'property' in question being money) but whether a 'predicate' offence has occurred (which causes the 'property' in question to be 'criminal property').
So although 'money laundering' does not necessarily involve dishonesty, the key to the suspicion typically (in cases of interest to accountants) is a fraud / theft / tax evasion / etc which does necessarily involve dishonesty. (More widely, in other police cases the predicate offence may, for example, be drugs related - which does not involve dishonesty.)
As the judgment says "Dishonesty is often a matter of inference from circumstantial evidence". So forming a view on whether there has been a predicate offence is not always straightforward.
You might be interested in para 16 of https://www.bailii.org/ew/cases/EWCA/Crim/2006/1654.html with regard to probability. The suspicion has to be more than merely "fanciful" and not simply "a vague feeling of unease", "inkling" or "fleeting thought", but it does not have to be "firmly grounded and targeted on specific facts".
So it's a low threshold. In practice I think most accountants would be wanting to have some "specific facts" in mind to support a suspicion before filing a Suspicious Activity Report (but the courts are not doing us any favours in that respect!).
David

Thanks (3)
Replying to davidwinch:
Quack
By Constantly Confused
17th Aug 2021 15:36

davidwinch wrote:

In relation to a suspicion of money laundering (and it is only suspicions of money laundering which are reportable)

What if they do it in front of you, it's not a suspicion then so you don't have to report it? ;)

Thanks (0)
Replying to Constantly Confused:
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By Justin Bryant
17th Aug 2021 17:45

That's like saying you can't sue someone for negligence if they deliberately (rather than carelessly) injure you!

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Replying to Paul Crowley:
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By lh3f9764bg1g
18th Aug 2021 11:01

Just tell "Fred" that you have taken the appropriate action and that you are unable to discuss it further. Then do nothing.

Thanks (0)
David Winch
By David Winch
17th Aug 2021 09:30

Excellent article Julia, thanks.
David

Thanks (4)
Replying to davidwinch:
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By GHarr497688
18th Aug 2021 19:30

I would like to report you for making money for yourself by using Government Policy to create fear in others.

Thanks (0)
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By lh3f9764bg1g
17th Aug 2021 09:32

I'd say that at least half of those "red flags" aren't red flags at all as they weren't listed in the HMRC criteria for claimants. Also - so many of them would require one to form an opinion or to make assumptions. I'm in the fact business - not the opinion business.

Thanks (1)
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By Hugo Fair
17th Aug 2021 13:43

Sorry, but the insanity that was bubbling along nicely throughout this article suddenly came to the boil in Example Scenario 2.

Following this logic you should make a report whenever, for instance, a client says something like "My mate Joe says you can claim SEISS if you put x in box 4" or whatever!
You have no reason to disbelieve your client (who has always been honest to the best of your knowledge) and there is a strong inference that leads you to suspect that Joe (whom you happen to know as an ex-client) has followed his own suggestion in practice ... thereby possibly committing an offence (although you can't be certain as you don't know all the salient facts).

And, of course, the article's recommended approach could only work anyway if the agent has an in-depth understanding of what constitutes "Covid support abuse" - which, judging by some of the 'red flags' listed, is not the case for the author.

If you have any doubt about the validity, say, of some of your client's claims (in terms of whether they were truly entitled - not in terms of whether they were telling the truth) ... then it's an insane leap to start applying these uncertainties to a bunch of people who aren't clients, and based solely on hearsay!

Thanks (4)
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By indomitable
17th Aug 2021 14:24

I think the bar needs to be a bit higher than in scenario 2

"Another example might be a client who tells you a competitor appears to have been receiving Covid support to which they are not entitled."

Appears to be be? What about a client who tells me down the pub that he pays his cleaner cash and doesn't think they declare it? Should I write a SAR?

What are we becoming, the governments policemen, In many senses the anti-money laundering regulations like many things the government do are not fit for purpose. Badly written with no common sense behind them.

Do they catch the swathes of dodgy money coming in from High Risk jurisdictions washing around the city? No. Do they address the black cash economy in the UK? No

Do any of these anti-money laundering regulations make any real impact. I would hazzard a guess - No!

Thanks (4)
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By jonharris999
18th Aug 2021 06:28

I think it would have been more equitable for the editors to commission an article about the hundreds of thousands of legitimate claimants for SEISS who have missed out on it either because they couldn't follow the opaque and arcane rules, or because these didn't benefit them in their particular circumstances for some arbitrary reason or other, or because their accountants told them they weren't eligible when they were - this last of which there has been plenty of anecdotal evidence in "Any Answers".

That is the real scandal, and the real issue worthy of our concern and anger.

Thanks (2)
Replying to jonharris999:
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By Winnie Wiggleroom
18th Aug 2021 07:06

I dont think its runs into hundreds of thousands but yes I agree the rules were terrible, 4 scandals I would like answers to

1. Why was the 10k/25k local authority grant given out willy nilly with no criteria related to actual requirement for the funds
2. Why was the SEISS structured in such a way that now we are preparing 20/21 returns we are seeing clients that made much larger profits than normal despite the SEISS claims being valid
3. Why were company Directors that have legally structured their business to be paid small salary/dividends frozen out
4. Why was more evidence of eligibility/level of turnover not required for Bounce Back loans

Thanks (1)
Replying to Winnie Wiggleroom:
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By GHarr497688
18th Aug 2021 08:55

At last someone speaks sense.

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By memyself-eye
18th Aug 2021 18:45

I think, on balance I agree with the first responder's post.
Thankfully, I've retired from all this MLR ess-haitch-one-tee - if I followed the advice in this article I would by now have gone mad!

Sounds like life under the Taliban would be infinitely preferable to this MLR nonsense.

Madness. = come back George Orwell - role on 1984.

Thanks (1)
Julia Penny
By Julia Penny
01st Nov 2021 10:42

Having read some of the comments below I can understand that some think this area is a difficult one to deal with, as it does indeed require a consideration of whether an individual who is regulated for money laundering purposes (so someone providing accounting services in a practice for example) is suspicious (or has knowledge) of money laundering. It is a judgement and it doesn't require evidence that would stand up in a court (that would come later if the matter is pursued). Just because someone else has suggested wrongdoing, this doesn't automatically mean that you are suspicious, as it will depend on the circumstances, but it might make you suspicious. Bear in mind, that articles are only quite short explanations of key points and are designed to supplement the CPD that you will be doing.

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