Ray Cross Director ICB with specific responsibility for

Ray Cross Director ICB with specific responsibility for Compliance

Content • Background to MLR • Recent changes & implications for bookkeepers • SAR’s –registering online with SOCA - tips when submitting SAR’s • Most common ML occurrences confronting ASP’s • What a member can expect from an inspection • Most frequently asked questions- examples

AML Supervisory Bodies ICB became AML Supervisor in July 2007 • • • Compliance Manual inc. CCAB Guidance AML forms (MLR 1 -8) Professional Conduct Rules UK wide AML Seminars More recently AML Online 28 supervisory bodies meet tri –annually @ AMLSF and AAG

List of 28 AML Supervisors Professional Bodies Part 1 ACCA (Association of Chartered Certified Accountants)** CLC (Council for Licensed Conveyancers) Faculty of Advocates General Council of the Bar of Northern Ireland ICAEW (Institute of Chartered Accountants of England Wales)** ICAI (as above but in Ireland)** ICAS (as above but in Scotland)** Law Society of Scotland Law Society of Northern Ireland

List of 28 AML Supervisors Professional Bodies Part 2 AAT (Association of Accounting Technicians)** AIA (Association of International Accountants)** ATT (Association of Taxation Technicians)** CIMA ( Chartered Institute of Management Accountants)** CIPFA (Chartered Institute of Public Finance & Accountancy)** CIOT (Chartered Institute of Taxation)** Faculty Office for the Archbishop of Canterbury IPA (Insolvency Practitioners Association)** ICB (Institute of Certified Bookkeepers)** IFA (Institute of Financial Accountants)** IAB (International Association of Bookkeepers)** ** Accountancy Affinity Group

Others (Public Sector Bodies) Department of Enterprise, Trade & Investment Northern Ireland FSA (Financial Services Authority) Gambling Commission HMRC (HM Revenue & Customs) ** when acting as default regulator for ASP’s Insolvency Service OFT ( Office of Fair Trading ) The following bodies are part of AMLSF but not as such designated supervisors HMT (HM Treasury who are effectively the supervisors Supervisor) SOCA CARB (Chartered Accountants Regulatory Body) SRA (Solicitors Regulatory Association)

Regulated Sector • Credit institutions – FSA • Auditors, insolvency practitioners, external accountants & tax advisors – AAG • Independent legal professionals- Law Societies • Trust & Co Service Providers – HMRC • Estate Agents- OFT • High Value Dealers – HMRC • Casinos- Gambling Commission

Why are Bookkeepers in the regulated sector? 1. International reports have highlighted the army of professionals involved, mostly unwittingly in any major ML scheme. 2. We are one of the “gate keepers” of the financial industry giving air of legitimacy & commerciality to the transactions we participate in. 3. Poor reporting within the accountancy sector compared with other sectors.

A Bookkeeper’s obligations under MLR 2007 • MLR 2003 – Accountants • MLR 2007 – All ASP’s inc Bookkeepers (should have been included in 2003 legislation) - CDD on new & existing clients

What is an ASP? Accountancy Service Provider. • Auditor • An external accountant i. e. any firm or sole practitioner who by way of business provides accountancy services which include bookkeeping, payroll, tax returns. • Tax Advisor- any person who by way of business provides advice about the tax affairs of another person All ASP, s must be registered for AML supervision with a professional supervisory body or they must register with the default regulator HMRC

Changes to MLR and the implications for Bookkeepers Following long consultations, the government made some changes to MLR 2007 most of which will have little impact on you and these took effect from 1 st October 2012 • The definition of “Estate Agent” is amended to include those selling property outside the UK within the scope of MLR 2007. • It adds consumer credit financial institutions to the list of bodies who may be relied upon for the purpose of carrying out CDD under the 200 t Regulations and provides that members of all professional bodies listed in both Parts 1 and 2 may now be relied upon for these purposes. • A new power was introduced to enable supervisory authorities to share information with each other subject to certain conditions.

SAR’s and using the SOCA Online SAR system The preferred method of reporting is the electronic submission of SAR’s. The advantages of using this system are; 1. Allows for 24/7 reporting 2. Is secure 3. Creates an electronic acknowledgement for each SAR & produces a unique reference number for the reporter Enables SOCA to make SAR information more speedily available to investigators. 4.

SOCA • All new users must first register. This can be a little time consuming and is a one- off exercise and we highly recommend that you register even though you currently have no SAR’s to submit. • To register for the online system go to the SOCA website home page www. soca. gov. uk and in the top right corner click on the link ’Reporting SAR’s’ this will bring up a “Welcome to the SOCA SAR Online System” page and then on the task bar above this heading click on the word register and follow the instructions.

