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Enhanced HMRC Money Laundering Monitoring



In this article we look at some important changes that will impact on firms monitored under the Money Laundering Regulations by HMRC, and we remind you that all firms are subject to monitoring visits from their respective regulator, writes Richard Simms. We also consider whether a report is required in the event of one of your clients becoming insolvent and ask whether people outside the regulated sector should make reports to SOCA.

Enhanced monitoring by HMRC

HMRC has announced important changes to how they monitor firms that fall within their remit. Remember, your firm may be regulated by the accountancy body to which you belong (e.g. AAT, ACCA, etc.). But if they are not an HM Treasury-approved supervisory body you will be monitored by HMRC under the Money Laundering Regulations.

HMRC Anti-Money Laundering Compliance Officers will now use telephone monitoring as part of their compliance procedures. In addition to other forms of monitoring (e.g. physical visits), officers will now contact firms to make sure that up-to-date information is held about their activities. The calls are also aimed to further improve HMRC’s understanding of firms and to find out whether they need any additional help.

If you are regulated by HMRC it is important to remember that the Revenue does have the right (under The Money Laundering Regulations 2007, Regulation 37) to monitor firms and request information. Therefore you should ensure that you co-operate with inspectors.

During the calls the HMRC officers will confirm their identity and ask you for your security information. They will ask for details of business activities and customers, and also answer any questions. This will help HMRC decide whether a visit is needed and give businesses the opportunity to clarify any issues they may have.

If your professional body supervises you they too will undertake periodic monitoring visits, either in person (by appointment) by phone or by written questionnaire. Details of each body’s monitoring procedures should be obtainable from them and the AMLCC Manual also provides some additional advice in dealing with a visit from your supervisor.

Wrongful and fraudulent trading – when do you need to report to SOCA?

When a company fails, it is likely the actions of the directors in the months prior to the failure will be questioned. Did they fulfil all their obligations as directors, or can action be taken against them personally with the hope of recovering further funds for the creditors of the collapsed business?

Directors might be found to have traded wrongfully (also known as insolvent trading) or to have traded fraudulently. These terms are defined as follows:

• Wrongful trading (Insolvent trading): Under UK insolvency law, wrongful trading occurs when the directors of a company have continued to trade past the point where they:

• knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation; and

• they did not take every step with a view to minimising the potential loss to the company’s creditors.

• Fraudulent trading: An activity that is deliberately designed to defraud creditors. For example, the executives of a manufacturing plant might take deposits for a large order of a product knowing that the company will be unable to deliver the product due to impending bankruptcy but that they will be able to use the deposit to pay themselves.

The key issue is that wrongful trading is a civil matter and thus not reportable, whereas fraudulent trading is a criminal matter and must therefore be reported.

If the directors are eventually prosecuted only for wrongful trading this does not mean that they may not have been guilty of fraudulent trading. This is because securing a conviction for fraudulent trading is very difficult and therefore often a prosecution is made under the lesser charge.

However, your duty to report is based on your suspicion at the time and not what action you suspect may subsequently be taken.

Published September 2013

Reports to SOCA from outside the regulated sector

We all appreciate the need for us to make reports under the Regulations. However, there are instances where it is sensible for other people or entities (for example your clients) to make a report to SOCA even if they are not in the regulated sector.

Your client can commit a money laundering offence if they have ‘knowledge’ or ‘suspicion’ of money laundering activity, handle criminal property, or assist another person in transferring or holding criminal property. Submitting a report to SOCA can provide a defence against any subsequent prosecution. Therefore, if your client becomes concerned that they may have been unwittingly used to launder money it is sensible to make a report directly to SOCA. Of course, in some instances a report may already have been made to the Police.

Remember, if you become aware of the specific circumstances of the offence, you have a duty to report, even if you are confident that the client has themselves made a report. Firms within the regulated sector are obliged to make reports, other entities and persons simply have the right to.