And still the heat rises

In March 2018, the Law Society published its guidelines as to what it considers to be money laundering and high-risk activities. I quote


‘Independent legal professionals are key actors in the business and financial world’ it says, ‘facilitating vital transactions that underpin the UK economy. As such they have a significant role to play ensuring that their services are not used to further a criminal purpose….


Money laundering is generally defined as the process by which the proceeds of crime and the true ownership of those proceeds are changed so that the proceeds appear to come from a legitimate source.


But it is not restricted to drug running and fraud by criminal gangs, the Proceeds of Crime Act 2002 includes ‘profits and savings from relatively minor crimes, such as regulatory breaches, minor tax evasion or benefit fraud.’


There are three classic phases to money laundering: placement, layering and integration; getting the cash into the system, finding a way to obscure its source, and making wealth appear legitimate so that the criminal can enjoy it. We all know and agree that the proceeds of crime need to be identified as a first step to catching criminals, but the heavy guns are out for the ‘minor tax evasion’ as well, which won’t be placed, layered or integrated. More often than not it is simply sitting in a bank account waiting for a rainy day.


Schedule 9 of the Proceeds of Crime Act 2002, outlines the practices where vigilance is particularly high, which includes,


·      Advice about the tax affairs of another person by a practice or sole practitioner

·      Legal services involving the participation in financial or real property transactions concerning the buying and selling of real property or business entities

·      The managing of client money, securities or other assets

·      The opening or management of client money, securities, or other assets

·      The opening or management of bank, savings or securities accounts

·      The organisation of contributions necessary for the creation, operation or management of companies

·      The creation, operation or management of companies

·      The creation, operation or management of trusts, companies or similar structures


 In short, the entire private client industry needs to be on the look-out for the proceeds of crime and the savings from evading tax!


The industry is advised to take appropriate steps to identify, assess and understand the money laundering risks businesses faces and apply a risk-based approach to compliance with documented policies, controls and procedures to identify these problems.


At greatest risk are those lawyers involved in the sale/purchase of real property, creation of trusts, companies and charities, and management of trusts and companies and therefore anyone involved in this practice area must place additional controls where necessary to minimize the risk of money laundering.


In my area of expertise, I need to ask why a client wishes to set up the trust, the appropriateness of the structure, and to understand all aspects of the transaction.


But now we need to go even further.


Several decades ago I was working in a law firm and down the corridor from me was a lawyer, who I will call John, who kept himself to himself. John was rumoured to have a rich wife – which explained his lavish lifestyle. By chance a trainee, noticed that a lot of John’s clients were using an accountant in an offshore financial centre which was not used by any other partner in the firm, and asked why. It then came to light that John was working a little too closely with some of his clients, introducing them to this accountant, who would not ask too many questions for a fee paid to John, into his offshore bank account. He was, dismissed.


But as from 2017 senior management must flush out such rogue elements.


For most hard-working diligent tax and trust practitioners, clients are for the long term, we get to know their family, go to their weddings, funerals, religious ceremonies – we know who they are what they want to achieve and we do our best to keep them well within the tramlines of the law and introduce them only to professionals with the same high standards of decency. But in a large organisation not everyone has the same sense of integrity. A rogue worker looks the same as any other diligent practitioner, the only difference is that he/she is more motivated by financial reward than keeping his/her clients the right side of the law.


On 1st September 2017, the Government published guidance for companies on failure to prevent criminal facilitation of tax evasion. This now makes senior management in an organisation criminally liable for the failure to prevent an associated person facilitating the evasion by their clients of tax.


Up until 2017, prosecutors merely had to show that the senior members of the relevant body were not involved in or aware of such illegal activity. Now if they turn a blind eye, or fail to have a proper procedure in place to flush out such rogue elements they may find themselves in the dock alongside their criminal colleagues.


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