Monday, 19 March 2018

Your obligations under the Criminal Finances Act 2017

The pages of legal journals, and other publications, are currently filled with information and guidance on GDPR and Anti Money Laundering, yet there is very little commentary on the far-reaching obligations imposed by the Criminal Finances Act 2017 (‘Act’). It received royal assent the 27th April last year, and contains some of the most far-reaching changes to anti-money laundering since the passing of the Proceeds of Crime Act 2002, as well as new powers designed to address the seizure of suspected criminal property.

Equally as important the Act has also created new offences in relation to the facilitation of tax evasion which will affect all companies, LLPs and partnerships, such as lawyers.

A company or LLLP or partnership can now be held to account for the actions of its directors, employees and others businesses with which it might contractually engage (“Associated Persons”) in relation to a failure to prevent facilitation of tax evasion – not only in relation to UK tax but also in relation to foreign tax evasion offences.  

This includes any specific statutory tax evasion offence or the common law offence of cheating the public revenue. There must also be an element of fraud or deliberate dishonest conduct, so liability would not arise, for example, through failure or even a refusal to complete a tax return or breach of other similar notice requirement offences. There need not be a conviction for a tax evasion offence.

There is a defence. Liability will not arise if the Associated Persons “demonstrate that it has put in place a system of reasonable prevention procedures that identifies and mitigates its tax evasion facilitation risks” (ss.45(2) and 46(3) of the Act).



For liability to arise (according to the HMRC Practice Notes) there needs to be a deliberate and dishonest action to facilitate the evasion. This suggests that boa fide advice on, for example, a tax avoidance scheme, should not present a risk, though where the SRA has issued a warning notice about a particular arrangement, the line between potential liability under the Act and not, may prove, in my view, be less clear.  


Liability under the Act will not arise simply because a client is known to be committing tax evasion.  For the offence to be committed the adviser must be seen, as mentioned above, to be taking “deliberate and dishonest action” to facilitate the evasion. This would suggest that there is not a need to report a client for suspected tax evasion. Indeed, it is worth stressing that, since legal professional privilege applies to this offence no liability will arise for the firm under the Act if it fails to report tax evasion by the client where it knows that evasion is taking place.

Great care 
should however be exercised here, since if it is known the client is committing tax evasion and funds from that client are to be used say, to purchase a property, the tax evasion will mean the funds are criminally tainted, and to receive those funds into your client account would clearly amount to money laundering.  The tax evasion would clearly in these circumstances need to be reported to the NCA since failure to do so could constitute a criminal office under the anti-money laundering legislation.


The Act does not restrict the ability of a client to seek advice as to how legally to minimise tax liabilities.  It is to prevent the unlawful evasion of tax.  Thus, there is nothing to prevent a solicitor from defending criminal charges of tax evasion or providing advice to the client on how they may regularise their tax position through legal means. Similarly, a firm cannot be held to be liable if their advice to a client to cease tax evasion goes unheeded, though do keep in mind here your AML obligations.
So, what should we be doing to comply with the Act?
To begin with, there should be an immediate evaluation undertaken to assess the risk areas within the business.  In Conveyancing, the areas of risk center around tax advice on capital gains tax and stamp duty. The risk is heightened where the turnover of clients is high, and in offices where work is undertaken by individual case handlers rather than teams. If clients are referred on to outside advisors, for example to seek advice on Wills, this would also be viewed as a risk area. The HRMC Guidance notes are helpful in identifying both low and high-risk areas, and is a good starting point when putting together a risk assessment. Your AML risk assessment will also assist.
Once you have identified the areas of risk you can then look to form a policy on detection and prevention measures and controls.  How are staff vetted when they join?  Do you obtain references and carry out back ground checks? In my firm we undertake criminal background checks.   How do you carry ongoing monitoring and supervision of staff and third-party contractors?  Are files reviewed regularly?  Making sure there are good accounting protocols is a must.  How are transfers of money out of the office approved.  In this office no transfer is made without ensuring adequate source of funds and wealth checks are made and a director has paperwork to enable bank details can be checked before funds are sent out.  This helps to mitigate the risk of funds being transferred out to an account established by, for example, an employee.
One area of major risk of collusion is where the business acts for a family member or friend of an employee or the employee.  Stricter monitoring in these circumstances should be implemented, and a policy on who can work on those files should be formed and implemented.
As for third party contractors, make sure contracts are reviewed, that you formulate and issue a statement of your stance on tax evasion, and that you seek details of the business’s policy on the Act.  There is good argument to suggest that unless the contractor has a workable policy you should consider terminating the contract.
Putting together a policy is the first step.  Making sure you can demonstrate the implementation of the policy is the next step, and perhaps for establishing the defence to liability if required, is the most important one to take.  Organise staff training, create and maintain monitoring records, ask external file reviewers to include checks within the review.  Also review the risk assessment and policy regularly.
In short, do what you can to demonstrate that you are taking the obligations seriously, and that you are implementing adequate controls to detect signs of dishonesty within the work place.  Including a statement of your intent on your website and in your terms and conditions is also advisable.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Wednesday, 14 March 2018

Is a source of funds check a complete waste of time?


