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Getting to grips with AML: tax advice

23 February 2021: Instalment five of ‘Anti-money Laundering: The Basics’ focuses on tax advice – how an accountant can stay alert to the multiple ways tax services can be vulnerable to money laundering.

Criminals may pose as individuals seeking tax advice to place assets out of reach and avoid future liabilities. There is also the wider risk that legal tax minimisation work can also stray into illegal tax evasion. The proceeds of tax evasion are criminal and therefore a professional accountant’s involvement with these funds could be a money laundering offence, warns the fifth chapter of IFAC’s and ICAEW’s AML series.

“As accountants, giving tax advice to clients is often core to our work”, said Sophie Wales, Head of Ethics and Economic Crime. “It is important to always be alert to the risk that a client might seek to under-report their taxable income or gains or use the façade of tax planning as a way of moving or hiding ill-gotten gains.”

The guidance in this series advises accountants to take a ‘risk-based approach’ in any provision of tax advice services by considering who will benefit from the advice, what the commercial, family and personal rationale is, and whether complex structures will be created which make it difficult to identify the ultimate beneficial owners.

Key red flags 

To minimise the risk of unintentionally providing tax advice that enables money laundering, IFAC and ICAEW guidance points to the following red flags:

  • A suggestion that pertinent facts are hidden from the tax authorities or inaccurate information is provided
  • Undue secrecy of the arrangements beyond a normal level of confidentiality
  • Lack of clarity of the key beneficial owners of the assets or entities involved 
  • Links to politically exposed persons
  • Adverse media on the client or their associates.

If accountants become suspicious that the client has evaded tax or may hold proceeds of crime, they must report their suspicions in the form of a ‘Suspicious Activity Report’ to the local Financial Intelligence Unit. 

The guidance also provides two in-depth case studies that explore how accountants may come across money laundering risk when providing tax services.

Read Anti-money laundering: the basics Instalment 5: tax advice from IFAC and ICAEW in full.

Further resources: