Tag: risk based approach

  • 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…)

  • Policies and Procedures AML Regulations 2017

    Policies and Procedures Templates for the Money Laundering Regulations 2017

    A complete set of templates which aids in the requirements in the Regulations for risk sensitive policies, controls and procedures which are able to demonstrate to a supervisor your firm’s specific policies, controls & procedures for AML. It includes:

    • Templates covering The firms’ Policy Statement,
    • Templates for the ‘Risk Register’ that is Risk Assessment & Risk Management controls and Procedures
    • Templates for Policy and management procedures for reporting both internally and to SOCA
    • A further ‘Tool Kit’ section packed with working papers and other relevant items to help you prepare your firms specific policies, controls and procedures.

    The documents are delivered electronically allowing for simple editing in word along with explanations and instructions of what is expected of you for each section.

    For further details click here

  • 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.

  • 04.11.10 FATF to add Tax Crimes as a ‘Predicate offence’ for money laundering

    The Financial Action Task Force in its consultation document ‘Preparation for the 4th Round of Mutual Evaluations’ states that is considering including tax crimes as a predicate offence for money laundering in the context of its recommendation 1. More precisely, it proposes to amend the list of designated categories of predicate offences for money laundering as follows:

    • To clarify the current designated category of smuggling by referring to: smuggling including in relation to customs and excise duties and taxes.
    • To add a separate designated offence category: tax crimes – related to direct taxes and indirect taxes.

    For the private sector, the key result of this change will not be the impact of this change on recommendation 1, which already states crimes punishable by over 6 months of imprisonment be included within the predicate offences, but rather to the obligation to support suspicious transactions under recommendation 13.  Thus transactions related to the laundering of the proceeds of tax crimes would have to be reported as suspicious activity.

    In the UK, the accountancy sector has sometimes been reluctant to be included within the money laundering regime, in some ways understandable when comparing the requirements of recommendation 13 and the all powerful PoCA 2002 and the all crimes regime, sometimes seeming to ‘gold plate’ the EU 3rd  Directive. This can be seen from the differing approaches from some of the 16 supervisory bodies within the UK, some have more urgency than others.

    After another year of advising and training accountants and tax advisors in the UK, probably almost 2,000 firms and individuals of all sizes and expertise in total, I am still surprised that most have no concept of the ‘risk based approach’ and that tax evasion is reportable under PoCA. With a lot I get, I do not deal with my clients funds, I have copied their passport, tick, and I have a copy of a utility bill, tick. I have complied in full.

    This concept of ‘transaction’ based compliance seems to have seeped down into the sector, people and firms wanting to believe that they are too small to have to report or indeed be seen or even comply. The concept of transactional limits has even been debated in the House of Lords and other Parliamentary review boards so is in any wonder then given the reluctance of the sector as a whole this is the case? This is backed up by the statistic that there are still around 25,000 firms and business in the accountancy sector who just have not registered for supervision.

    However, from a point of clarification the main thrust of the FATF review is the mandatory risk based approach for all countries and regulated firms for risk assessment, risk management and mitigation and higher risk concepts. This is removal once and for all of the doubt of being too small for the Regulations, it is not size that matters rather it is the risk. Couple this with tax evasion becoming a predicate office of money laundering; I would hope finally the sector as whole embraces the UK compliance culture; apparently it is not as gold plated as people thought, just ahead of its time.

  • 10.08.10 External consultants cannot act as a Nominated Officer under Money Laundering Regulations

    As an external consultant I am usually in the situation where systems we devise for compliance starts with a simple policy statement, which firstly details who is and how to communicate with, the nominated officer, who will be a senior member of the firm, a director, partner or owner manager.  We remind firms of their responsibilities under the Money Laundering Regulations, It is after all their business and they must accept reasonability for its successful running.

    It does come as no surprise, therefore, that the Financial Services Authority (FSA) has recently censured and banned three directors from acting as senior managers for failing to meet their supervisory standards. The FSA investigation found that the directors had been relying too heavily on external consultants for advice on how to run their business.

