UK: Practical Implications of the UK Money Laundering Regulations 2003 – Which are Now in Force

Last Updated: 1 March 2004
Article by David Winch

The Money Laundering Regulations 2003 are now in force in the UK and apply to 'relevant business' in the newly expanded 'regulated sector'. But what are the practical implications of this for firms of lawyers or accountants? Both the Law Society and the Consultative Committee of Accountancy Bodies have recently published bulky new guidance. This should be required reading for money laundering reporting officers in law and accountancy practices.

Businesses now in the regulated sector should already have made preparations for the new regime including the appointment of a money laundering reporting officer (MLRO) and a deputy to provide cover for holidays and sickness, the training of relevant staff and the introduction of forms and procedures for internal reporting of suspicions of 'money laundering'.

Staff training should have included guidance on which activities of the firm are now 'relevant business' falling within the 'regulated sector'. For lawyers the main focus will be on work in relation to financial or real property transactions and services in relation to the formation, operation or management of a trust or a company. For accountants the principal types of relevant business are accountancy, audit, tax and insolvency services. Investment advice has been 'relevant business' since 1994.

The Law Society has indicated that the provision of legal advice, participation in litigation, will writing and publicly funded work would not generally be viewed as 'relevant business'.

Identification

The first practical impact of the new regulations is likely to be the need to obtain documentary identification of a new client who wishes to instruct your firm to undertake 'relevant business'. Where a new business relationship is formed (in effect when you agree to act for a new client) the regulations require that as soon as is practicable after contact is first made, you obtain evidence of the new client's identity. This means that either the client must produce such evidence to you, or you should obtain it from elsewhere, or a combination of both. Identity records are required to be retained for five years after the business relationship ends.

Identification is not required in respect of a one-off transaction, which you neither know nor suspect involves money laundering, and which does not involve payment of more than 15,000 euro (about Ł10,000) by or to the client. In certain other cases specified in regulation 5 identification is not required. In practice many professional firms have opted to routinely seek identification evidence from all new clients.

Typically you will ask an individual new client whom you meet to produce his passport, or other identification incorporating a photograph, and a recent bank statement, utility bill or similar to confirm his address. You will photocopy the relevant page of the passport (in monochrome) and the utility bill and pass the copies to your MLRO to put on his permanent file. Job done!

Suspicion

The next problem may arise when someone in the office reports a suspicion. Any criminal offence which produces proceeds or a cost saving is likely to involve a money laundering offence. So in many offices up and down the country reports of suspicions will be landing on the MLRO's desk this week.

Accountants are particularly concerned that their examination of clients' business records will inevitably lead to them having information which gives reasonable grounds for suspicion of money laundering offences which will necessitate a report. Many such reports will serve no useful purpose as the reports will cover matters of which the authorities are already aware or about which no action can be taken.

For example, where a client under investigation by the Inland Revenue admits to them in the presence of his accountant that he has dishonestly under-declared his income, a report must be made by the accountant to his MLRO who will in turn report to NCIS. Almost certainly NCIS will simply forward the report to the Inland Revenue, serving no purpose. Equally a client suffering stock 'shrinkage' from suspected pilfering will be reported to NCIS although the identity of the thieves is unknown.

The accountancy bodies have agreed with NCIS a new shorter report form to be used in cases of lesser intelligence value, such as stock 'shrinkage', which will provide some relief. At the same time NCIS has introduced a new style preferred full report form which is now available for download on the NCIS website.

MLRO's should use the new preferred forms from now on.

Becoming concerned in an arrangement

Solicitors have been worried in the recent past about the extent of Section 328, Proceeds of Crime Act 2002, which relates to 'becoming concerned in an arrangement' which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.

Paradoxically, interpretation of Section 328 has now become less important since a report to the MLRO will often be required under the regulations in cases where this section applies. The MLRO will then report the matter to NCIS. Such a report will effectively remove the risk of prosecution for the solicitor under Section 328.

Care will still be needed however where a report is not made under the regulations. This could arise because of an exemption in the regulations, for example where information is received in privileged circumstances, or where the regulations do not apply because the work falls outside the definition of 'relevant business'. Here a report under Section 328 may be necessary because the section contains no exemption for privilege and is not limited to 'relevant business'.

The regulations require that a report be made as soon as practicable once the solicitor or accountant has information which gives him reasonable grounds for suspicion that another person is engaged in money laundering. Accordingly it may be necessary to make a report earlier under the regulations than would previously have been necessary under Section 328. Reports will also be required under the regulations in circumstances in which no report would be required at all under Section 328, for example where a solicitor receives information in the course of 'relevant business' concerning a matter in which he does not 'become concerned'.

Suspicion of tax evasion

Suspicion of tax evasion is likely to be the most common cause of reports to NCIS by accountants. Indeed accountants may be required to make several reports over a 12 month period concerning the same client where tax evasion is suspected. Separate reports may be required in connection with quarterly VAT returns and half-yearly income tax payments as well as annual PAYE returns and other matters.

Where a client's records examined after 1 March 2004 include details of taxes paid or refunded after 24 February 2003, when Part 7 Proceeds of Crime Act 2002 came into force, the accountant will need to consider whether there are reasonable grounds for suspicion that a money laundering offence may have been committed at that time. This may involve re-opening old files relating to periods beginning as long ago as May 2001.

Other suspicions

Lawyers and accountants may, in the course of relevant business, become aware of reasonable grounds for suspicion of other offences.

Take the solicitor assisting his client in the sale or purchase of a business. In the course of negotiating warranties he may become aware that the business has failed to comply with certain legal requirements, say, relating to health and safety law. If he has reasonable grounds to suspect that these failings were deliberate and that financial 'savings' resulted from them, he will be obliged to report these matters to his MLRO who will report to NCIS.

An auditor discovering that his client has required the resignation of an employee in a case of petty theft can now be expected to file a report with NCIS, since the auditor will have reasonable grounds to suspect the employee of the money laundering offence of possession of the proceeds of his crime.

Conclusion

It is to be expected that many offences which would not previously have come to the attention of the authorities will now be reported to them via NCIS.

No doubt lawyers and accountants will soon get used to making reports to their MLRO and onward to NCIS under the new legal regime – just as we have dealt with previous upheavals in our professional lives.

Welcome to the 'regulated sector' – go forth and report!

********************************************

David Winch, B.Com., F. C. A. is a forensic accountant specialising in white collar crime including theft, fraud, false accounting, evasion of taxes and duties, drug trafficking, Companies Act offences, money laundering, and associated confiscation, forfeiture and disqualification proceedings.

David is always willing to review a case and give informal initial assistance on a no charge and no obligation basis without legal responsibility.

David is a director of Accounting Evidence Ltd and can be contacted at:

Accounting Evidence Ltd
Peter House
Oxford Street
Manchester
M1 5AN

T 0161 209 3270
F 0161 209 3001
M 07816 767154
E d.winch@accountingevidence.com

Copyright

This document is copyright. However the copyright holder gives permission for this document to be freely copied or distributed with full acknowledgement of its source provided that either the document is copied and distributed in its entirety or that a part or parts not exceeding 200 words is copied or distributed.

Disclaimer

This document has been issued by David R Winch, Chartered Accountants, a UK firm, or a company under its control (which include Accounting Evidence Limited). The information in this document is of a general nature and is no substitute for legal or professional advice specific to your circumstances or query. No responsibility can be accepted for any losses (of any nature) arising from reliance on statements, opinions or advice contained in this document.

© Accounting Evidence Ltd 2004

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.