Tips from SOCA when submitting a SAR • Initial Summary It is good practice to open the SAR with a brief summary to illustrate the reasons for suspicion & provide a chronological sequence of events detailing the dates of any activity or transactions. Keep all SAR content clear, concise and simple. • Provide explicit details of reason for suspicion The quality and content of the SAR can affect SOCA’s ability to prioritise & process the report and LEA’s decision to investigate. Often a seemingly irrelevant piece of information can became a valuable piece of information.

Therefore when you provide information giving the reasons for suspicion, ask yourself this question “ If I knew nothing about this matter would I be able to understand what had been the trigger for suspicion? ” To assist you, try to answer the six basic questions; Who? What? Where? When? Why? How?

Include all known details relating to the subject of the SAR In circumstances where the subject of the SAR is a client, a significant amount of information should already be held for the purpose of CDD. Please provide all relevant CDD detail known which should include as a minimum full name/s, DOB, nationality and address. If any additional information is held e. g. additional addresses such as previous and business addresses ensuring that postcodes are included. Any car details, phone numbers and bank account numbers would also be useful.

Include the context of your reason for submitting the SAR Include details of the background of the SAR being submitted e. g. the nature of the business activity you were engaged in with the person or business against which you submitted the SAR. In over 50% of SAR’s sampled by SOCA, the type of service being provided e. g. audit, insolvency, taxation were not indicated. Avoid using acronyms or jargon within SAR’s These should be avoided as they may not be understood by the recipient and may be open to misinterpretation. Negative aspects Automatic time-out session of 20 minutes for each page so it is recommended to save your work at regular intervals to re-set the timeout clock before the session expires.

Common money laundering occurrences Definition of criminal property (a) Property is criminal if it constitutes a person’s benefit from criminal conduct or if it represents such a benefit (in whole or part and whether directly or indirectly) and (b) the alleged offender knows or suspects that it constitutes or represents such a benefit. Some examples that staff may come across during their day to day work and which accounts for the majority of money laundering offences.

Under or over declarations on tax returns This is perhaps the most common of money laundering offences encountered by practices and will either involve the under-declaration of income or the over- claiming of expenses on a tax return or both Whilst this is not a sophisticated money laundering scheme, many would argue that such offences should not be grouped with such transactions but this is what the legislation states and the saving of tax by intentionally falsifying a tax return is included in the definition of money laundering as defined by POCA 2002.

Use of business assets This is a common offence and one which clients are unaware they are committing due to the fact that they fail to differentiate between their business and themselves personally. An example: Your client is involved in property development and employs workmen who carry out building work. He also purchases raw materials to carry out this work. Your client wishes to construct an extension to his own house and uses the company workmen and the materials for this purpose. This is all well & good provided that the taxman gets all that is due. If the client conceals the fact that employees and materials belonging to the company have been used for his personal benefit then this is a criminal offence and a report should be made.

Cash businesses A common occurrence and one that is very difficult to detect. An example: A client who is a painter & decorator. You prepare his accounts as a sole trader and compute his income from the copy invoices he gives you. Has he given you all the invoices or more likely has he carried out a number of cash jobs & not declared this income? It is difficult to detect because you are effectively trying to prove a negative i. e. that some income has not been declared.

One tool at your disposal is to look at the clients standard of living. Does he drive an expensive car, take expensive holidays, send his children to private schools? If so can he afford this on his declared income? Provided you are sure that he does not fund this expenditure from other sources, then you may be suspicious that not all his income has been declared. Be careful as you must not make a SAR based on mere speculation i. e. that all painters and decorators fail to declare some income. You must have a suspicion which goes beyond mere speculation and has evidence to support it i. e. an expensive lifestyle.

Overseas bank accounts This is an area that has received a lot of both media and HMRC attention of late. Evidence supports that many millions of pounds are invested in overseas bank accounts and not declared. In the past HMRC have granted an amnesty to those who failed to declare such accounts in the past but there is no doubt that many of these accounts still exist. Recently whistle-blowers have brought about the sharing of tax information between the UK and Germany, Switzerland, Liechtenstein and most recently IOM. If a client has an interest bearing account overseas he will be unable to bring any interest received back to the UK by legitimate means without disclosing the fact that he had an account. What happens if he goes abroad on holiday and draws from his bank account to fund the holiday?

Directors expenses If you have a client who owns and runs his own business, there may be times when expenses are claimed as a director which have little or nothing to do with the business? This may take the form of entertaining, running a car or simply enjoying private expenditure at the business’ expense. Once again, there is nothing wrong with this provided that the expenditure is declared and the proper tax paid. I have not attempted to discuss all money laundering offences but merely tried to emphasize that the vast majority of offences have little or nothing to do with sophisticated ML offences carried out by professionals.

