MD F A Simms & Partners and AMLCC
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AML guidance updated for tax practitioners

Richard Simms, the managing director of FA Simms and AMLCC, summarises the Supplementary Anti-Money Laundering Guidance for Tax Practitioners and highlights the key areas practitioners should be aware of. 

10th Dec 2019
MD F A Simms & Partners and AMLCC
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Issued in July 2019, the Supplementary Anti-Money Laundering Guidance for Tax Practitioners (AMLTaP) is to be read in conjunction with AMLGAS (Anti-Money Laundering Guidance for the Accountancy Sector). AMLGAS was issued in March 2018 as part of the accountancy sectors’ response to the 2017 Money Laundering Regulations (MLR17).

AMLGAS has been adopted by all of the UK accountancy AML supervisory bodies. However, a similar statement of broad adoption is not included with AMLTaP. Personally, I hope that it will be adopted by all of the relevant supervisors. Otherwise, I think this is a step backwards in the sector’s ability to demonstrate that it can act in unison.

This article is not a substitute for reading AMLTaP but will help to highlight some of its key aspects.

Who does it affect?

To be blunt, if you’re working in the UK accountancy sector; which includes accountancy/bookkeeping, audit, insolvency and tax; as an external provider (which most of us would refer to be as being “in practice”) then you must read and absorb AMLGAS and also do the same for AMLTaP. You should download copies and keep them to hand.

Some key assumptions of the guidance

“Tax practitioners are not required to be experts in criminal law”, but would be expected to be aware of:

  • Tax planning requirements as set out in 3.9 of Professional Conduct in Relation to Taxation (PCRT)
  • The enablers of defeated tax avoidance schemes legislation as set out in schedule 6 of the Finance (No.2) Act 2017
  • The boundaries between deliberate understatement or other tax evasion and simple cases of error or genuine differences in the interpretation of tax law
  • They should also be able to identify criminal conduct in relation to direct and indirect tax which is punishable by law
  • Where indirect tax is concerned, where strict liability may be imposed for innocent or negligent errors such as s.167(3) CEMA (Customs and Excise Management Act 1979).

AMLTaP explains tax offences for both direct and indirect taxes in detail. The list above is essential reading before taking time to consider the full breadth of tax offences. I won’t repeat the offences set out in AMLTap in this article.

What is tax advice?

“The meaning of ‘advice’ is widely interpreted. For the purpose of this and AMLGAS, tax compliance services, i.e. assisting in the completion and submission of tax returns, are included within the term.” This is referred to in the body of AMLGAS and importantly in its glossary. “The term ‘tax’ covers all direct and indirect taxes including duties.”

Pro bono work

“By way of business” and “when providing such services” are key parts of the definition of “tax adviser” in MLR17. If a TP (tax practitioner) decides that provision of tax services are not by way of business (and therefore outside of the Anti-Money Laundering/Counter Terrorist Financing AML/CTF regime) then they should be prepared to justify that.

Paid services are likely to be by way of business but providing services for free will also usually fall under the regime. Unpaid work for family members or volunteer work for a not-for-profit organisation will usually be outside of the regime.  From a personal perspective I would recommend following the same AML routine for every client to minimise anything slipping through the net.

When does accountancy work become tax work?

The scope of tax work ranges from compliance to tax planning and advice. Tax compliance includes preparation, processing and submission; it can also include bookkeeping and accounts preparation, giving specific tax advice and reviewing and analysing information from a client.

It’s worth pausing for a moment to consider the last paragraph. Considering whether an item within a set of financial records is, for example, liable to tax or allowable for tax, drives home how broadly tax work expands.

It is possible to imagine a set of books being prepared for a business client without any tax work being performed. However, it would seem that in the majority of cases some tax work is being performed.

Customer Due Diligence (CDD) – Who is your client?

AMLGAS is essential reading on this area. AMLTaP distinguishes between advising another professional firm or forming a business relationship with the other firm’s client directly and so, your client is actually the other firm’s client and not the other firm themselves. Be clear who your client is and what source you are using for your CDD.

Are you operating in privileged circumstances?

