Tag: HMRC & Supervisory Issues

  • HMRC probes 153 people suspected of aiding tax evasion

    HMRC has confirmed it is investigating 153 suspected ‘enablers of tax evasion’, including both regulated and unregulated tax advisers.

    Cracking down on ‘enablers of tax evasion’ has been a key area of focus for HMRC since it established its Fraud Investigation Service in 2015.

    The HMRC’s Fraud Investigation Service has been given additional resources in various budgets to recruit more staff and, as a result, the number of investigations into tax fraud enablers is increasing in line with Government’s plan to prosecute many hundreds of enablers.

    The definition of ‘enablers’ of tax evasion is wide and includes not just the obvious sectors such as accountancy but includes solicitors, trust and company service providers and wealth managers enabling businesses to evade tax.

    Enablers fall under two categories: those who are knowingly complicit in criminal activity and those who may not be aware of their client’s involvement in criminal activity but have failed to carry out proper risk assessment and client due diligence checks.

    Regulated firms should ensure that their anti-money laundering policies, controls and procedures are robust enough for any firm wide risk assessed and staff are trained as and when new risks are identified. It is important that risk assessments of clients are reviewed on a regular basis and any changes identified are properly investigated.

    As authorities become better at tackling traditional methods of tax evasion, criminals are becoming increasingly dependent on assistance from enablers. This assistance includes moving assets between jurisdictions, setting up offshore structures, concealing beneficial ownership and devising arrangements to minimise profits.

    The Government though its agencies is determined to clamp down hard on anyone who aids in tax crimes, not just the perpetrator themselves.

  • AML Compliance: European Union Blacklist for Tax Havens

    AML Compliance latest news: European Union Blacklist

    MEPs have called for a tightening of the rules on which countries are added or removed from the European Union blacklist and indicated that UK overseas territories such as the Cayman Islands, Bahamas, Jersey and Guernsey are among those which should be added to an EU tax havens blacklist after the conclusion of the Brexit deal, saying that Britain’s overseas territories should now be screened for potential inclusion on the list, and that the Brexit deal was based on “mutual values and geared towards common prosperity, which automatically excludes aggressive tax competition”. (more…)

  • Money Laundering Regulations Breaches

    HMRC issue fines for Money Laundering Regulations breaches

    Obliged firms play a vital role in the financial systems of the UK’s economy. They facilitate transactions of significant importance daily. However, that also exposes them to being used for illegal purposes. Therefore, they must always act with integrity and abide by the rules. One of the regulations that they must pay special attention to is the Anti-Money Laundering Regulations.

    For professional firms that provide defined services, the regulations require their anti-money laundering systems and controls meet the UK’s anti-money laundering regime’s requirements. The regulations require these firms to ensure that relevant employees are kept aware of the firms’ policies, controls and procedures and are accountable for their actions. (more…)

  • Money Laundering Supervison

    Steve O’Neill reviews the latest statement concerning Money Laundering Supervision

    The UK’s supervisory approach to compliance of obliged entities to the Money Laundering Regulations were branded “woefully inadequate” and are failing to block “corrupt money” and terrorist funds, an anti-corruption body has warned.

    This statement was made by Transparency International UK who went on to say billions of pounds of “dirty cash” is entering Britain every year. They state that this is partly due to a fragmented network of regulators means that only a very small amount is being investigated. (more…)

  • CCAB issues a reminder for practitioners to stay vigilant over money laundering

    Staying safe within the money laundering regulations

    With the latest budget heralding a clampdown on tax evasion, accountants in practice would do well to consider the first-aider’s rule when acting for clients.

    Ask any first aider about helping others and the first rule is: don’t put yourself in danger when trying to assist others. Think and check before jumping in the water to save the drowning man.

    An accounting service provider (practitioner) is subject to the money laundering regulations, which impose obligations of diligence and reporting on the member – where failure to comply can lead to criminal proceedings against the practitioner.

    Test the water before entering

    The first-aider would look at the water and assess his competency as a swimmer given the turbulent nature of the water. Are these choppy waters too great a risk? For the practitioner, this means that he has to consider his competence in the first instance by assessing the skills and experience he needs to deliver the service the client wants.

    Know who you are dealing with

    Although this may sound odd, the second thing the first-aider does is communicate and fact-find in order to assess the situation. This may have a bearing on how, or even if, the first-aider can assist.

    In money laundering terms this means knowing your potential client, and if it is an entity, then finding out who is behind it and who is taking the benefit from it. Making sure you have a record of that evidence is very important – and your only proof you have complied with the regulations.

