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To report or not to report – that is the question

Are you clear on when the privilege reporting exemption applies to money laundering suspicions or knowledge? Are you reporting when you should not do so? If you are in any doubt on these issues then read on.

The privilege reporting exemption is almost certainly the most complicated aspect of the money laundering regulations.

Unlike lawyers, chartered accountants do not qualify for privilege. What we have is a limited exemption from reporting to the Serious Organised Crime Agency (SOCA) where the information that leads us to know or suspect money laundering came in privileged circumstances.

This exemption must be applied where available. So the same knowledge or suspicion gives rise to two opposing results depending entirely on the circumstances in which it arose.

  • If the information came in privileged circumstances then you must not report to SOCA.
  • If it did not come in privileged circumstances then you must report.

As you can see it is vital that you identify and record the provenance of all suspicions.

What constitutes privileged circumstances?

There are two types of privilege: legal advice privilege and litigation privilege.

Legal advice privilege

This applies where your client or his adviser seeks confidential legal advice about a situation, or where you give such advice. Whilst accountants do not generally give legal advice, there are times when we do.

Taxation advice is probably the most common example, where we advise on the interpretation or application of any element of tax law and, in the process, assist a client to understand his tax position.

We may also advise on other issues such as insolvency legislation or aspects of the Companies Act.

Litigation privilege

This applies to a confidential communication between you and your client or third party (such as his solicitor) and is made for the dominant purpose of being used in connection with actual, pending or contemplated litigation.

Contemplated litigation needs to amount to a real likelihood of litigation, not a mere possibility.

Examples of litigation privilege would include being instructed by a solicitor as an expert witness in litigation on behalf of a client, and representing a client at a tax tribunal.

Further complication – the crime/fraud exemption

There is also the crime/fraud exemption, which states that the reporting exemption does not apply to information which is communicated or given with the intention of furthering a criminal purpose.

Examples – privileged/not-privileged circumstances and applying the crime/fraud exemption

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. He is concerned about the arrangement agreed between the Swiss banks and HMRC. You explain his options and advise that he makes a declaration to HMRC.

Clearly you now know that he has been evading tax; as such, he has committed a money laundering offence. However, the client approached you seeking advice about his tax position under the legislation. It does not appear that this information was given with the intention of furthering a criminal offence so it is covered by the privilege exemption.

You must not report him to SOCA.

Having advised him to make a declaration, and explained the consequences, your advice remains privileged even if he subsequently decides not to follow your recommendation.

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; he then admits to the tax evasion. You have the same information as before, but received in a different way.

In this situation you must report.

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.

It’s not easy – take legal advice

As we said at the beginning, this is the most complicated aspect of the money laundering requirements. Except in the most straightforward situation, the best advice must be for you to take your own legal advice on whether or not the exemption from reporting in privileged circumstances applies.

November 2012