Supplementary memorandum by The Institute
of Chartered Accountants in England and Wales (ICAEW)
Guidance available to the Accountancy Sector
1. Comprehensive, formal, guidance was published
for the accountancy sector in December 2007, prior to the coming
into force of the Money Laundering Regulations 2007. This was
reissued in August 2008 with minor changes, having been granted
Treasury approval. Under the Money Laundering Regulations 2007 and
the Proceeds of Crime Act 2002, this gives the Guidance formal
legal recognition which will result in it being taken into account
by the Courts in determining whether our members and other accountancy
service providers have complied with certain of their obligations
under the law. We attach a copy of our formal Guidance to this
evidence.
2. The formal Guidance is also available from
our web site at www.icaew.com/moneylaundering,
together with other less formal guidance, the background to the
legislation, and ICAEW representations in relation to the requirements.
3. Sections 6 and 7 of the formal Guidance
covers the suspicion reporting requirements. We have not included
copies of standard suspicion reporting forms with the Guidance,
since these are designed and issued by SOCA in a form which makes
them compatible with their recording system. The forms are available
from SOCA's web site, together with guidance on completing them,
at https://www.ukciu.gov.uk/(g0yssc45v4icbe55m10janej)/saronline.aspx.
We have a Money Laundering Helpline available to our members,
should they wish for assistance in filling out the forms.
The Consent Regime
4. The Home Office carried out an extensive
consultation on the consent regime, in December 2007. We attach
a copy of our response to this consultation [not printed].
Further copies are available from our web site at http://www.icaew.com/index.cfm/route/164127/icaew_ga/Technical_and_Business_Topics/Topics/Law_and_regulation/Obligations_to_report_money_laundering_The_constent_regime_Law_and_Regulation_ICAEW/pdf
5. We sympathise with the problems that many
banks have with complying with the current consent regime, especially
in combination with the prohibition on "tipping off"
which means that they are unable to explain to their customers
the reason for the delay in carrying out instructions. An amendment
to the legislation to allow Pre-Event Notification ("PEN")
of a transaction which might otherwise be within the definition
of money laundering could assist them in carrying out their normal
business without breaking, or undermining, the anti-money laundering
legislation. However, it is important that any changes do not
either undermine the usefulness to Law Enforcement of the consent
regime, nor prejudice the position of either:
— those who wish to seek consent as
a legitimate means of obtaining a defence to accusations of money
laundering; and
— those engaged in legitimate commercial
transactions where the conduct of another party has introduced
the need to consider seeking consent, eg in a corporate finance
transaction where the target and/or its owners are suspected of
having benefitted from criminal behaviour and the related proceeds.
Without the certainty of consent, parties may be extremely reluctant
to continue to invest their own resources and those of their professional
advisers in a transaction whose final consummation may be influenced
by other than normal commercial considerations. The PEN system
must necessarily be accompanied by the possibility that implied
permission to transact may subsequently be withdrawn, for law
enforcement purposes. This is likely to adversely impact the reputation
and utility of the City of London as a corporate finance centre
of excellence.
6. SOCA have considerably improved the speed
with which consent to carry out a transaction can be provided
and their flexibility in providing consent to carry out a series
of related transactions (which can be necessary, for example,
in carrying on business in a company which includes in its funds
some which are tainted with criminality). On the whole, we believe
that accountants working in practice find the current regime broadly
and usually workable in practice, and justified in the public
interest in effective law enforcement. It is important to avoid
any reform which risks upsetting this balance, and improves the
operation of the consent regime in some sectors, while worsening
it in others.
Beneficial Ownership
7. We consider it an important element of
the current AML regime in the UK that entities within the regulated
sector (including both lawyers and accountants) should know the
identity of the beneficial owners of their clients when carrying
out any business within the scope of the Money Laundering Regulations.
Further, this is an irreducible requirement of the international
Anti-Money Laundering obligations issued by the Financial Action
Task Force and hence a treaty obligation of the UK. Without this
information, entities' staff and Money Laundering Reporting Officers
would be seriously handicapped in forming money laundering suspicions,
and would not be able to provide comprehensive and useful suspicions
reports to SOCA backed by the necessary identification information.