    Watching for rocks and sharks

    The first-aider is ever alert to their surroundings and the changing circumstances to ensure they can react and adapt the rescue plan in order to manage the danger to them or the person they are trying to help.

    For the practitioner this means being alert for unusual events and transactions or results that implicate the client as perpetrator, facilitator or victim of a crime. The practitioner needs to ensure and evidence that all staff are trained in money laundering and that all suspicions are reported to the money laundering reporting officer (MLRO) who will make the decision whether to report to the National Crime Agency. Does the MLRO who receives no reports have poorly trained staff, rather than really safe clients?

    In addition, the initial client due diligence has to be refreshed each assignment and any changes to the evidence that is relied upon should be recorded. Where is the documentary support that this is still the most appropriate ongoing due diligence? A note confirming consistency with current file data each year should be made.

    Dialling 999

    The first-aider should dial 999 before entering the water but may not – and would assess the condition of the person in the water to see whether it was warranted.

    The reporting obligation imposed on the practitioner on the other hand is a bit more complex and onerous since it is a crime to fail to report. So when should the practitioner report? The regulations provide that the practitioner must report if, during the course of his business as an accounting services provider he becomes suspicious of there being a crime with proceeds.

    Professional scepticism should prevail. While he is not obliged to do anything extra as part of the money laundering regulations, he is required to be aware of the potential for money laundering or terrorist financing. That involves keeping an eye on the transactions during the course of the work and ensuring that they appear consistent with what he would expect to see, given the knowledge of the client.

    These transactions might, for example, involve the client’s staff stealing from the client, or some sort of tax evasion.

    Reports to the MLRO should be monitored and the decision whether to report documented. Where no report is made, this situation is monitored going forward in order to react, should further evidence come to light.

    A cry for help with a nasty twist

    Where the client comes to the practitioner to say “I’ve done wrong” (perhaps they have not  declared income which is in an undeclared overseas account), and “what do I do?” (seeking advice as to what to do under the law in order to regularise their affairs): does the practitioner help the client and still report them or does he apply the privilege reporting exemption?

    This is not the legal privilege we generally think of but a special privilege under the money laundering regulations. It is important to get legal advice confirming the position before taking the decision to report or not.

    If in doubt, seek advice from your professional body.

    In summary: you should:

    • know your client and their business;
    • appoint a MLRO and train your staff as to their obligations;
    • record and monitor evidence of the client’s identity;
    • monitor money laundering identity evidence and reporting to MLRO; and
    • record evidence of the MLRO decisions to report or not.

    To discuss your money laundering obligations, contact your professional body.

    You may also consider investing in a package of AML technical resources and/or attending further CPD on the subject.

  • Government announces a new crackdown on corrupt professionals who help criminals

    Lawyers, couriers and accountants could be jailed if they turn a blind eye to criminal activity they profit from, under Home Office plans.
    It wants to see a new offence of “participation in an organised crime group” to target those with reason to suspect they are part of an illegal enterprise.

    This offence is not in replacement of any money laundering offences which may not be picked up by an AML supervisory or lack of supervision. It is in fact an offence which brings the fees or charges or salary earned into play, when they are charged to or paid by an organised crime group for the service or works done.

    The Proceeds of Crime Act in its predicate offences of Money Laundering already has a ‘professionals’ offence under S328, which state;
    A Person Commits an office if: if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

    The predicate offences of Money Laundering including S328 are applicable to all. S328 is backed up by an objective test of negligence covering the blind eye approach but has not been tested in court. Perhaps it is this weakness of PoCA which has spurred on this new offence.

    Professionals including accountants have already been jailed under S328 for aiding in the money laundering of organised crime groups. In a recent disciplinary tribunal, I was a part of on behalf on one accounting body, the case was to strike off the member upon release from jail after serving time for a conviction under S327 and S328 of the PoCA, for an organised crime group dealing in drugs. The Judge commented as part of his report that there was no evidence that the professional was involved in anything related to the drugs trade, but the laundering of the proceeds only.

    When taking part in the panel for the UK Risk Assessment as part of the FATF recommendations for Government to put in place, each section, be it banker, Government department or law enforcement agency, all had their number one area of concern, for example, tobacco smuggling. However the common number two problem across all strands of law enforcement was the ‘professional enabler’, that is the lawyer, accountant or trust and company service provider who put schemes in place to enable identities of beneficial owners to be kept hidden or help move the proceeds of crime.

