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.
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).
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.
You might also be interested in
I am the Managing Director of FA Simms and Partners, the Insolvency and Rescue practice and of AMLCC, the anti-money laundering compliance and risk management online package for accountants and bookkeepers.
I trained as a Chartered Accountant in Norwich and then spent...