Your AML and SARs questions answeredby
David Winch and Sophie Parkhouse answer questions about anti-money laundering compliance and submitting suspicious activity reports as well as other issues raised by AccountingWEB readers.
Last week, AML experts David Winch from Sedulo Accountants and Sophie Parkhouse from Albert Goodman appeared as panellists on Any Answers Live.
A main part of the episode focused on Suspicious Activity Reports (SARs) following a recent memorandum from the accounting officer.
An article published last week on AccountingWEB summarised some of the panellists’ advice on submitting SARs and whether you should stop working with a client once you’ve filed a SAR.
The wide-ranging conversation also covered many other aspects of anti-money laundering (AML) compliance. In this article, Winch and Parkhouse answer more questions from the Any Answers Live viewers, including the ones they didn’t have chance to tackle during the episode.
Can you give some small accountant examples of SARs that are often reported?
David Winch: The most common reason for SARs by small firms of accountants is suspicions of tax evasion – such as deliberate and dishonest under-declaration of cash takings or other income, or over-claiming of expenditures for tax purposes.
However there are numerous other possibilities, including Trading Standards offences, thefts from the client, drug trafficking, etc.
The NCA’s SARs reporting template seems to be designed to capture information reported from banks and are not relevant to the information which accountants may need to report. Do you know if the NCA is aware of this?
David Winch: Yes they are. There are pages in the standard NCA form which are clearly not applicable for accountants (like querying the bank account throughput for the year) – just ignore those.
If an accountant firm is not submitting a lot of SARs, does this make them more likely to have a Money Laundering visit from ACCA/HMRC etc. If so, wouldn’t this encourage firms to just submit SARs for the sake of it to meet a set target?
David Winch: No, the supervisory body will not know how many SARs the firm has submitted when it selects the firm for a monitoring visit.
We are required to make a photocopy of the original ID documents. How can we do that if we only meet via Zoom?
David Winch: You can ask the client to get certified copies of his documents made by a solicitor (and some banks and Post Offices also do this). There will be a fee for this unfortunately. You then retain the certified copy (and that is acceptable).
Where you can't physically see clients, are emailed documents (scan passport etc.) sufficient when backed up with a zoom call?
David Winch: No, it’s too easy to fake documents.
We discovered a new client had undisclosed rental income from previous years which (after much attempted persuasion) he refused to disclose. We submitted an SAR and ceased to act. But the tax return we filed was complete (we found out about previous years under declaration after the event) with full disclosure. Could we have continued to act here?
David Winch: No, you no longer have a relationship of mutual trust and respect, and (if I understand you correctly) it seems that you have in the past submitted returns (which at the time you believed to be correct) which you now know to be incorrect but which have not been corrected.
The problem with ceasing to act after submitting a SAR: why? It is not as if the new accountant starts with a clean state: the suspicious activity has still occurred. Surely the existing accountant is better placed to spot suspicious activity having already identified and reported it.
Sophie Parkhouse: However, we as a professional we have an obligation to not be associated with any information that we believe to not be compliant with the regulations and/or is not true and fair.
David Winch: Also, in my experience, clients are embarrassed to say they have lied to you in the past and this can lead to irregularities being covered up by them. With a new accountant the client has a fresh start without that problem.
What we need is a Handbook prepared by HMRC to help all accountants. The policy of HMRC appears to be give as little information as possible to be able to pick them up on anything that is missed so they can impose penalties.
Sophie Parkhouse: I would advise using the CCAB resources. A couple of links to these are:
What areas do the accountancy Institutes concentrate on during their AML compliance visits?
Sophie Parkhouse: They have an obligation to ensure that firms are fully complying with the regulations, so no area is out of their remit. From experience I find that a selection of clients are picked across core and higher risk service lines and procedures are reviewed from start to finish.
Ensuring that there is adequate training of your people and that they are able to articulate your procedures is also important.
David Winch: I would also suggest ensuring that the fact that your staff have been adequately trained is recorded, that you have confirmed that partners/directors in the firm (including the MLRO) do not have any relevant criminal convictions (see Schedule 3, MLR 2017), and that you have a firm-wide risk assessment which is up to date.
Does electronic verification mean that ID documents are not required? And how often should you re-verify (given it can be costly!)
Sophie Parkhouse: Yes, some electronic verification systems can verify clients with only name and address. A more accurate response is given with date of birth included. In many cases this is all that is needed. Depending on the risk profile of the client and the information returned from the electronic search sometimes photographic ID or other identification documentation is still required. Many of the electronic packages also offer ongoing monitoring so that a fresh check is not needed again to verify the identity of a client, however, ongoing due diligence is still needed as in any case.
David Winch: Undertaking an electronic check can also assist where the client may be subject to international sanctions or may be a politically exposed person – these things would not be apparent from, for example, checking a passport and driving licence.
However none of these checks will tell you whether the client is honest or free of criminal convictions – they are not a substitute for your own risk assessment.
I think a lot of the AML rules for accountants are based on standard accounting practices that prepare accounts/tax filings. My business is less extensive with only specialist input and so some of the expectations are a little generic for my business – I don’t have such a full picture of finances.
Sophie Parkhouse: The regulations need to be applied for the services that you are providing. You can therefore only comment on the information that you have in fulfilling your role and the information that the client makes available to you. That being said, you would still need to ensure that you are completing all the initial client questions. This may result in you having to ask questions initially which are outside of the information you require for the role as part of your wider AML client on-boarding check.
David Winch: But I agree that if in your work for a particular client you do not need to see their bank statements, for example, then you will be unaware of bank transactions which would raise suspicions if you saw them. The MLR do not require you to be a ‘bloodhound’ or to do investigative work irrelevant to your accountancy instructions. However if – on the basis of the work you have done – you have a suspicion of money laundering then you are obliged to report that.
You can watch this episode of Any Answers Live on-demand and hear more from David and Sophie on how you can comply with the AML obligations and implement a risk-based approach in your practice.