Money laundering Q&A

To help demystify what is actually required the Association of Accounting Technicians has put together a list of questions and answers looking at the key areas of concern. Scroll down the page to read them:

What is the position where a client is currently undergoing an in-depth enquiry with the Inland Revenue. Do members have to report this to NCIS or will the Inland Revenue have done it?
A. Even if the Inland Revenue are conducting an in-depth enquiry, you should still make a disclosure report but you can do this on the NCIS abbreviated form. The standard and abbreviated disclosure forms, along with guidance on when to use each, are available from the NCIS website.

‘You should satisfy yourself that the documents offered are originals.’ What happens if a member accepts a document which later turns out to be a forgery?
In deciding whether documents are genuine, you should be aware that documents could be forged but you are not required to engage in a forensic examination. If documents look genuine, you may accept them at face value, unless suspicion has been raised by other matters. If you do not know what they ought to look like, or doubt their veracity, you should seek guidance from the issuing authority. Foreign documents could be verified by the appropriate embassy.

All that is required is that you act in good faith. You will not be liable if a document turns out to be a forgery, unless it is an obvious forgery.

Doesn’t the AAT have a duty to protect members’ interests by obtaining Treasury approval?
As yet there is no mechanism in place for the Treasury to provide approval. But even if there were, we take the view that our members’ interests are best protected by not seeking such approval until the law is clarified by the courts.

The reason for this is that any such approval would necessarily require the Treasury to apply its own interpretation of the money laundering legislation to the guidance. We would expect the Treasury to interpret the legislation in its own favour, which would make our members’ legislative obligations even more onerous.

Also, given that no other regulatory body has sought Treasury approval (as far as we are aware), our members would not be disadvantaged. We would expect the courts to take account of the fact that currently no Treasury approved guidance is available from any source.

What is happening with summary reporting and internal reporting now that the regulations are in place?
A. Summary reporting has been introduced by NCIS (and is referred to as an ‘abbreviated’ report). Internal reporting is the mechanism by which an employee reports his suspicions to his firm’s Money Laundering Reporting Officer (MLRO). The MLRO is responsible for deciding whether to report this suspicion to NCIS.

Do you have to advise a new accountant who is replacing you, that you have filed reports to NCIS, or should this be treated in confidence?
A. It is probably a good idea to inform an incoming accountant that you have made a disclosure report and to state the basis of your knowledge or suspicion or reasonable grounds etc…The proviso is that the incoming accountant must belong to a regulated professional body. The reasons are:

• the tipping off provisions do not prohibit all disclosure, only those likely to prejudice an investigation, as an incoming accountant cannot divulge the content of the professional enquiry response to his client (due to his own professional standards and the POCA). Therefore, disclosure to an incoming accountant could be said to be unlikely to prejudice an investigation; and

• the whole thrust of the money laundering legislation, as it applies to the regulated professions, is to prevent money launderers obtaining professional services and expertise. Disclosure to an incoming accountant would help achieve this objective.

Are we only concerned with suspicions that arise in connection with work we do from 1 March 2004, or are we expected to go back into our files and review past work?
A. Members must only report suspicions that arose since 1 March 2004 (not before), whether or not the crime was committed before then. Therefore, there is no need to review past work.

Did the Treasury produce a ‘Regulatory Impact Assessment’ for this legislation? (Members are likely to incur substantial time-costs in meeting their obligations. Can we invoice the clients for this? If not, to whom do we send the bill?)
A. The Treasury did a ‘Regulatory Impact Assessment’ which was available via their website. However, its anticipated costs to the professions were felt to be unrealistically low.

On a general note, it would be difficult to invoice a client for the time-costs associated in administering the money laundering procedures without risk of committing a tipping-off offence. Therefore, one option might be to consider regarding such costs as overheads to be reflected in the general hourly rate.

Do you have any stock answers to give clients when they demand to know whether we have reported them or whether we are responsible for them being subjected to an in-depth enquiry?
A. No stock answers are available. Accountants faced with difficulty should telephone the NCIS help desk for advice.

A point to bear in mind, however, is that the legislation does not oblige the accountant to lie to the client. It would be unprofessional and potentially dangerous to do so. If you lied and thereby misled your client as to the reason why you had not completed his accounts, he could take legal proceedings against you based on that lie. If the court found out that the client had been misled, you could be liable to pay his legal costs (even though you may not be liable for any loss suffered by him in consequence of you fulfilling your obligations under the legislation).

If a client is subject to an Inland Revenue tax investigation for undeclared income but now intends to make a full disclosure, do we still have to make a report to NCIS?
A. A report is still required. However, because the Inland Revenue already knows about the undeclared income and is investigating, the accountant can make an abbreviated report to NCIS because the intelligence value of the report would be low.

What is the threshold between which you make a standard or abbreviated report? (ie, anything under £5,000 is abbreviated, above this level is a full report).
A. No threshold has been specified by NCIS. They state that serious tax evasions or proceeds from serious crime should be reported on the standard form. The emphasis is on the nature of the crime. For terrorist offences, serious tax evasion, paedophilia etc…a standard form must be used. NCIS have issued their own guidance for use on the respective forms on their website.