A controversial question, but one I must raise given information received today from Lloyds Banking Group to the effect that it is not their policy to pass on bank details of the person transferring funds into a client account, without the consent of the transferor. It seems that depending on the type of transfer only the sort code of the transferor’s bank is captured and made available. This is not the case on all transfers however.


The consequence of this apparent data protection issue, is that without this information it is impossible to carry out a full and complete source of funds check, and to fully comply with obligations imposed by anti-money laundering and counter terrorism legislation.


Take the following example.


Client A provides Solicitor Firm B with bank statements and other documents to enable source of wealth and source of funds to be undertaken.  These checks are made and details of the account or accounts from which funds are to be transferred are recorded by Solicitor Firm B.  Client A then makes the transfer of funds into Solicitor Firm B’s client account. How is it possible for Solicitor Firm B to complete with its regulatory and statutory obligations and complete the source of funds check when Solicitor Firm B’s bankers refuse to provide details of the transferor’s account? A client with criminal intentions could have provided Solicitor Firm B the bank statements from a legitimate account only to later use an account holding criminal tainted funds for the transfer. 


This example demonstrates in my view a massive hole in anti-money laundering and counter terrorism measures and makes a complete mockery of the hard work that many of us are undertaking to assist the enforcement agencies with their fight against crime.


I know Lloyds is looking into this, and has referred the concern to the SRA and their legal department to seek urgent guidance. It will be interesting to see what comes of this referral when it is clear that there a legal obligation placed on a bank to obtain details of the account from which a transfer is to be made. The question whether this information should be passed onto a regulated body to discharge a legal obligation to adhere to anti-money and anti-money laundering and counter terrorism legislation is less clear.


In the meantime, the absence of joined up writing on this aspect of effective detection will leave the whole of the legal and other sectors covered by the legislation completely exposed.  I have asked Lloyds if this now means it is safe to assume that if the money is coming through the UK banking system the risk of money laundering and terrorism funding is low. I suggest this as the situation currently stands only the Bank knows from where the money has originated.  I have also asked whether a warranty to that effect can be given! I am not, needless to say, expecting a positive reply! 


David Pett - Solicitor

Friday, 2 March 2018

Moving home in the snow

Moving house is a highly stressful event for most people, and even though most factors can be planned for weather is not one of them. As anyone moving in the last few days and in the coming week will be aware of, weather is unpredictable and often not considered fully.


If you are due to exchange contracts and the weather forecast is predicting adverse weather, the best approach is to delay matters.

Once you have exchanged contracts, you are contractually bound to move on the agreed completion date. In a property contract, unlike many commercial contracts, there is no provision that deals with unforeseen circumstances like the weather we've recently experienced.

You should be aware that if you are unable to move on the agreed date you could face penalties for being in breach of contract. The sensible approach therefore is to keep an eye on the forecast and wait until the weather has cleared, before committing yourself to an exchange.

So if you are unlucky enough to complete your property transaction during adverse weather conditions, here are a few helpful tips to keep in mind;


  • Safety: this must always be at the forefront of your thoughts when making decisions about your move
  • Be careful when packing: ensure to fully protect your temperature sensitive household goods such electrical items, delicate furniture, plants and animals, and any boxes are labelled 'keep dry'
  • Prepare for the day: clear paths and driveways to your current property so that movers can safely access your property
  • Protect: Limit damage to the flooring in both your current property and new home by using plastic sheeting and thick cardboard
  • Be wise: Remember not to pack your warm winter clothing on moving day
  • Make sure all utilities are connected, and you know how the heating and boiler operate in your new home
  • Morale: Have equipment ready for making hot drinks for all your helpers
  • Plan ahead: Have a back-up plan in case conditions worsen

Moving in any kind of adverse weather can take longer than anticipated, so keep calm and stay warm!

BEN PETT AND ANNA MCNEIL

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

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