Richard Simms explores the subtleties surrounding aspects of the anti-money laundering regs
As part of a review of suspicious activity reporting, we will be issuing a comprehensive guide to reporting within AMLCC. I’ve included here an extract from this guide which considers guidance and experience on the areas of dealing with client errors.
Suspicious Activity Reports (SARs) is the area that leads to a lot of discussion whenever I’m delivering a talk and a key area of debate is correcting client errors. Such errors will pretty much be exclusively to do with tax.
Let’s consider where a client has made an error on a vat return that is about to be submitted. You spot the error and let the client know that you will correct it or ask them to correct it; it’s then corrected. This is an error that has been corrected before any submission to HMRC, so is no longer an error.
Reconsider this scenario, when the client refuses to correct the error. Then what? You have seen your client undertake tax evasion, haven’t you? This requires a SAR as there is criminal intent and a proceed of crime.
Perhaps a little more difficult is where a client wishes to correct a historical error. I recently attended an excellent AML training day put on by one of our partners; one of the speakers was a solicitor. From the discussion it was clear that for a criminal offence to occur there must be intent.
In my mind this is a very important point. What if you are considering the intent of a client who has made a historical and often repeated error, such as: “I forgot to declare the income from a rental property”. If we are mindful of our reporting duty and have a suspicion or grounds for suspicion, it must be for us to determine if a non-disclosure was intended or not. In this situation, how can we ever say with certainty that there was no intent?
This seems like a good point to see what the sector guidance says.
AMLGAS (Anti-Money Laundering Guidance for the Accountancy Sector) explains the following: “6.1.14 – An innocent error or mistake would not normally give rise to criminal proceeds (unless a strict liability offence). If a client is known or believed to have acted in error, they should have the situation explained to them. They must then promptly bring their conduct within the law to avoid committing a money laundering offence. Where there is uncertainty because certain legal issues lie outside the competence of the practitioner, the client should be referred to an appropriate specialist or legal professional.”
So, if the client makes an innocent error or mistake then this would not normally give rise to criminal proceeds; this is a useful statement, but we need to delve a bit deeper.
It’s important here to consider whether you have any suspicion or grounds for suspicion that there was an element of intent in the matter discovered. If you have suspicion that the matter was not an innocent error or mistake, then further thought must be given to a SAR. There would have to be no element of suspicion, or grounds for suspicion of intent for a SAR to not need to be considered, hence the reference in AMLGAS to “known or believed to have acted in error”.
AMLGAS does not seek to distinguish between new and historical errors. For me, the fact that an error has led to an incorrect filing or a filing not taking place that should have been has a risk that that error was intentional. You must decide if it is an innocent error or mistake (namely was there intent) and whether proceeds of crime already exist because of the intent.
If proceeds of crime exist then it’s likely that money laundering has already taken place and so reliance on the AMLGAS comments about avoid committing a money laundering offence are not relevant.
My personal view is to consider using a two SAR structure. The first SAR ensures that the matter is reported and that your Porceeds of Crime Act obligations are satisfied. Within the SAR it can be made clear that HMRC are being/or have been informed of the matter and that the client intends to settle any unpaid taxes. A mention that a second report will follow once the matter has been resolved should also be included.
This way, you are doing all that you can to help your client while protecting yourself at the same time.
The matter can then be dealt with in the normal fashion and once resolved a further report is made to confirm that the matter is concluded and that a previous SAR was made along with the first SARs reference number.
You may feel that this reporting of matters, which are to be resolved seems worthless and the National Crime Agency may not wish for these reports, but if you fall into a habit of not making SARs when you are obliged to who’s taking the risk? Your client? No, it’s you!
Our sector has been heavily criticised for not making enough SAR reports and so please don’t let yourself be the scapegoat for the sector.
The final thought on this is that the work that our sector does in correcting errors and mistakes before they are submitted to HMRC are overlooked. You will know how many times in a year you prevent the filing of incorrect figures to HMRC. We should at least get some good press for this.
Please don’t forget that AMLCC is part of your membership with the ICPA.
- Richard Simms is Managing Director of the AMLCC
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