One of our Directors has recently written an article for a client's newsletter on Money Laundering which we think will be of general interest. This is reproduced below.
Money Laundering and the Proceeds of Crime Act 2002
Most of us have heard of money laundering but have to date considered it had little to do with us.Money laundering is the concept whereby the origin of the proceeds of a criminal conduct are converted, through a cycle of transactions, into financial assets which appear to have legitimate origins.
Many of us will have been annoyed when our banks or other financial institutions have insisted on seeing our passports and a utility bill, even though we have been customers of theirs for many years.This has arisen because most financial institutions have not taken money laundering seriously enough and the banks in particular have had their knuckles severely rapped.
Most solicitors and accountants have paid lip service to the regulations which currently only relate, as far as they are concerned, to investment business or involvement with drugs or terrorism.The professions were recently brought up with a jolt when a solicitor was jailed for failure to report suspicions of money laundering.
To make matters very much worse in June of this year the Proceeds of Crime Act 2002 is likely to be implemented. This Act brings in to force the EU Directive which extends the "Regulated Sector" to accountants and tax advisors and independent legal professionals.This means that accountants and solicitors will be under a legal duty to report any knowledge they may acquire as part of their work as accountant or solicitor where a person has benefited from the proceeds of crime.This knowledge has to be passed to the National Criminal Intelligence Service (NICS) and failure to do so is a criminal act for which the punishment is likely to be imprisonment.
For accountants in particular the main area of concern are tax related offences.
Many accountants in the course of their work have discovered that their clients have underpaid tax or VAT and in the past where the figures are small no action has been taken.We are now informed that there is no deminimus limit, any underpayment must either be corrected as soon as it is discovered or a report has to be made.Apparently representation has been made to Tony Blair personally to set a deminimus limit but this has been refused to date, the excuse being that the accountancy profession has been so bad in the past that no exceptions can be made.Perhaps we only have ourselves to blame in that I understand that AA Financial Services have made more reports under the current Money Laundering Legislation than the whole of the accountancy profession put together.
What exactly are proceeds of crime?
At a recent accountants Roadshow which I chaired it was suggested that this could include such things as failing to purchase a parking ticket.The example given was if I went out on a business lunch with a client who on returning to collect his car found that he had forgotten to purchase a parking ticket decided that as no one had noticed he could ignore it.I am now aware that he has benefited from the proceeds of crime and I need to report him unless he pays the amount due.How NCIS will cope if every case of this type is reported no one knows.On the other hand dare I take the risk of being prosecuted if I don't report it.Ironically if I discover the same scenario when I go out on a social occasion I do not need to report it as the discovery was not made by me as part of the regulated sector.
In addition to the problems of actual discovery every regulated firm will have to put in place systems to ensure they know their client and appoint a Money Laundering Reporting Officer.It will be this person's responsibility to ensure that the systems are in place and that any disclosures are made.It will also, more than likely, be this person who will be prosecuted for any failure to disclose.I doubt whether many firms have senior members of staff volunteering to be the Money Laundering Officer.
It is thought that the government will want to make an example of an accountant once the new legislation is in place and the person giving the lecture at the Roadshow I mentioned earlier made the point that anyone in the room or anyone in his firm could be the one.There is a real fear that someone will be unwittingly locked up for failure to report.Unwittingly really is the operative word as the legislation will permit accountants to be found guilty regardless of whether they turned a blind eye, or whether they simply had no inkling of what was going on but someone has decided that they should have known.
I closed the accountants Roadshow by saying that when the Regulation of Auditors was first introduced, accountants worried that their ability to audit might be withdrawn.
Serious though that may be it pales into insignificance compared to a term of imprisonment.
So if, in the next few months, your accountant or solicitor goes through a new procedure which you think is foolish or a waste of time, be patient with them, they are just trying to ensure they stay out of jail!
Clive Jones - Clifford Towers, Chartered Accountants.
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