Money Laundering

What is Money Laundering?

Practitioners need to be aware of the requirements of the anti-money laundering provisions of the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007 (which replaced the Money Laundering Regulations 2003 from 15th December 2007). The original provisions came into effect on 1st March 2004 and apply to any knowledge or suspicion of money laundering that arises after that date.

The following commentary provides a very brief outline of the main money laundering provisions. It is not intended as a full exposition of the law relating to this subject and should not be taken as such.

Money laundering is specifically defined by the legislation. It occurs when someone:-

  • Conceals, disguises, coverts, transfers or removes (from the UK) criminal property
  • Enters into or is concerned in an arrangement which they know or suspect facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person
  • Acquires, uses or has possession of criminal property.

And they know or suspect that the property constitutes or represents a benefit from criminal conduct.

Tax evasion is criminal conduct, and criminal property includes the proceeds of tax evasion, no matter how small the amount; there in no de minimis limit. Examples of what constitutes money laundering in the field of taxation include:-

  • Deliberately understating profits
  • Deliberately overstating expenses
  • Failing to notify HMRC, once it comes to light, of an innocent or negligent error which leads to a loss of tax
  • Failing to notify HMRC of an over-repayment of tax when the repayment is known to be excessive.

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HMRC Guidance on Money Laundering

After the introduction of the Money Laundering Regulations 2007 (SI 2007/2157), HMRC issued guidance on how to go about registering under the new regulations.

Their website has a great deal of information on money laundering, much of it in simple question and answer format. It also includes a link to the Anti-Money Laundering Guidance published by the Consultative Committee of Accountancy Bodies (CCAB) which all Accountancy Service Providers (ASPs) should follow.

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Overseas Offences

Originally the legislation required that a report be made even if the acts which produced the proceeds took place in a country overseas and those acts would have been a criminal offence had they taken place in the UK.

Under amendments to the Proceeds of Crime Act 2002 made in 2006, a new defence to the money laundering offences in that Act was introduced. Subject to certain exceptions, the defence applies where:-

  • A person knows or believes on reasonable grounds that the acts which produced the proceeds took place in a particular county overseas and the acts were lawful in that country and
  • The act generating the proceeds would not be punishable in the UK by a maximum sentence of more than 12 months’ imprisonment.

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Money Laundering Privilege

An exemption from reporting knowledge or suspicion of money laundering that came to a person in privileged circumstances was originally available only to lawyers. The legislation was amended so that, with effect from 21st February 2006, the exemption was extended to accountants, auditors and tax advisers who are members of appropriate professional bodies.

This means that knowledge or suspicion of money laundering that comes from information received when providing legal advice and acting in respect of litigation does not have to be reported to SOCA unless the services provided will be used in the furtherance of a criminal purpose.

The exemption applies only to reports of money laundering required under the Proceeds of Crime Act 2002; it does not apply to the reporting requirement under the Terrorism Act 2000.

The exemption is not optional; if it applies it must be lead.

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Money Laundering Registration


HMRC are responsible for supervising businesses that are required to register under the Money Laundering Regulations 2007. All businesses covered by the regulations must be supervised by an appropriate anti-money laundering supervisory body. This may be a designated professional body or HMRC. HMRC have warned that those that should have registered with them and have not done so will be charged a penalty.

HMRC’s Role

The role of HMRC is to investigate the laundering of the proceeds of tax, National Insurance contributions or tax credit fraud. HMRC’s involvement is limited to cases in which tax evasion is a feature.

Special Civil Investigations (SCI) is the investigating body for money laundering offences featuring tax evasion, through its dedicated Anti-Money Laundering Unit.

Money laundering reports must be sent to the Serious Organised Crime Agency (SOCA) in the first instance. If SOCA is satisfied that there is no wider criminality beyond tax evasion, information from the disclosure report is forwarded to the SCI Intelligence Group.

HMRC rely on the integrity of professionals (e.g. accountants and lawyers) who act on behalf of clients. HMRC’s policy is, therefore, to seek to prosecute accountants, tax advisers and other professionals who assist their clients, or who act in their own capacity to evade tax through money laundering activities. Further areas of risk for practitioners include failing to make a report to SOCA as soon as is practicable after a knowledge or suspicion of money laundering arises, and/or tipping off the subject of the report.

Code Of Practice 28

As part of the supervision process HMRC have recently published a new code of practice (Code of Practice 28), which sets out the ground rules for HMRC visits to businesses that are required to be registered.

Code of Practice 28 states that HMRC will be applying a risk-based approach by using information from different sources to help them decide where to focus resources and which businesses to visit. This means they will be using information provided by businesses upon registration, the results of visits and other checks carried out on businesses, sector intelligence and analysis; and industry trends and emerging risks. SOCA will be notified if, in the course of carrying out their supervision duties, HMRC become aware or suspect that a business is or has engaged in or has attempted money laundering or terrorist financing.

There are two key requirements under the 2007 regulations. Businesses must comply with the legislation by putting in place risk sensitive anti-money laundering policies and procedures to prevent the business being used by money launderers and terrorists. The second requirement concerns the obligation to report any suspicious activity to SOCA. The purpose of an HMRC visit therefore is to ensure that businesses are complying with the legislation and taking advantage of simplified procedures.