The Proceeds of Crime Act 2002 (POCA) is the primary law on Money Laundering (ML) in the UK. It defines what ML is and creates the obligation on members of the regulated sector (as defined in MLR17) to report ML to the National Crime Agency (NCA).

POCA includes “privileged circumstances” under which information received can remove (not always – the crime/fraud exemption) the obligation to report to the NCA. AMLTaP is explicit in confirming that, in a situation where privileged circumstances are correctly applied, (and that no report is required because of the crime/fraud exemption) then a report must not be made – be sure to fully understand this before relying on it.

A Professional Legal Adviser or Relevant Professional Adviser (includes an accountant, auditor or tax adviser who is a member of an appropriate professional body) could be operating in privileged circumstances. AMLTaP clarifies that the CCAB bodies and the CIOT and ATT meet the criteria to be appropriate professional bodies. This does make me wonder whether all of the AML accountancy supervisors have agreed to this classification.

A full explanation on privileged circumstances wouldn’t fit in to this article so please read through AMLTaP and AMLGAS. They both discuss this area and both recommend taking specific advice if you consider that you can rely upon privileged circumstances in order to not report a matter to the NCA.

Appendix 2 of AMLTaP offers examples of the privilege reporting exemption and explains the crime/fraud exemption.

What are the money laundering risks in the tax sector?

The risks to a tax practitioner of their clients undertaking money laundering or financing of terrorism are not necessarily new and, as such, are unlikely to be news to an experienced tax practitioner.

POCA explains that Money Laundering is doing pretty much anything with the proceeds of crime. Proceeds of crime are the result of Criminal Conduct. As part of a sector that is regulated for AML the obligation to report where money laundering is suspected or known to the NCA is established by POCA.

From this, any potential action of a client that produces proceeds of crime is a risk. Similarly, a client holding the proceeds of crime or tax planning that appears to evade tax is also a risk. Don’t allow yourselves to become unwittingly involved in money laundering by assisting clients to move or generate the proceeds of crime. A reduction in liability is the same as generating funds.

Some examples are the significant importance on confidentiality, or complex international affairs that lead to the low payment of tax to every jurisdiction involved, or movement of assets to high-risk jurisdictions with no clear reason.

It’s also important to follow reports from the UK government, such as the National Risk Assessments for Money Laundering and Terrorist Financing, along with reports or guidance issued by AML supervisors as well as wider scope reports such as the Financial Action Tax Force Guidance for a Risk-Based Approach for the Accounting Profession (2019).

Client errors

A key area of AMLTaP is how to handle client errors and establish whether indeed they are errors. An area that is too broad to cover here but I would start with the AMLGAS explanation of how, in many cases, a client correcting an error forthwith will not lead to the need to report to the NCA, and then expand this into the broader explanation of tax offences and the distinction between civil and criminal offences.

Be aware that some tax offences dealt with through civil procedures may actually be criminal offences that could require a report to the NCA.

Replies (12)

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By NH
11th Dec 2019 10:36

I am sure we are typical of a small practice where the most likely laundering we will come across is under declaring takings and VAT evasion, just like every other practice we have in the past sent in reports about this, not once has this even led to an enquiry despite the figures involved being substantial - so whats the point?

Thanks (5)
Replying to NH:
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By Malcolm McFarlin
11th Dec 2019 12:33

Some years ago I represented a client whom had been selected by HMRC for enquiry following a money laundering disclosure by a bank [a large cash deposit]. The HMRC officers were quite open when they said they 'cherry pick' the best cases since there are too many for them to investigate. I'm afraid there is a point to disclosure although the system could be managed better i.e no need to make a MLR disclosure if HMRC are already aware or about to be made aware of a tax disclosure/evasion. It results in duplication a waste of time.

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By Ian McTernan CTA
11th Dec 2019 10:50

So how much money has been spent on all this by all of us, and how much has it prevented being laundered.

Each of us spend hours and hours ensuring we comply with this huge pile of regulation, so the costs must run into £100m's and probably more.

Total benefit for us: zero.

Total amount caught: probably close to zero. Most criminals with large pots of money will find a way around these rules.

When it gets to the stage where a client making a genuine error might need to be reported on a NCA, you know it's all gone too far.

Drowning people in regulation.

