Chapter 32 AML: Supplementary AML guidance for tax practitioners Flashcards
32.4 Money laundering risks
The risks a tax practitioner may encounter in practice are:
• Where a client’s actions in respect of his tax affairs create proceeds of crime (for example client’s refusal to correct errors or a client deliberately under declaring profits or income0
• Where during the course of dealing with a client’s tax affairs a practitioner suspects or becomes aware the client is holding proceeds of crime
• Where a client asks the practitioner to undertake planning which involves structure which appear to evade tax
Tax practitioners should be alert of the risk of assisting or facilitating the laundering of proceeds of crime. They should take care where they have a client with complex international tax affairs to ensure no tax evasion or other criminal activity is occurring.
32.6 Making a SAR
If a practitioner knows or suspects that a criminal offence has been committed and that proceeds have been derived, unless the privilege reporting exemption applies, they are obligated to report it to the NCA or the MLRO. It is a criminal offence not to make a report where one is required. Tax practitioners should take considerable care when communicating with clients or third parties after a SAR has been submitted as to not commit an offence or tipping off.
32.7 The privilege reporting exemption
A tax practitioner who is a professional legal adviser or relevant professional adviser who suspects or has reasonable grounds for knowing or suspecting that another person is engaged in money laundering is prohibited from making a money laundering report where the knowledge or suspicion comes to them in privileged circumstances. Privileged reporting does not apply to information or other matter which is communicated or given the intention of furthering a criminal purpose, the crime/fraud exception. A relevant professional adviser is an accountant, auditor or tax adviser who is a member of a professional body which is established for accountants, auditors or tax advisers.
Privileged circumstances are defined as information that comes to a professional legal adviser or other relevant professional adviser in privileged circumstances if it is communicated or given to him by a client in connection with giving legal advice, or by a person seeking legal advice from the adviser or by a person in connection with legal proceedings or connected legal proceedings.
32.8 Tax offences
The main areas where offences may arise are tax evasion including making false returns, accounts or financial statements or deliberate failure to submit returns and deliberate refusal to correct known errors.
Direct tax offences – tax legislation provides a civil penalty regime covering both fraudulent and negligent conduct. Penalties for errors provides for penalties for careless or deliberate behaviour. Where conduct may attract a civil penalty under the tax legislation but also amount to criminal conduct, then the conduct is criminal and should be reported.
Indirect tax offences – innocent or negligent errors may be criminal offences as strict liability is imposed by such as untrue declarations. This broadly makes most errors however innocent criminal offences in VAT and indirect tax. An innocent or negligent error will not be classed as money laundering where the person making the error was not aware, they had committed an offence. Other offences include:
• The bribing of a commissioner, officer or appointed or authorised person
• The obstructing of an officer performing any duty
• Signing untrue documents
• Failing to assist in the inspection of a computer
• Fraudulent evasion of VAT
• Supplying goods/services without providing security
32.9 Guidance on circumstances
Innocent or negligent errors – if the tax practitioners believe an error was a result of an innocent mistake, they will not form suspicion.
Unwillingness or refusal to disclose to tax authorities – the client appears to have informed criminal intent and the reporting obligation arises unless privilege exemption applies.
Adjusting returns – where the law permits the correction of small errors by making subsequent tax adjustments should be made. Happens when original error was not attributable to criminal conduct, so no crime is committed.
Intention to underpay tax – this is tax evasion and a money laundering offence occurs. A SAR is required once there are proceeds of crime
Tax avoidance arrangements – tax avoidance is not a crime. HMRC has however sometimes used COP where avoidance arrangements have been used.