In the majority of cases, HMRC will arrange a convenient meeting time and will confirm the information, documents and records that will be needed on the day. In exceptional circumstances HMRC may visit without an appointment. When they arrive they will identify themselves and give the reason for the unannounced visit.

The Visit

On the day of the visit HMRC will need to talk to the owner of the business, the person within the business responsible for compliance with anti-money laundering legislation and/or the nominated officer/money laundering reporting officer. Broadly, it will be necessary to demonstrate how the business operates the anti-money laundering policies and procedures.

The focus of the visit will be on the business’ risk sensitive anti-money laundering policies and procedures to make sure they successfully manage and reduce the money laundering and terrorist financing risks faced by the business. During a visit HMRC will:-

  • Check the information held on the HMRC register is correct
  • Ensure the right people within the Money Service Businesses and Trust or Company Service Providers have undergone the fit and proper test
  • Ask the proprietor to explain how the risk sensitive anti-money laundering policies and procedures work
  • Answer any questions relating to legal responsibilities under the anti-money laundering legislation
  • Look at the procedures for risk-assessment of the business’ customers, products and services
  • Examine the anti-money laundering policies, procedures and training the business has implemented to manage and reduce the risks identified

HMRC may also:-

  • Examine transaction records and related documents to check that the customer due diligence measures have been adequately applied
  • Evaluate systems for identifying and reporting suspicious activity to SOCA
  • Check that all staff are aware of the law relating to money laundering and terrorist financing and are sufficiently  trained to recognise and deal with suspicious activity
  • Ensure that adequate systems are in place to manage compliance with the Money Laundering Regulations 2007.

If the business is a Money Service Business or High Value Dealer, HMRC may also inspect any cash found on the premises.

At the end of the visit, HMRC will review what has been done, explain any areas of concern and agree any action that needs to be taken. This will subsequently be confirmed in writing along with an outline of penalties that may be imposed for non-compliance within an agreed time-limit.


Example of business records the officer is likely to want to see include:-

  • Anti-money laundering policies and procedures
  • Policy statement showing business’ risk assessment of its customers, products and services
  • Internal audits of compliance with internal anti-money laundering procedures and controls
  • External auditor’s report where it relates to compliance with anti-money laundering legislation
  • Compliance reports in relation to anti-money laundering legislation
  • Bank statements relating to relevant business
  • Copies of and references to evidence of a customer’s identity and the supporting records of customers due diligence measures and ongoing monitoring
  • Staff anti-money laundering training manuals
  • Records of all transactions covered by money laundering regulations
  • Records/copies of suspicious transactions, action taken, copies of any Suspicious Activity Reports submitted to SOCA and any correspondence from them concerning consent.

HMRC will look at Suspicious Activity Reports for anti-money laundering legislation purposes only and not for tax purposes.

ID Cards for Foreign Nationals

The 2007 regulations require relevant businesses to carry out customer due diligence on their customers and this may involve asking for documentary evidence of a customer’s identity. On 25th November 2008 the UK Border Agency began the roll-out programme of new ID cards for foreign nationals. It is important that all practitioners are aware of the new cards, their significance as documentary evidence of ID, the information they contain and how they can be recognised as genuine documents.

The cards will be issued to migrants from countries outside the European Economic Area (EEA) applying for leave to remain in the UK. Initially they will only be issued to migrants in the category of a student or on the basis of marriage or partnership from 25th November 2008 though they will be rolled out to other categories of migrants in the future.

Over time, the cards will replace vignettes (stickers) and stamps in passports and will act as stand-alone grants of leave to stay in the UK. The cards can be accepted as a form of identification though there is no requirement that cardholders must carry their ID card on them at all times.

Further information of the new ID cards can be obtained from the UK Border Agency card verification helpline on 0300 123 4699.

Money Laundering Steps Required

Practitioners are required to take certain steps to comply with the money laundering regulations. They must:-

  • Appoint a money laundering reporting officer to receive reports from colleagues and make reports to SOCA.
  • Train principals and staff in the requirements of the legislation so they know how to check the identity of clients and can recognise and report money laundering
  • Verify the identity of new clients and
  • Establish internal procedures to detect and deter money laundering.

It must be remembered that the above provides only a very brief outline of some of the main legislative provisions and requirements.

Tipping Off

It is an offence under the legislation for the practitioner to tell someone that it is known or suspected that a report is to be, or has been made to SOCA. It is also an offence to tell anyone else if doing so will prejudice any investigation which is made as a result of SOCA receiving the report.

When to Make a Report

If, in the course of his or her professions, a practitioner suspects, or ought to have suspected that someone has been involved in money laundering a report must be made to the Serious Organised Crime Agency (SOCA) as soon as possible. The practitioner does not require evidence in support of the suspicion nor is it necessary to be sure that a criminal offence has been committed; a report has to be made if the practitioner merely suspects money laundering.

The obligation to make a report is a personal one. It does not matter that the practitioner thinks that someone else has made a report nor is the obligation to make a report affected by the known willingness of HMRC to seek a civil settlement in the case.

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