Is there a breach of the POCA if an unlawful dividend is made? (a large dividend was paid out but the company did not make any profits)
A. There is no proceed of crime unless a physical crime has taken place. Therefore, the payment of the dividend must actually be breaking the law, as opposed to just being a matter of bad practice. If a crime has been committed (ie, a law has been broken in the payment of the dividend), then this would come under POCA and should be reported to NCIS.

Have NCIS stipulated what level of training is required and to what standard?
A. NCIS do not specify what standard of training should be carried out by firms. A firm could pay for outside involvement, but there is no reason why it should not hold informal seminars based on the AAT’s Guidance. Training can be fairly basic. All that is necessary is that staff understand what is required of them.

The first thing a firm needs to do is identify the members of staff who require training. This can be anyone from the receptionist to head partner, depending on their likelihood of being exposed to clients/accounts information.

All relevant staff should have an understanding of:

• the applicable sections of the POCA and Terrorism Act (these are in the AAT’s Guidance)
• the firm’s internal reporting procedures and the identity of the nominated officer
• the firm’s identification and other procedures
• how to recognise a suspicious transaction.

It’s important that training is not a one-off event. Firms must ensure that staff are kept up to date with developments. Ultimately, the decision about the form of training should be based on cost and time management issues – do I get someone in or do I do it myself?

A third party wants me to check and certify the identity of new clients on their behalf. As an FMAAT can I do this?
A. Unfortunately, there is no clear cut answer to this.

It is generally accepted that notary public (i.e. lawyers) can certify that documents are a true copy and that the person producing them is who they say they are. However, it is not clear whether this extends to accountants or not.

Whilst accountants can sign and verify documents (such as passport applications), it is not clear whether this applies only to certified/chartered accountants, or accountants in the more general sense of the word.

There is unlikely to be any problem with FMAATs certifying documents, provided they have acted in good faith. However, no precedent has yet been set by NCIS or a court of law. Therefore, there is no clear definition of who could reasonably carry out this activity.

I am the only qualified employee working for the firm. I have reported my suspicions of a criminal activity to my MLRO but they have taken no action in respect of this. What should I do now?
A. Once you have made your firm’s MLRO aware of your suspicions, the onus is on them to make the appropriate report to NCIS. Any legal liability then rests with the MLRO. However, in some situations, the MLRO might reasonably conclude that the matter doesn’t need to be reported to NCIS. This is a judgement call on their part and does not necessarily imply wrongdoing. It depends entirely on the individual circumstances of that particular case.

The MLRO in my company is the person undertaking the criminal activities. He also happens to be the President. What should I do?
A. If the MLRO is the person undertaking the ‘criminal activity’, then you could report your suspicions/knowledge direct to NCIS or speak to a senior manager within the firm. However, if reporting directly to NCIS, you must be certain that the President of the company is intentionally/deliberately not acting appropriately. If the President is acting from a position of ignorance or innocence, then the most appropriate course of action may be for you to raise your concerns with a senior manager. If the President still doesn’t act on the manager’s concerns, then the manager should report the President to NCIS.

One of my clients is a manufacturing company and they don’t usually have cash clients. However, one customer now wants to pay in goods or cash to the value of £10,000. Is this acceptable? What does my client have to do?
A. A payment equivalent to 15,000 euros or more is considered a High Value Payment. However, for the purposes of the Money Laundering Regulations, this only applies to:

• cash payments (i.e. £10,000 of televisions purchased in exchange for £10,000 worth of bedroom furniture is not considered a high value payment as it is payment in goods and not cash), and

• cash payments in exchange for goods and not services (i.e. an accountant who provides a service is arguably not bound by the Money Laundering Regulations when accepting a large cash payment. However, some-one providing goods would have to comply).

CASH payments include notes, coins or travellers cheques. Anyone willing to accept a cash payment of this amount would be classed as a High Value Dealer (HVD).

HVDs are required to register with Customs & Excise (C&E) by 01.04.04 and to comply with the Money Laundering Regulations from 01.03.04 when accepting high value payments. This means that the HVD is required to confirm the identity of a customer making the payment, appoint a MLRO, train staff etc… It doesn’t matter if a HVD is registered for VAT with C&E, they also need to be registered separately as a HVD.

Therefore, in order for your client to accept a high value cash payment from their customer, they have to register with C&E. If they don’t want to register, then they should accept payment in goods to the same amount (not always practical), or ask the customer to pay by other means, i.e. a clearing bank cheque or credit card.

If you have any other questions you want answering, send an email to [email protected]a, with the heading ‘money laundering’ and we will find the answers.

Disclaimer: Neither this article nor the AAT Guidance on Money Laundering is intended as legal advice and we are not responsible for any errors or inaccuracies contained within them. You are responsible for your own compliance with the law and to seek independent legal advice as necessary. You are strongly advised to acquire a working knowledge of POCA, TA and the Regulations and to keep abreast of any amendments and developments. You can download copies of the legislation from www.hmso.gov.uk