Frequently Asked Question
Summary of Key AML guidance for tax advisers and accountants
Last Updated 3 years ago
These highlights are based on:
Tax practitioners should also take proper care, under sections 327 to 329 POCA, to ensure they do not become involved in an arrangement which they know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person when assisting clients.
The money laundering risk areas that tax practitioners may encounter in practice include:
(a) Where a client’s actions in respect of his tax affairs create proceeds of crime, for example:
- a client’s refusal to correct errors (both for the past and on an ongoing basis); or
- a client’s deliberate under declaration of profits/income/gains or deliberate overstatement of expenses/allowances/losses.
(b) Where during the course of dealing with a client’s tax affairs a tax practitioner suspects or becomes aware that the client is holding proceeds of crime.
(c) Where a client asks the practitioner to undertake planning which involves structures which appear to evade tax.
It stands that all forms of tax fraud create 'criminal property'.
'Tax fraud' includes deliberate under declaration of profits/income/gains or deliberate overstatement of expenses/allowances/losses.
Where a client places significant importance on confidentiality about beneficiaries, owners or structures, tax practitioners still have an obligation to identify the beneficiaries.
Reliance on third party AML checks
Para 5.4 AMLGAS
Reporting & 'privileged circumstances'
1. Privileged circumstances
You are approached by a long-standing client seeking advice on what to do about an undisclosed Swiss bank account, where the original money came from undeclared income. They are concerned about the arrangement agreed between the Swiss banks and HMRC. You explain their options and advise that they make a declaration to HMRC. Clearly you now know that they have been evading tax; as such, they have committed a money laundering offence. However, the client approached you seeking advice on making an unprompted disclosure under the tax legislation of their undeclared income. It does not appear that this information was disclosed to you with the intention of furthering a criminal offence so it is covered by the privilege exemption.
In such circumstances, tax practitioners should also consider whether they should continue to act if they have concerns that the client has not fully disclosed and so that they do not become complicit in further money laundering offences.
You must not report them to NCA. Having advised them to make a declaration, and explained the consequences, your advice remains privileged even if they subsequently decide not to follow your recommendation.
2. Not-privileged circumstances
Now contrast that with the situation whereby, during the preparation of the client’s tax return, a member of staff encounters a bank statement from the Swiss bank account among the papers supplied by the client. You ask your client about this bank account; they then admit to the tax evasion. You have the same information as before, but received in a different way.
In this situation you must report.
3. Applying the crime/fraud exemption
Consider the situation where you act for a wife in an acrimonious divorce that is heading for the courts. The wife is claiming 50% of her husband’s assets. In preparation for the hearing she notifies you of her husband’s undisclosed Swiss bank account, providing you with full details. She wishes to claim 50% of that as well! While this appears to be covered by litigation privilege, her intention in providing the information is to acquire criminal property (i.e. half the money in the Swiss bank account). It would fall under the crime/fraud exemption, so would not be privileged.
You would therefore need to report.
- CCAS Guidance for tax practitioners https://www.ccab.org.uk/wp-content/uploads/2020/09/Supplementary-Anti-Money-Laundering-Guidance-for-Tax-Practitioners-.pdf
- With reference to "AMLGAS" CCAB Guidance for accountants https://www.ccab.org.uk/wp-content/uploads/2020/09/AMLGuidance2020.pdf
Tax practitioners should also take proper care, under sections 327 to 329 POCA, to ensure they do not become involved in an arrangement which they know or suspect facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person when assisting clients.
The money laundering risk areas that tax practitioners may encounter in practice include:
(a) Where a client’s actions in respect of his tax affairs create proceeds of crime, for example:
- a client’s refusal to correct errors (both for the past and on an ongoing basis); or
- a client’s deliberate under declaration of profits/income/gains or deliberate overstatement of expenses/allowances/losses.
(b) Where during the course of dealing with a client’s tax affairs a tax practitioner suspects or becomes aware that the client is holding proceeds of crime.
(c) Where a client asks the practitioner to undertake planning which involves structures which appear to evade tax.
It stands that all forms of tax fraud create 'criminal property'.
'Tax fraud' includes deliberate under declaration of profits/income/gains or deliberate overstatement of expenses/allowances/losses.
Where a client places significant importance on confidentiality about beneficiaries, owners or structures, tax practitioners still have an obligation to identify the beneficiaries.
Reliance on third party AML checks
- Tax practitioners may be called upon to advise another professional firm. Unless there is a clear agreement between the firms that the advising firm is intended to form a client relationship with the other firm’s client, the other firm is the client of the advising firm and accordingly must be made subject to CDD.
- In cases where there is significant contact with the other firm’s client such that a business relationship with it is believed to have been established, then the other firm’s client may also be deemed a client and CDD may be required for both the other firm and the other firm’s g client.