    It is equally unsurprising then that HM Revenue & Customs (HMRC) have also announced that they take the same view to the FSA in relation to businesses meeting their obligations under the Money Laundering Regulations.

    HMRC also state that they have no objections to businesses getting advice from external consultants regarding their obligations under the Regulations, as long as the responsibility for complying with the Regulations remains on the business rather than any consultant.

    What does come as a surprise is that some consultants, who should frankly understand the Regulations better, have recently offered their services to act as the Nominated Officer for a business. HMRC has no formally announced that it does not consider that a consultant outside the business can be appointed Nominated Officer for any of the businesses HMRC supervise under the Regulations.

  • Ongoing Monitoring – What are the practical implementations for existing clients?

    Do the requirements to carry out ongoing monitoring of customer due diligence measures and client’s business relationships mean that you must obtain a passport and utility bill from your existing clients or that you must investigate all the business affairs of your clients?

    For many existing clients which date from 1 March 2004 you will have obtained verification of their identity under the 2003 regulations. For those clients you will need to consider whether the information you hold is sufficient, based on your risk assessment of the client , to demonstrate your have taken appropriate steps to verify the identity of your client and whether anything has changed in the period to render that information out of date. For clients whose situation, address, name and business has not changed since you last considered their identity we would suggest you need do no more than commit your risk assessment and review to the file.

    For clients where the situation has changed or who predate 2004 you may well have obtained official verification of matters such as name and address through correspondence with government offices, bank statements and similar official channels. It is suggested that you undertake these checks during the planning for the next engagement for the client.

    The key issues are:

    • Have you undertaken a risk assessment of the client ?
    • Do you have information which supports your verification of the client’s identity and which is consistent with your risk assessment?
    • Can you demonstrate what you have done if asked to evidence your customer due diligence measures?

    Visit the BTC website for compliance help and support for firms in the regulated sector.

  • Q. What is Customer Due Diligence?

    Customer Due Diligence (CDD) is a key part of the anti-money laundering requirements. They ensure that businesses know who their clients are, what their clients business are and do. They help ensure that you do not accept clients unknowingly which are outside your normal risk tolerance, or whose business you will not understand with sufficient clarity to be able to form money laundering suspicions where appropriate. If businesses do not understand its client’s regular business pattern of activity it would be very difficult to identify any abnormal or suspicious activity.

    The 2007 Regulations provide an outline of the required components of CDD which is undertaken on a risk sensitive basis. Regulated firms need to ensure that these are integrated into client acceptance procedures and for the continuing monitoring of the business relationship. The three basic components are;-

    (1) Identifying the client and verifying the identity of the client by obtaining evidence from documents, data or information obtained from indepenant and reliable sources.

    (2) Identifying the beneficial owner(s) of a client, if there is one, so that the identity of the individual(s) who is the ultimate owner or controller is known and then verify their identities on a risk sensitive basis. Specific steps must be taken is ensure that the ownership and control structure is understood. 

    (3) Information on the purpose and intended nature of the business relationship

    Visit the BTC website for compliance help and support for firms in the regulated sector.

  • Q. What are the Specific Breaches of the Money Laundering Regulations?

    The specific failings and breaches which are clearly defined within the Money Laundering Regulations 2007 are;

    • Regulation 7 – Failure to apply appropriate risk-sensitive customer due diligence measures
    • Regulation 8 – Failure to apply appropriate and risk-sensitive ongoing monitoring of a business relationship
    • Regulation 9 – Failure to comply with the requirements in timing of verification of identity of clients and any beneficial owner
    • Regulation 11 – Continuing with transaction/business relationship where unable to apply customer due diligence measures
    • Regulation 14 – Failure to apply enhanced client due diligence and ongoing monitoring where required
    • Regulation 18 – Failing to follow a direction made by HM Treasury under this Regulation
    • Regulation 19 – Failure to keep the required records
    • Regulation 20 – Failure to establish, maintain, monitor and manage the required risk based policies and procedures
    • Regulation 21 – Failure to take appropriate measures to provide the required training
    • Regulations 26, 27(4), 33 – Failure to comply with registration requirements specified by the commissioners

    These breaches may attract civil or criminal procedures from your supervisor