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Money laundering: topical Q&As

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This page has been archived because it is no longer current information but is still relevant, or it is current but over 12 months old
  • Publish date: 01 March 2013
  • Archived on: 11 February 2016

Do the money laundering requirements still confuse you? This article looks at three questions frequently raised by practitioners.

1. A practitioner has previously submitted reports to SOCA for a client with uncorrected VAT errors. Having just completed the accounts for this year, the errors are still uncorrected and there are now some new ones. Is it necessary to report again?

Each time the client submits a VAT return without correcting the position, he is knowingly continuing in his tax evasion. When the annual accounts are produced it is clear that he has not corrected the position; so there is a "new suspicion" in respect of that continued evasion. On that basis, the safe advice is to report again.

In respect of the additional information, it is suggested that you report on the new issues whilst also referring to the old matters that have still not been rectified.

After the four year period, HMRC will not be able to collect the money through the VAT returns; it is therefore no longer necessary to report the out of time VAT at that point. However, it is advisable to continue to report any element of the outstanding VAT that could still be collected.

You will also need to keep in mind your ethical position as well as the money laundering position. If your client refuses to rectify an under-declaration of tax (or VAT in this case) you should not act for the client in any tax work other than to rectify the issue.

2. A client’s employee has stolen from the company; this matter has been reported to the police. Is it also necessary to submit a SOCA report?

Daft as it sounds, the answer is "yes". The police will not necessarily refer the theft to SOCA; anyway, there is nothing in the Proceeds of Crime Act that exempts reports where a prosecuting authority is already aware of the offence.

This would fall into one of the LIV (Limited Intelligence Value) categories of report. While the difference between full and LIV reports is largely immaterial now, since most reports are submitted via SARs online, example 4 of the allowed LIV reports is "Duplicate reports to SOCA, or a prosecuting authority (including regulators with powers of prosecution)".

3. I am confused: do we need to verify the identity of beneficial owners or just know who they are?

You are definitely required to verify the identity of your customer.

When a beneficial owner is not the customer, you are required to establish who the beneficial owner is. This is mandatory.

You should then take adequate measures, on a risk-sensitive basis, to verify the identity so that you are satisfied that you know who the beneficial owner is. This would include measures to understand the ownership and control structure of the entity, looking past any intermediate person, trust or arrangement.

In low-risk cases, it may be sufficient to accept the information supplied by the customer. In higher-risk situations you would need the equivalent independent evidence required for your customer.

This can prove problematical where there are entities owned by complex trust structures. Remember: if you do not know who the beneficial owner is you should not act for the client.

This should become easier in future as the new fourth Money Laundering Directive will require entities to keep information relating to beneficial ownership to be shared with those required by the Money Laundering Regulations to review it!

March 2013