PracticeAccounting FirmsA privileged position on laundering

A privileged position on laundering

After months of lobbying, Westminster has finally given accountants protection under money laundering law

Lawyers and accountants are a bit like cowboys and Indians. The same
territory to fight over and neither side prepared to take prisoners.

A simplistic comparison? Certainly, but there is no doubt the two professions
often clash and don’t always have a high opinion of each other.

It was interesting to see the Law Society’s rather grudging response to the
extension of legal privilege under anti-money laundering regulations given to
accountants, allowing them to claim protection from reporting suspicious
transactions. It is a privilege already enjoyed by lawyers.

The legal profession had opposed the extension of privilege, albeit limited,
to accountants, auditors and tax advisers, and the statement from Law Society
president Kevin Martin reflected this. He talked about the privilege being
extended to ‘a limited degree’, and stressed the fact that it should only happen
in ‘carefully prescribed circumstances’.

Perhaps more important than the tribal opposition of the lawyers is what the
changes, which came into effect this week, mean and what the implications are
for accountants.

To give accountants the new right the government had to amend the Proceeds of
Crime Act 2002 and the Money Laundering Regulations 2003 through a parliamentary
order, which needed the formal approval of the Privy Council.

It has taken quite a while to sort out, which is surprising especially as it
merely brought UK law into line with a European Union directive on money
laundering.

The ICAEW had to lobby for 18 months to secure the change. Karen Silcock,
chairman of the institute’s money laundering working party, said: ‘It was a
situation that was becoming very difficult. You had a lawyer and an accountant,
and the accountant was being treated differently.’

She gives the example of the accountant advising a client on tax law and
therefore giving legal advice and performing a similar role to a lawyer, and so
facing the same dilemma a lawyer would if that professional comes across
something which appears to be criminal.

Advice on takeover bids or directors’ duties under Companies Act legislation;
legal issues under the Insolvency Act 1986, and employment law are all relevant
areas.

Also, in a case where litigation is involved the accountant may be taking
witness statements, or might be instructed as an expert, which would involve
them dealing with possibly incriminating material.

Under this change in the law, the accountant can now decide not to report
anything suspicious to the National Criminal Intelligence Service if it will
compromise the clients’ rights to legal privilege.

But the institute stresses that the privilege only applies to money
laundering and not in other crime areas. It doesn’t affect reporting
requirements under the Terrorism Act 2000, for example.

Felicity Banks, head of business law at the institute, said: ‘It is important
that the profession appreciates that this proposed statutory exemption from
reporting, limited to money laundering issues, does not confer any wider
privilege on the work of the accountancy profession.’

Guidance from ICAEW also explains that this is not a discretionary privilege
and cannot be over-ridden by a professional who wants to make a report. The only
situation where it can be put to one side is under the so-called ‘crime/fraud
exception’.

This clause covers circumstances where information is communicated with the
intention of committing a crime. For example, when a client who is a tax evader
seeks advice to continue with the evasion, it is acceptable if the advice being
sought will end the evasion.

In civil cases, a professional unearthing ‘sharp practice’ could also be a
situation where the privilege is ignored. An example of this might be an attempt
to defraud creditors contrary to the Insolvency Act 1986.

The institute advises caution: ‘The crime/fraud exception is a difficult area
and the courts will not usually allow the exception to be invoked unless there
is compelling circumstantial evidence available to demonstrate that the
communications have, in some way, been intended to further the crime or the
fraud.’

But ‘mere speculation’ may not be enough to invoke the exception. Ironically,
the institute ‘strongly recommends’ that legal advice is always taken where a
professional is in any doubt.

Accountants have to be a member of a professional body before they fall
within the scope of the new privileges. Their staff will also be covered.

It is seen as unlikely that forensic accountants will be affected because
they may well come across evidence of money laundering, but are unlikely to be
offering legal advice related to that information.

Lawyers may have some difficulty adjusting to the new privileges accountants
now have, but maybe it is time to call a truce and end the territorial battles
which tarnish relations between the two professions.

But for many it makes sense for accountants to have these new privileges and
brings to an end the advantages enjoyed by lawyers.

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