    This new offence seems to go one step to the side of the S328 offence, rather than a replacement it is an offence on its own, getting into the ‘administration and management’ functions of the crime group, for those who actively participate in these functions, more knowingly rather than under the a suspicion that wrongdoing may be taking place within their normal practice environment. For example the actual fee charged for the services to an organised crime group will be the profiteering subject to the charge.

    So you would imagine, as with a drug dealer getting charged with his main criminal offence and money laundering, usually S327, the person aiding the crime group would be charged with ‘participation in an organised crime group’ and possibly money laundering, a S327 and/or S328 offence. This would give a better chance of prosecution.

    The Government seems to confirm this point, they say the new offence would also target the “Mr Bigs” in charge of criminal networks who do not always “get their hands dirty”. This seems to be another tool to help law enforcement tackle their problem of the professional enabler more quickly as well.

    However will it be limited to a Mr Big or can it run deeper? When the Cyprus banks were bailed out am investigation was commissioned which discovered that over 70% of the banks customers had not passed any due diligence test and had up to 7 layers of beneficial ownership information crossing various jurisdictions designed to conceal true identities. Most of these opaque structures had been designed and setup by lawyers, accountants and company service providers, these are the very professional enablers law enforcement would like to target.

    Some accountancy and trust and company service provider firms’ setup company structures involving offshore structures often with nominees in place and say to the client there you go do what you want with it, but yet charge reoccurring fees for the maintenance of the company structure.  They enable the beneficial owners to do what they want, even if they are criminals and known to be involved in criminal activity or tax evasion, the agent simply states they are not breaching the Money Laundering Regulations, since they understood the purpose was for legitimate activity and they had verified the identity of the beneficial owner. Prosecution for breaches under the Money Laundering Regulations would only likely carry a civil penalty in these instances.

    Under the new offence criminal sanctions may be taken instead for the fees charged. This again is hinted at in the statements of the Home Office.

    ‘Veneer of respectability’

    “If you are helping to oil the wheels of organised crime, you will be prosecuted” stated Karen Bradley, Home Office minister

    The Home Office believes too many people and corrupt professionals are helping criminal gangs by not asking questions about why their services are required, and later deny any knowledge of the criminal activity when cases reach court.

    It is hoping to target people such as couriers or van hire companies who help to move counterfeit goods, or lawyers and accountants who take a “no questions asked” approach while assisting criminals with services such as writing up contracts.

    Those convicted under the new offence would face up to five years in jail and could be subject to further civil measures.

    Home Office minister Karen Bradley said: “Nobody is above the law. But for too long corrupt lawyers, accountants and other professionals have tried to evade justice by hiding behind a veneer of respectability.

    “This new offence sends out a clear message to those individuals – if you are helping to oil the wheels of organised crime, you will be prosecuted and face being jailed.” The Home Office says it will legislate on the measures as soon as parliamentary time allows.

    So what does this mean to the practitioner, the accountant or bookkeeper facing the day to day problems on the Money Laundering Regulations, where you are used unwittingly by your client or a money launderer for your good name and expertise? In reality there should be no difference, make sure your client due diligence is up to date, leaving no holes, use the tools available to you such as electronic verification when necessary. Ensure your risk assessments of the clients are done and robust enough and reviewed as circumstances dictate.
    A quick note on risk, look for the country risks, does your client trade with overseas jurisdictions or have significant personal flows of money to or from another jurisdiction? Banks when looking at risk and will invariably look at the country risk first.   Remember Spain and Holland have the highest concentration of organised crime groups in the world and many of the targeted criminals in Spain have now moved to South Africa.

    What about those practitioners who are not so robust in their procedures, those who may turn the occasional blind eye to things for a quiet life?  Remember the money launderer will present to you the persona you expect to see before you, the books, records and transactions you expect, all matching the ‘know your client’ information you have, which in many cases is just what the money launderer has told you and wants you to believe. Suspicion is quite often about what you do not see rather than what is presented to you. If you then get involved in opaque company structures, aggressive avoidance schemes or any other areas designed to provide some form of anonymity without proper care as to the true purpose and legitimacy you may well find yourself caught by this legislation.

    For More Information on verifying the client or risk see our pages on Customer Verification

  • HMRC to contact businesses registered under the Money Laundering Regulations

    HM Revenue & Customs (HMRC) Anti-Money Laundering Compliance Officers will shortly begin a programme of telephoning businesses registered with, and supervised by HMRC under the Money Laundering Regulations (MLR).

    These calls will be in addition to and will complement ongoing HMRC compliance activity. HMRC will be contacting businesses to make sure that up to date information is held about their activities. The calls will also further improve HMRC understanding of customers and to find out whether they need any additional help.