- The advising firm is allowed to rely on CDD that the other firm has carried out on the client. However, there are strict criteria which must be met where reliance is being placed on another firm’s CDD.
Para 5.4 AMLGAS
- Businesses should note that where one party places reliance on another they must enter into an agreement (that should be in writing) to ensure that the other party will provide the CDD documentation immediately on request. An arrangement of this kind can be useful and efficient when the two parties are able to build a relationship of trust, but it should not be entered into lightly.
- Liability for inadequate CDD remains with the relying party.
- Businesses placing reliance on another should satisfy themselves with the level of CDD being undertaken.
- A business relying on a third party in this way is not required to apply standard CDD, but it must still carry out a risk assessment and perform ongoing monitoring. That means it should still obtain a sufficient quantity and quality of CDD information to enable it to meet its monitoring obligations.
- In addition, the business seeking to rely on a third party remains liable for any CDD failings irrespective of the terms of the CDD agreement.
- If relying on a third party, businesses must obtain copies of all relevant information to satisfy CDD requirements. They should also enter into a written arrangement that confirms that the party being relied on will provide copies of identification and verification documentation immediately on request.
Reporting & 'privileged circumstances'
- A tax practitioner who is a professional legal adviser or a ‘relevant professional adviser’ (i.e. a member of ICAEW, CIOT, ACCA, ATT, AAT etc) 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’.
- Crime/fraud exception: tax practitioners should be aware that the privilege reporting exemption does not apply to ‘information or other matters which are communicated or given with the intention of furthering a criminal purpose’.
- Advice on tax law to assist a client in understanding their tax position.
- Advice on how to order or structure a client’s tax affairs in a tax efficient manner.
- Advice on disclosure obligations to the tax authorities, including advice given in the context of compliance work on reporting requirements and situations where previously there may have been failure to disclose.
- Suspicions derived from pre-existing documents may be covered by the reporting exemption where those documents come to the tax practitioner in privileged circumstances. For example, if a client asked for tax advice on settling past tax under declarations and provided copies of bank statements or invoices or past tax returns in order that the tax adviser could advise, that information could be regarded as having come to the adviser in privileged circumstances.
- Assisting a client by taking witness statements from him or from third parties in respect of litigation.
- Representing a client, as permitted, at a tax tribunal.
- When instructed as an expert witness by a solicitor on behalf of a client in respect of litigation.
- Information uncovered during tax compliance work, for example spotting that personal expenditure had been claimed as a business expense in a previous year.
- Information uncovered during a tax due diligence assignment or other agreed upon procedures exercise which is for the purposes of producing an evaluation report or an assurance based opinion (other than an audit) to the client or a third party.
- Information provided by or communications received direct from any third party particularly if no advice has been sought in respect of the underlying detailed content by the client. For example, receipt of information or communications when acting as the client’s tax agent.
- Information received about the client’s or a third party’s affairs which is outside the scope of the tax services in respect of which the adviser has been engaged.
1. Privileged circumstances
You are approached by a long-standing client seeking advice on what to do about an undisclosed Swiss bank account, where the original money came from undeclared income. They are concerned about the arrangement agreed between the Swiss banks and HMRC. You explain their options and advise that they make a declaration to HMRC. Clearly you now know that they have been evading tax; as such, they have committed a money laundering offence. However, the client approached you seeking advice on making an unprompted disclosure under the tax legislation of their undeclared income. It does not appear that this information was disclosed to you with the intention of furthering a criminal offence so it is covered by the privilege exemption.
In such circumstances, tax practitioners should also consider whether they should continue to act if they have concerns that the client has not fully disclosed and so that they do not become complicit in further money laundering offences.
You must not report them to NCA. Having advised them to make a declaration, and explained the consequences, your advice remains privileged even if they subsequently decide not to follow your recommendation.
2. Not-privileged circumstances
Now contrast that with the situation whereby, during the preparation of the client’s tax return, a member of staff encounters a bank statement from the Swiss bank account among the papers supplied by the client. You ask your client about this bank account; they then admit to the tax evasion. You have the same information as before, but received in a different way.
In this situation you must report.
3. Applying the crime/fraud exemption
Consider the situation where you act for a wife in an acrimonious divorce that is heading for the courts. The wife is claiming 50% of her husband’s assets. In preparation for the hearing she notifies you of her husband’s undisclosed Swiss bank account, providing you with full details. She wishes to claim 50% of that as well! While this appears to be covered by litigation privilege, her intention in providing the information is to acquire criminal property (i.e. half the money in the Swiss bank account). It would fall under the crime/fraud exemption, so would not be privileged.
You would therefore need to report.