New money laundering directive expands tax adviser scope
Richard Simms, the managing director of FA Simms and AMLCC, explains what the expanded scope of the Fifth EU Money Laundering Directive will mean for tax advisers.
The Treasury released a new consultation on the introduction of the EU’s 5MLD into UK law on 15 April that has broadened the definition of a tax adviser in terms of money laundering compliance.
But why is this important when tax advisers are already regulated for AML in the UK?
Expanding the definition of tax adviser
The consultation explains that Article 2 of 4MLD (as amended) expands the scope of tax adviser to include “any other person that undertakes to provide, directly or by means of other persons to which that other person is related, material aid, assistance or advice on tax matters as principal business or professional activity”.
The proposed change in the MLR17 is to include “firms and sole practitioners who by way of business provide, directly or by way of an arrangement with other persons, material aid, assistance or advice about the tax affairs of other persons”.
What’s already covered and how will this change?
Starting with MLR17, tax adviser means a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons when providing such services.
The AMLGAS (Anti-Money Laundering Guidance for the Accountancy Sector) further expands on the tax adviser definition within its glossary:
Tax adviser: A firm or sole practitioner who by way of business provides advice about the tax affairs of others when providing such services (Regulation 11(4) of the 2017 Regulations). Tax compliance services – eg assisting in the completion and submission of tax returns – is for the purpose of this document included within the term ‘advice about the tax affairs of others’.
From these definitions, it’s clear that providing tax advice and tax compliance is regulated for the purposes of AML. Such advice and compliance are relevant when it is about the tax affairs of other persons.
So where is there any confusion and does tax adviser need to be expanded?
Risk is increased where guidance and legislation become grey and people’s interpretation can differ.
There are two areas that would benefit being clarified, whether by future changes in MLR2017 or by an update to AMLGAS: tax advisers who advise tax advisers and payroll only providers.
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The consultation refers to payroll service providers as already being within the scope of MLR17 following HMRC guidance. HMRC guidance refers to payroll agents that provide accountancy services and/or tax advice.
It would seem difficult to imagine a payroll agent that doesn’t calculate the tax due on a payroll, so if they do, then they are subject to MLR2017 as providing tax advice or tax compliance services.
Why then is the term payroll not mentioned or included in MLR17 or AMLGAS? There’s little doubt that payroll services with any aspect of tax calculation are subject to MLR17; it would be useful if this was clarified and guidance for payroll agents provided.
Tax advisers who advise tax advisers
There are a variety of tax support organisations (TSOs) within the UK; for example, within a network of firms, a franchise or as part of a tax consultancy service. Is this what “by way of arrangement with other persons” refers to? It looks like it to me.
Put simply, the provision of tax services in relation to the tax affairs of other persons, when that advice is not provided directly to that other person. Simple it may not be but hopefully you can recognise the scenario.
In that scenario then the client of the TSO will be a tax adviser. Considering the definition discussed above then a TSO is already providing a regulated service as there is no distinction made between who the recipient of that tax advice is and whose tax affairs the advice relates to. Just that it’s not the tax affairs of the TSO providing the advice.
There are other factors that need to be considered. What about the Suspicious Activity Reporting (SAR) obligations of a TSO in line with the Proceeds of Crime Act 2002 (POCA)? And is advice being given under privileged circumstances?
POCA sets out the offence of failure to disclose for a nominated officer in the regulated sector (S.331). Basically, it’s an offence not to make a SAR report when circumstances require. The nominated officer is the person within a firm who is responsible for making SAR.
S.331 sets out four conditions when reporting is required. I won’t set this out in full, but want to pick out one part of the third condition that includes a situation where the nominated officer doesn’t know the identity of the person that has undertaken a money laundering offence but they know or suspect that it has taken place and the nominated officer knows how that person can be identified.
For example, a TSO provides advice on a “no names” basis to a tax adviser. The TSO then knows that the tax adviser can provide the required information to be able to complete the information required for a SAR report to be made.
That is not to say that the tax adviser receiving advice from the TSO may not have already made or considered a SAR report. Privileged circumstances are an area that, if you are considering relying on, then specialist advice should be sought.
POCA (S.330), which discusses whether a SAR report should be made to a nominated officer, refers to a relevant professional adviser (different to a professional legal adviser) as a member of an accountancy professional body (which makes provision for certain criteria over admission to membership and disciplinary standards).
Such a relevant professional adviser would have reason not to make a SAR report in the case that they received such information in privileged circumstances.
AMLGAS discusses when the privileged circumstances may apply but is clear that it is a “matter for careful consideration”.
Tax adviser changes
The two circumstances considered above are already part of the regulated sector for AML. There is scope to make the legislation and guidance on these areas clearer and that would be welcomed.
My hope is that if MLR17 is updated on these points that clarity is also given to the terminology used in this area in the consultation either directly or through an update to AMLGAS.
The story of the fifth money laundering directive
The Transposition of the fifth money laundering directive consultation explains that when the UK leaves the EU there may be an implementation period where EU law will continue to apply to the UK.
It is clear that the UK shares the objectives of 5MLD. We would therefore not be surprised if the basis of 5MLD is implemented, even if the implementation period does not extend to the 10 January 2020 transposition deadline.
5MLD is not a new concept. The first article I wrote on 5MLD was in January 2017. In July 2016 an AML factsheet from the EU explained the planned amendments to the Fourth EU Money Laundering Directive (4MLD) which had been adopted by the EU in May 2015.
The July 2016 factsheet explained that the amendments were in line with the action plan against terrorist financing (issued in February 2016) and also part of the EU’s ongoing commitment to fight against organised crime, corruption, and tax evasion. All of this activity was under the dark shadow cast by terrorist attacks, in particular, the terrible events in Paris in November 2015.
A further EU AML factsheet, released in December 2017, saw the suggestion of the extension of AML and CTF (Counter-Terrorism Financing) rules to tax-related services.
5MLD was approved on 30 May 2018 and came into force on 10 July 2018. It’s worth noting that 6MLD was approved on 23 October 2018.
The consultation closes on 10 June 2019. If you have a vested interest in this subject, please make the time to put your views forwards to [email protected] . See here for more information on ways to respond.
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...