What can a member expect from an ML compliance inspection ? • ICB’s responsibility as an HMT appointed supervisor to ensure that all members comply with MLR 2007. • It is the member’s duty and obligation as an ASP to comply with MLR 2007 • AML Compliance team • Selection for inspection • Inspection procedure • What will the inspector need to see? • How is it arranged? • Where will it take place? • Duration • Preparation for the inspection • Result of the inspection, the various possibilities • Penalties.

Most frequently asked questions If we submit a SAR to SOCA, should we resign from the client? If we have suspicion or knowledge of an ML offence and have sent a SAR to SOCA must we resign? You must first ask yourself how serious was the offence and what is the likelihood of further offences occurring? If you feel that this is a one-off and that the client has learned his lesson and paid off any penalties due, then there is no reason why you should not continue, however, you should carry out additional on-going monitoring of him in the future. If you feel that the matter is extremely serious and he is the type of client who might err again, then it may be safer to part company. Be careful, if you have made a report to SOCA watch out for the reasons you give to the client for resigning. In giving your reasons for resigning do not inform the client that a report has been sent otherwise this could constitute the offence of tipping off.

Where suspicion of an ML offence arises, should firms make their suspicions known to the client? It appears that there is often a lot of confusion here because firms are concerned that by doing so they may be tipping off the client which is an offence in itself. My advice is be upfront with the client: • Ask yourself whether a criminal offence has been committed? • To establish whether this is so, confront your client with your findings to see whether it is a genuine error. • If it is an error, request that the client corrects the error and do NOT make a report.

Where suspicion of an ML offence arises, should firms make their suspicions known to the client? continued…. • If he refuses you should make a report and consider whether to continue to work for this client. • If having made the report you inform the client of this fact you will have committed the offence of tipping off. • If you have confronted the client BEFORE making the report, there is no danger of tipping off (unless an investigation was already under way)

Sub-contracting to Chartered Accountants. What are the ML implications for me? • You should get something in writing as evidence of the contract between you and the accountant which does not have to be a legal document. • Since it is the accountant who is paying you the fees for your services, he becomes your client and consequently you need to do CDD on him. • You do not need to carry out CDD on his clients because you are “deemed” to be in the accountant’s employ whilst you are working for him and can therefore use his Policies & Procedures including AML.

Sub-contracting to Chartered Accountants. What are the ML implications for me? continued…. • Questions have been asked by members who just sub-contract and have no other clients as to whether they need a Practice License since they are bound by the Chartered Accountants ML procedures and also do they need PI insurance? • The answer is of course yes you do, because to be an ASP you need to be supervised by an AML Supervisor before you can offer your services, therefore, without the P/L you would be trading illegally. • You also need the insurance because if the accountant sues you for poor work or alleged poor work, you are covered.

We have recently lost a client to another firm and they have contacted us asking if they can rely on our CDD. We are happy that we have fully complied with the legislation in respect of our CDD but do we have to comply with their request? • Firstly, this question would not have applied to you prior to 01/10/12 when government changed the regulation relating to third party reliance. Prior to the change, as bookkeepers supervised by a Part 2 professional body, we were not permitted to allow other entities to rely on our CDD, this has now changed and a level playing field exists between Parts 1 & 2 supervisors (except for HMRC) • The law does not require you to comply with this request even though you are happy with the CDD you carried out and whilst it might seem unhelpful, I would advise you to decline and suggest to them that they carry out their own CDD. By doing this you are in no way exposing yourself to potential problems.

Professional letters of enquiry – Guidance for sending & replying to these. • Under no circumstances may anything be said that could be construed as “tipping off” • Unpaid fees should be pursued through normal credit channels, Client papers should not be retained once you have ceased to act. • The clearance letter is not a “reference” and should not be worded as such. It merely indicates that you were not aware of any professional reason why a new bookkeeper should not act for the client. • No response can be given without the authority of the client and no client details or documents released without such written authority.

Scenario 1 You have just lost a client to another firm who have sent their professional enquiry letter. In addition to the normal content of this letter, the incoming firm have asked whether, in the past, you have had any suspicions or knowledge of a money laundering offence having been carried out by the client or whether you have had cause to make a report to SOCA. How should you respond?

The incoming firm should know better than to ask these questions. It is their responsibility to carry out their own due diligence procedures and should not be placing reliance on whether to take on the new client based on information given by you. Simply state in your response that it is not the policy of your firm to answer such questions in the positive or negative. Remember that to state that a report has been made to SOCA could put you in danger of tipping off.

Questions?