    HMRC can ask registered businesses for this information under Regulation 37 of the MLR 2007 and this has proved to be a very cost effective way for both customers and HMRC supervisors to conduct its compliance activity.

    During the calls the HMRC officers will confirm their identity and ask businesses for their security information. They will ask for details of business activities, customers and also answer any questions. This will help HMRC decide whether a visit is needed and give businesses the opportunity to clarify any issues they may have.

    The Revenue carrying out these checks by phone as they are quicker and less invasive than personal visits and if done correctly, HMRC should be able to distinguish based on the evidence gained form the phone call, between firms who understand their obligations under the Money Laundering Regulations and those who do not.

    A minority of supervised firms will be not be up to standard on their compliance to MLR obligations, whereby follow-up action by the way of a personal visit may be appropriate.

  • OFT fines Leicester-based estate agent almost twelve thousand pounds

    The OFT, in its first formal Regulatory penalty, has fined Leicester-based IPS Estate Agents Limited £11,844 for failing to comply with anti-money laundering regulations.

    IPS failed to comply with a number of requirements under the Money Laundering Regulations 2007, including those relating to:

    • verifying the identity of customers
    • keeping appropriate records
    • ensuring that relevant staff are aware of the law relating to money laundering and terrorist financing
    • establishing and maintaining appropriate, risk-sensitive policies and procedures.

    The failures relate to the period between March 2010 and October 2011. The OFT visited IPS premises to check compliance with the Regulations in June 2011 and again in October 2011.

    From the scope of the failures for almost all major areas of compliance to the Regulations you can almost conclude that virtually no compliance of any weight was conducted by the firm with no appropriate management policies and procedures for risk management and the subsequent communication and training of any policies to staff members to fulfill their obligations.

    Kate Pitt, OFT Deputy Director of Anti Money Laundering, said:

    ‘This fine sends out a message to all estate agents that they need to have appropriate measures in place to prevent their business from being used for money laundering or terrorist financing purposes.’

  • United Kingdom and Isle of Man to sign enhanced tax information exchange agreement

    United Kingdom and Isle of Man to sign enhanced tax information exchange agreement

    The Government is to sign a tax information sharing agreement with the Isle of Man which will provide HM Revenue & Customs (HMRC) with a range of additional information about potentially taxable income in Manx bank accounts. This is part of a package of measures being developed by the UK and the Isle of Man as part of a shared commitment to combat tax evasion.

    Under the enhanced information exchange agreement, the UK and Isle of Man will automatically exchange a wide range of information on tax residents, on a reciprocal basis. To minimise burdens on financial institutions the agreement will follow, as closely as practicable, the UK-US Agreement to Improve International Tax Compliance and to Implement FATCA. The agreement will be concluded to the same timetable as the agreement currently being negotiated between the Isle of Man and the United States.

    Exchequer Secretary to the Treasury, David Gauke said:

    “This agreement will significantly boost the UK’s ability to tackle cross-border tax evasion. Automatic information exchange is an important tool in boosting HMRC’s ability to clamp down on those who seek to hide their money overseas. Our ground breaking agreement with the US sets a new standard in international tax transparency and today’s agreement between the UK and Isle of Man to move to much greater levels of automatic exchange is the next step in this process.

    “For years people said this couldn’t be done, so I welcome the progress we have made so far with the Isle of Man. We are looking to reach similar agreements with other jurisdictions and are in discussions with Jersey and Guernsey about enhanced information exchange as part of our common commitment to combat tax evasion.”

    Details of the necessary operational and implementation requirements are still being discussed and will be announced in due course.

    When combined with HMRC’s new centre of excellence in offshore evasion and the development of a comprehensive strategy to tackle it, HMRC will be well placed to clamp down even harder on those who evade tax by hiding their money offshore.

     

  • The Government published its changes to the Money Laundering Regulations 2007

    The Government today published its response to its consultation on changes to the Money Laundering Regulations 2007. Following this consultation the Government is now taking forward proposals to reduce the regulatory burden imposed by the current regulations, while strengthening the overall anti-money laundering regime.

    The aim of the changes was to make the UK’s money laundering regime more effective and proportionate, with the proposed changes saving firms around £3 million a year. Relevant regulatory changes will take effect from 1 October 2012.