Thanks (3)
Replying to Ian McTernan CTA:
Caroline
By accountantccole
11th Dec 2019 11:51

I had to deal with the serious crime office for a report I made.....there were other issues but they added my report to the case against the (very ex) client. They do follow up

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By cfield
11th Dec 2019 12:17

The sole purpose of all this regulation is for the UK to comply with its international treaty obligations. Whether or not it actually achieves anything is incidental.

Most of the money-laundering I hear/read about seems to go through banks and other financial institutions, not the ordinary accountant doing small tax returns for members of the public.

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By Michael C Feltham
11th Dec 2019 13:21

All this mindless compliance is actually, government blame-shifting and demanding practitioners will do government's work for free.

Since, of course, the Western World suffers from totally weak and useless government.

I personally doubt Joe Blow the plumber is involved in massive terrorist funding. If he were, then how would I really know?

Perhaps I might, if Joe popped into my office accompanied by three heavy geezers carrying AK47s and grenades...

The obvious point for governments to start is the damned bankers.

Surely?

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Replying to Michael C Feltham:
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By Tickers
11th Dec 2019 13:27

Thank you. Money Laundering and Fraud is a job for the police and the government.

Thanks (2)
Replying to Tickers:
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By Michael C Feltham
11th Dec 2019 17:51

The World is awash with financial regulatory agencies!

Amongst them IMF: as well as:

https://en.wikipedia.org/wiki/Financial_regulation

https://en.wikipedia.org/wiki/Bank_regulation

Now, terrorism tends to be an international and cross-border activity: as does major illegal drugs importation and distribution.

In the mid 1970s to early 1980 I worked on international finance all over the place and I could tell some stories about illegality and naughtiness that would make your hair curl!

It ought not to be my damned job to properly report on areas where national authorities are too useless: and make me PAY for the privilege, just in the cause of trying to earn my living. And worse, if I fail I could finish up bankrupt and/or in stir!

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By petestar1969
11th Dec 2019 16:30

I used to be the MLRO in one of my previous jobs. I wasn't a partner/director in the firm, just a manager, but the guy running the place was a c*ck and refused to do it himself.

Anyway, over a 5 year period I made about 100 reports to SOCA, as it was at the time, mostly low level stuff. I reported the same client 5 times and, in one report, insulted him, calling him "a piece of human detritus".

That triggered a visit where they told me off for my language, as it may have had to be read out in court, but they also told me 2 of the clients I had reported had been flagged as "of interest" to the Police. They couldn't tell me more and I don't know what happened as I haven't worked there for 7 years. Sadly, the same c*ck is still running the place albeit under a different name.

It illustrates that they do take notice of the reports we make.

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By Roland195
12th Dec 2019 10:51

The anecdotal evidence of following up reports doesn't inspire me given they mention the SOCA which was disbanded in 2013.

I have no doubt that some effort may be made to cross check on existing cases against people already on the radar but I doubt the information we provide about minor VAT errors or unsubmitted tax returns make much odds.

I object to the tone of censure that accountants are letting the side down by not making enough reports compared to the banks. Aside from the fact that we are engaged in entirely different services, I take it that I am doing a reasonable job in judging who I work with and what work I take on.

If this information was simply sent to HMRC in the first place it would make a lot more sense but then we would have to face up to the fact we are common snitches rather than guardians of the financial sector against terrorism, medal awards pending.

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Chris M
By mr. mischief
12th Dec 2019 11:41

I had a SOCA - as it then was - which I think was acted on. The coffee shop business had very good records in terms of till receipts and invoices, but I could not help noticing signs of drug use in the owner. Anyway, having done the VAT returns off the source records it came time for the year-end, which I insisted required bank statments.
NO.
I insisted again, saying I would need to resign without them.
NO.
I resigned and did the SOCA. A few months later the shop closed. If I had to put money on it, I suspect the bank statements might have shown £400k in takings compared to the £150k of coffee shop takings. Organised crime is a lot more than just terrorism.

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Replying to mr. mischief:
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By NH
12th Dec 2019 11:55

Out of interest how do you know your report was acted upon? If you had resigned by the time it closed how do you know what caused the closure

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