Further, compliance officers in professional firms are likely
to need this information anyway, in order to consider reputational
issues, avoid conflicts of interest and, in the case of auditors,
to ensure no breach of strict independence requirements and to
audit the disclosure of related party transactions.
8. We understand the difficulties that some firms
have in resolving the concerns of clients over the security of
their personal information, but believe that these concerns can
almost always be resolved by careful examination of the issues
involved and any legitimate concerns eg in relation to vulnerable
parties, including minor children, by restricting the number of
people who know the identities of the beneficial owners. Where
there are exceptional needs for privacy, it may be possible to
very severely restrict information to only senior compliance and
risk personnel within a firm rather than, as would be normal,
allowing the information to be held by client serving staff as
well as compliance and risk. Clearly, nothing in any such arrangement
can override the need and duty to disclose to SOCA and other authorised
agencies in response to exercise of legal powers.
9. We do not think that it would be appropriate
for the beneficial ownership of companies or trusts to be required
to be filed on a register open to inspection by the whole of the
regulated sector. We support the right to privacy in that it should
not be compulsory to disclose sensitive information widely, whilst
fully supporting the absolute need for such information to be
made available to regulated persons when their services are required.
We believe that the current system supplies an appropriate balance
between the rights of the client and the needs of law enforcement
where a suspicion report is made, providing as it does a measure
of due diligence by the service provider when a client is first
taken on, and thereafter on a continuing basis as necessary.
The Current Regime and its Cost Effectiveness
10. We would welcome consideration of any
improvements in the current regime that reduced compliance costs
without undermining its effectiveness. Any such improvements would
be likely to be incremental, and should be introduced with care
to avoid unanticipated damage to the value of the current regime
to law enforcement, and hence to the reputation of the UK and
the safety of its citizens. We are not convinced that any changes
apart from minor ones would be useful to the regulated sector,
and radical changes could effectively seriously damage the value
of the current regime to law enforcement.
11. The costs of the regulated sector are increased
every time there is a significant change to the regime, due to
the cost of training to ensure that relevant staff have achieved
an appropriate level of understanding—this is significantly
more than is needed on a routine basis as a periodic reminder
of continuing requirements. We would prefer a period of stability
of the Anti-Money Laundering Regime, with improvements focussing
on better use of suspicion reports and better feedback to the
regulated sector. We believe that this would be greatly preferable
to significant changes to the requirements on the regulated sector,
even where these purport to decrease the requirements but which
may further complicate the regime.
12. In particular, our members in practice
tell us that they would find it more laborious in practice to
have to make a judgement on the nature of the predicate offence
which led to suspected money laundering (in order to judge whether
or not it is serious) than it is to report all suspicions. Further,
we understand that some very important criminal investigations
have been triggered by suspicion reports of activities which at
first sight appear relatively minor if not trivial. SOCA is in
a better position to judge the usefulness of suspicion reports
than members of the regulated sector.
13. We welcome any well conducted research
into the costs and benefits of the regime. In evaluating research,
however, it is important that the cost/benefit ratio takes into
account not just the benefits in terms of criminal proceeds recovered,
but also the cost savings in terms of more efficient criminal
investigations, the improved reputation of the UK as a safe place
to do business and the saving of the potential costs of crime
which is averted as a result of better criminal intelligence.
I attach a copy of the results of the academic research that we
sponsored in conjunction with the City of London and which was
published in June 2005 [not printed]. The conclusion
of this research at the time was that the requirements in the
UK are set at a broadly appropriate level—and significant
improvements have been introduced since that time, both reducing
the costs borne by the regulated sector and improving the use
that is made of suspicion reports. Further copies of the research
report are available from our web site at http://www.icaew.com/index.cfm/route/112460/icaew_ga/en/Technical_and_Business_Topics/Thought_leadership/Anti_money_laundering_requirements_costs_benefits_and_perceptions.
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