    Criminal Offences
    The Government has decided to keep the criminal penalties in the Regulations. The consultation highlighted key risks inherent in their removal and there is insufficient evidence to indicate that removing them would achieve either the UK’s policy objectives or address the concerns raised. Indeed, the balance of responses indicates that ‘over-compliance’ behaviour is also influenced by other factors that would not be addressed by removing the penalties. For example, businesses may adopt risk-averse and tick-box approaches if it is more cost-effective for them to do so, in the absence of clear and unambiguous guidelines for front line staff, in order to prevent fraud or in order to comply with other legislation including financial sanctions.

    The Government reiterates the point made by the CPS that it is not in the public interest to prosecute employees of regulated businesses for minor, procedural or accidental regulatory failures.

    Reliance Purposes
    The Government is proceeding with the removal of the distinction between Part 1 and Part 2 bodies. Based on recent and continuing work with Supervisors, it is considered that they are discharging their role satisfactorily and that the proposed change is advisable. This was further confirmed in HM Treasury’s first Annual Report on Supervision1. As suggested in some responses, any new supervisors will be placed in Part 2 until they demonstrate ongoing, robust and effective supervision of their members.

    Small Business Exemptions from the Regulations.
    The Government does not propose to introduce an exemption based on the size or turnover of a business, as it acknowledges the absence of a positive correlation between the size of a business and the money laundering risk it represents. The Government also recognises the risk of the exemption leading to ‘smurfing’ and other criminal practices; and the practical difficulties of introducing such a measure.

    The Government understands the ongoing issues faced by some exceptionally small businesses in relation to the costs of compliance and supervision. Supervisors are encouraged to ensure that the risk-based approach translates into effective, differential treatment in terms of the burden of requirements and, where possible, the fee levied.

    Other Changes to be made include;
    Overseas estate agents are to be bought within the Regulations. The UK is required to regulate all estate agents in order to ensure they minimise their vulnerability to money laundering. These businesses should be regulated, both to ensure the UK is fully compliant with Financial Action Task Force (FATF) global standards and EU requirements and because these businesses are at high risk of money laundering.

    Fit & Proper Tests for MSB’s – The EU Directive allows for all criminal conduct to be taken into account. Given the high risk presented by Money Service Businesses (MSBs) and the case made for enabling the fit and proper test to take into consideration all previous criminal conduct, the Government will proceed with this proposal. The MSB sector is a high-risk sector for terrorism financing and money laundering.

    There are a number of issues that have been resolved concerning supervisors’ powers. The widest reaching change is that Government will proceed with the creation of an information-sharing gateway for supervisors. The Government acknowledges the need for safeguards and clarity around the circumstances under which the information can be shared and the nature of the information.

    Given the issue of overlapping responsibilities, the Government considers it essential that a new Supervisor is able to access information from a previous Supervisor when a business/person seeks to register for anti-money laundering purposes.

    A summary of the changes cited as the Money Laundering (Amendment) Regulations 2012 and come into force on 1st October 2012 are;

    • Partly or Wholly Removing Criminal Sanctions & Strengthening Supervisors Powers to Compensate – No Action
    • Removing Distinction Between Part 1 and Part 2 Bodies – Commencement Date 1 October 2012
    • Extending reliance to OFT-Supervised Debt Purchasers – Commencement Date 1 October 2012
    • Introduction of a De-Minimis Exclusion – No Action
    • Exemption of ‘Non-Lending Credit Institutions’ – Commencement Date 1 October 2012
    • Regulation of Estate Agents Handling Overseas Properties – Commencement Date 1 October 2012
    • Clarifying the Definition of Safe Custody Services – The Government response formalises the FSA definition as the one applicable in the UK. FSA to update its website and include in next edition of Financial Crime newsletter
    • Extending Consideration of Previous Criminal Conduct under HMRC Fit and Proper Test – Commencement Date 1 October 2012
    • Introducing Right of Appeal for HMRC Fit and Proper Test – Commencement Date 1 October 2012
    • Clarifying Supervisory Powers – Commencement Date 1 October 2012
    • Creating an Information Gateway for Supervisors – Commencement Date 1 October 2012
    • Regulating to Penalise Misused of HMRC name and logo by Regulated Businesses – HMRC to monitor this abuse and inform HMT if measures to mitigate it are not working.
    • Appointing the FSA as the Supervisor for Recognised Investment Exchanges – Commencement Date 1 October 2012
    • Removing Regulation 18 – Commencement Date 1 October 2012

    Other Changes to the Regulations which were a part of the proposals of the review and call to evidence which are deferred Subject to Revisions to the EU Third Money Laundering Directive expected early 2013

    • Improving Wording on Beneficial Ownership
    • Streamlining the Supervision of E-Money Issuers
    • Appointed Representatives
    • Pooled Client Accounts