Adviser: stay ahead on laundering

It is now little more than a year since practising accountants in the UK
became subject to new, far-reaching legal requirements concerning the
identification and disclosure of money laundering.

Adapting to these new rules has been a difficult process for accountants, not
to mention solicitors, estate agents and others who fall within the scope of the
legislation.

But on 26 May, the European Parliament gave its approval to the latest
directive on money laundering. This new directive will consolidate the previous
two while bringing in new provisions and making certain amendments to existing
rules. On the bright side, it makes some moves to reduce the regulatory burden.

The new provisions on customer identification procedures contain an express
recognition of the regulated person’s right to determine, on a risk basis, the
extent to which the various set procedures need be applied in individual cases,
depending on the type of customer, business relationship, product or
transaction.

So while accountants will still have to, for example, verify a new customer’s
identity, they have the right to form a view on how much information they need
to obtain to satisfy themselves, provided the decision can be justified to
regulators.

Furthermore, there is to be a new concept of ‘simplified customer due
diligence’. This means that regulated persons dealing with listed companies and
other customers that the commission decides represent a ‘low risk’ of money
laundering may be exempt from carrying out identification procedures in full.

The new directive also states that member states may allow competent
authorities to carry out their compliance supervision work on a risk-sensitive
basis.

As regards reporting, there remains a general duty for regulated persons to
report to the authorities where they know or suspect that criminal activities
are going on (though there is no compulsion for member states to adopt the ‘al
l-crimes’ reporting policy which the UK has adopted and is highly likely to
retain).

With respect to the issue of privilege, the new directive reaffirms that
member states are not obliged to impose the mandatory reporting duty on
solicitors, auditors and external accountants with regard to information
gathered from their clients through determining their legal position, or of
advising clients on such proceedings. This issue will need to be resolved during
the implementation of the new directive.

A thorny issue for the UK government will be the new class of regulated
person, the ‘trust and company services provider’, which, while new to EU law,
already exists in UK regulations. What the new directive does, though, is to
further define what is meant by the term.

Once approved by the council of ministers later this year, member states will
have 18 months to incorporate the new directive into their domestic law, which
means that the UK’s new rules will probably take effect in early 2007. The CCAB
guidance for accountants will be updated in due course.

John Davies is head of business law at ACCA