Supplementary Anti Money Laundering Guidance for Tax Advisers
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) uses the term ‘tax adviser’ and defines a tax adviser as: ‘a firm or sole practitioner who by way of business provides advice about the tax affairs of other persons, when providing such services. The meaning of ‘advice’ is widely interpreted. Tax compliance services, i.e. assisting in the completion and submission of tax returns, are included within the term.
The Supplementary Anti Money Laundering Guidance for Tax Practitioners, hereinafter referred to as “guidance” has been prepared to help tax advisers comply with their obligations under UK legislation to prevent, recognise and report money laundering. The provision of the supplementary guidance is not standalone guidance. It must be read in conjunction with the Consultative Committee of Accountancy Bodies (CCAB’s) Anti Money Laundering Guidance for the Accountancy Sector (AMLGAS). The guidance outlines essential regulatory requirements, risk management strategies, and procedural steps to counter money laundering and terrorist financing within the tax services domain.
Introduction & Scope
This guidance that discusses money laundering offences and anti money laundering checks is designed for professionals providing tax services covering direct and indirect taxes. It emphasises that even routine tax compliance activities, including preparing and submitting returns, can fall within the regulatory perimeter if they are conducted as part of a business. Notably, the absence of remuneration does not automatically exclude an activity from being subject to AML controls, underscoring the importance of applying consistent due diligence regardless of client type or service nature.
Regulatory Framework & Key Obligations
Tax advisers must operate in accordance with MLR 2017 and the Proceeds of Crime Act 2002 (POCA). The guidance sets out the following obligations:
Risk-Based Approach & Oversight
Tax advisers must proactively assess and manage money laundering risks, aligning regulatory mandates and professional ethical guidelines.
Customer Due Diligence (CDD)
Robust CDD processes are emphasised. This includes verifying client identity, understanding beneficial ownership, and, where necessary, undertaking due diligence on clients referred to by other professional firms.
Suspicious Activity Reporting (SAR)
SAR is a critical component of the AML regime whereby tax advisers must report any money laundering or tax evasion suspicions to the appropriate authorities, barring circumstances covered by the privilege reporting exemption.
These obligations are intended to ensure compliance and prevent tax advisers from inadvertently facilitating criminal activities through their advisory roles.
Money Laundering Risks & Anti Money Laundering Checks in the Tax Sector
The guidance identifies several risk areas inherent in tax practice, including:
Client Misconduct
This includes the instances where clients may deliberately under-report income, overstate expenses, or refuse to correct known errors—all actions that might generate proceeds of crime.
Complex International Structures
Complex International Structures includes cases involving clients with multi-jurisdictional tax affairs or those employing offshore structures, where the opacity of beneficial ownership can mask criminal proceeds.
Tax Planning Schemes
This includes situations where aggressive tax planning might border on facilitating tax evasion. Tax advisers must exercise careful judgment to differentiate between legitimate tax planning and schemes with criminal elements.
This detailed risk assessment framework helps tax advisers to identify, evaluate, and manage potential money laundering vulnerabilities in their client engagements.
Customer Due Diligence & Reporting Requirements
The document provides comprehensive guidance on the importance of CDD, stressing that tax advisers must establish clear client relationships. Where they advise other professionals, the same level of scrutiny applies to ensure that no steps are overlooked.
Moreover, the responsibility to file a Suspicious Activity Report (SAR) is emphasised, especially when there is reasonable suspicion of tax evasion or money laundering—even in cases where the suspected amounts are minimal. The guidance also cautions against “tipping off” clients once a SAR has been made to avoid compromising any ensuing investigations. All this is vital to ensure we are not unintentionally being a part of any money laundering offences.
The Privilege Reporting Exemption
A nuanced aspect of the AML framework addressed in the guidance is the privilege reporting exemption. This exemption applies primarily to scenarios where information is received under privileged circumstances, such as during the provision of legal or tax advice. However, the guidance also describes the limits of this exemption, particularly highlighting that it does not extend to situations where the information is intended to further a criminal purpose (the so-called crime/fraud exception). Clear examples illustrate when exemption applies and when it does not, thereby assisting tax advisers in making informed decisions about their reporting obligations.
Tax Offences: Direct & Indirect
The guidance details various tax offences that may trigger reporting requirements. These include:
By distinguishing between the types of money laundering offences, the guidance aids tax advisers in assessing whether a client’s actions constitute a reportable criminal offense or a rectifiable error.
Guidance on Specific Circumstances
Tax advisers must adhere to their professional body’s established ethical guidelines such as those outlined in professional conduct in relation to taxation to encourage client compliance with the law. If a client’s intentions remain uncertain, the practitioner should carefully evaluate whether to commence or continue the engagement and determine if there is an obligation to file a Suspicious Activity Report (SAR) or notify their Money Laundering Reporting Officer (MLRO) upon suspecting money laundering. Practical scenarios are presented to help tax advisers navigate common dilemmas, including:
- Innocent or Negligent Errors
Tax advisers need to differentiate between genuine mistakes and intentional understatements. No suspicion is formed if a tax adviser believes the errors resulted from an innocent mistake or oversight. However, if there is reason to suspect that the error or omission was deliberate, a SAR should be filed unless the privilege reporting exemption applies.
- Client Refusal to Disclose
When a client expresses unwillingness or outright refusal to disclose the matter to HMRC to avoid paying the tax due, it indicates that the client has likely formed criminal intent, thereby triggering the reporting obligation unless the privilege reporting exemption applies.
- Adjustment of Subsequent Returns
The legislation covers any activity that launders proceeds from a criminal offence, regardless of the amount involved. However, if the law permits the correction of minor errors through subsequent tax adjustments and if the original error was not due to criminal conduct, then such adjustments do not trigger a reporting requirement, as no crime has been committed.
- Disclosures under HMRC’s Facilities
When a potential or current client requests that a practitioner assist with making a disclosure to HMRC under the applicable procedures, suspicions of tax evasion may often but not invariably arise. Tax practitioners must understand that notifying HMRC does not substitute for reporting to the National Crime Agency (NCA). When there are reasonable grounds to suspect that tax has been deliberately left unpaid when due, a report must be made to the NCA without delay.
These specific guidelines are designed to support tax advisers in making consistent, legally compliant decisions in varied and often complex situations.
Conclusion
The supplementary guidance provides a vital resource for tax advisers, offering clear and detailed advice on how to comply with AML regulations while managing the inherent risks in tax practice. By integrating robust customer due diligence, clear reporting protocols, and a careful interpretation of privilege and legal exemptions, the guidance equips tax advisers to act ethically and responsibly. Ultimately, it reinforces the importance of balancing client service with regulatory compliance, ensuring that tax professionals do not inadvertently contribute to money laundering or terrorist financing activities.
Readers are encouraged to consult the full guidance document for a deeper understanding of the detailed provisions and illustrative examples.
Sanjay Gautam
Sanjay Gautam, a seasoned Chartered Accountant, brings over seven years of experience in accounting, finance, and taxation. He has held notable roles at Credit Suisse, HSBC, and Fintech. His expertise in tax planning, compliance, and financial management are truly exceptional. Holds a Master's in Business Studies.