Obligations of Accountants to Report Money Laundering
Comments from ACCA
September 2004
ACCA is pleased to comment on the consultation paper on the above matter. All ACCA's practising members have been subject to the rules of the Proceeds of Crime Act (POCA) and the Money Laundering Regulations since March this year.
We very much welcome the Home Office's decision to review this matter and to consider making changes to existing legislation. We consider that the changes proposed in the paper constitute a small but nevertheless significant gesture towards ensuring comparable treatment for lawyers and accountants. We are confident that the proposed changes, if enacted, would not result in any material diminution in the reporting of serious money laundering suspicions to the authorities.
Our reactions to the specific issues raised by the paper are set out in the following paragraphs.
Do you have any comments to make on the arguments set out in paragraphs 4.2 and 4.3 of the consultation paper?
We agree that the UK Money Laundering Regulations are defective to the extent that they fail to apply the provisions of new article 6.3 of the Directive on a non-discriminatory basis. While the Directive does not envisage extending the privilege exemption to the full range of professional activities undertaken by the specified categories of adviser, member states should treat the specified categories equally and fairly where they choose to apply the option which is available to them
Under article 6.3, member states have the option of disapplying the standard reporting requirements contained in article 6.1 to five specified categories of professional adviser and in the circumstances set out therein, viz
with regard to information which advisers receive from or which they obtain on their client in the course of ascertaining the legal position for their client or performing the task of defending or representing him in or concerning judicial proceedings, including advice on instituting or avoiding proceedings (whether such information is received or obtained before, during or after such proceedings)
The exemption needs to be read in the light of recital 17, which suggests that any exemption should not be available where the adviser is taking part in money laundering activities, where the legal advice is given for money laundering purposes, and where the adviser knows that the client is seeking advice for money laundering purposes.
It appears to us that the provision in article 6.3 exists as a means of incorporating the requirement in recital 18 that �directly comparable services' need to be treated in the same manner when practised by any of the professional advisers covered by the Directive. We would therefore agree that, where a member state exercises its option in article 6.3 in respect of �legal professionals', it should be applied on a parallel basis to the other named categories of adviser in relation to acts of professional engagement which are referred to in article 6.3 and which are reproduced above.
The current UK regulations are therefore defective to the extent that they apply the privilege exemption selectively and in a discriminatory way to legal professional advisers only.
Are there objective and proportionate reasons for the POCA and Money Laundering Regulations to confine the defence to professional legal advisers?
In our view, objective and proportionate grounds would exist only if the Government were reasonably satisfied that, by extending the limited exemption available to all the five categories of adviser, the incidence of actual money laundering would be likely to increase. Provided the extended range of advisers are regulated to a comparable level to the legal professionals referred to in recital 17, we do not see that this consideration should prevent the extension being introduced.
Do you agree that any extended defence should
a) only extend to accountants, auditors and tax advisers who are members of relevant professional associations and
b) only when they are providing directly comparable services?
With regard to (a), we agree. The complicating factor in any extension of the privilege exemption is that the Money Laundering Regulations
apply to, inter alia, any person providing �accountancy services' to clients by way of business. But neither �accountancy services' nor �accountant' are defined or restricted by law, and any person can offer accountancy services or call themselves an accountant regardless of what qualifications they hold � or even if they hold no qualifications at all. Similar considerations apply to tax advisers. Therefore, a blanket extension of the exemption to accountants, auditors and tax advisers as currently defined would afford exemption to many unqualified and unregulated persons. We believe it would be in keeping with principles of proportionality for the Government to insist that, if accountants, auditors and tax advisers are to benefit from any new exemption, it must be on the basis that the persons to be covered are qualified and regulated to a minimum acceptable level, in particular as regards ethical and disciplinary standards.
With regard to question (b), we agree. Recital 16 already provides that notaries and independent legal advisers, and by extension advisers who offer directly comparable services, are required to report in circumstances other than those which benefit from an express exemption. But accountants in general practice are frequently called upon by their clients to advise them on their legal position with regard to, inter alia, tax, company and insolvency law. Accountants are also called upon by their clients to work with solicitors with respect to litigation matters. The activities of accountants in these circumstances are indeed directly comparable to the services encompassed by article 6.3 and as such equal treatment should, as a matter of principle, be afforded.
Should the relevant professions be listed or defined?
Given our view that it would not be desirable to extend the exemption to accountants, auditors and tax advisers without restriction, there will have to be some procedure for approving bodies which impose the required standards of regulatory control. We suggest that there should be two categories of approved person, viz a) registered auditors approved under s25 Companies Act 1989 and
b) members of ACCA, CIMA, CIOT, CIPFA, ICAEW, ICAS and ICAI who are approved under the rules of their bodies to provide accountancy services and/or tax advice by way of business.
If the exemption is extended to the three �new' categories of adviser, the Government should consider additionally make suitable provision to exempt insolvency practitioners from the basic reporting rule. Being outside the scope of the Directive, insolvency practitioners per se are only dealt with directly by UK legislation and the Government would be within its rights to make independent provision for them.
Should �directly comparable services' be listed or defined?
Given that the exemption is available in the circumstances set out in article 6.3, which are already reproduced in the Regulations, we do not consider that it would be necessary to specify these again.
On the basis that the law does need to be changed, would the extended defence as set out in the draft Order deal satisfactorily with the matter?
We consider that the terms of the Order are in the main adequate to address the matter. In paragraph 3(3) of the draft Order, however, the proposed new paragraph should presumably be in addition to the existing paragraph 6 (of the Money Laundering Regulations) and not instead of it.
If the extended defence were introduced, to what extent would it reduce the number of reports required to be submitted to NCIS?
Extension of the exemption could achieve a slight reduction in the number of innocuous reports submitted under the �all crimes' regime so that reports were not needed on matters which the client undertook to put right. Any reduction in superfluous reporting would free up NCIS to target �serious' crime and not waste the time of all parties on unnecessary reporting. Given the restricted nature of the proposed exemption, however, any reduction in reporting would not in our view be material. It would still though be a worthwhile exercise as it would bring about the level playing field as between the different categories of adviser which we consider is envisaged in article 6.3.
Are there any other implications of introducing such a change in the law?
It could mean that clients become more willing to be open with their accountants, who will be able to help them put matters right as opposed to simply reporting them. As noted above, it would also free up resources to tackle �serious' crime.
What other impacts on business might there be if changes to the law were made?
Extending the privilege exemption to accountants et al would level the playing field and address anti-competition issues. In many respects, the role of the accountants is similar to that of the lawyer. The information which is entrusted to the accountant should enjoy the same status. In the absence of a change in the law, the �privilege' exemption is widely considered to be a factor in encouraging clients to take their affairs to lawyers rather than accountants. This is in itself a threat to fair competition.
To conclude, therefore, we consider that the proposed changes, though limited in scope, are both desirable and necessary. We would in fact like to see, in due course, a wider review of the application of the role of professional advisers in combating money laundering. This should include consideration of the application of an extended �privilege' exemption to cases where one regulated adviser acquires information from another regulated adviser who benefits from privilege in respect of that information. Where such information is transferred from one adviser to another, the second adviser should be treated as inheriting the initial privilege exemption in the course of his subsequent use of that information. We consider that such an initiative should be considered in the context of the implementation of the Third Money Laundering Directive.