Wife's wages - Evidence and verification

Presented facts (names changed to preserve confidentiality).

Malcolm's client company is engaged in manufacturing. As well as employing Mr Johnstone, the sole director and shareholder, and about a dozen staff who work at the company's premises, the company also employs Mrs Johnstone, the director's wife, and Melissa, his 20 year old daughter.

Malcolm has been tipped off by a company employee that neither Mrs Johnstone nor Melissa ever attends the company premises.

Malcolm has raised this with Mr Johnstone who has told Malcolm that his wife and daughter work from home and has provided Malcolm with written details of the work they do.

Malcolm appreciates that Mrs Johnstone and Melissa are perfectly capable of doing the work described, which could be undertaken from home. The remuneration paid is not excessive, in Malcolm's opinion, for this work and PAYE is operated properly on the amounts paid.

Malcolm's problem however is that it is not possible for him to verify that Mrs Johnstone and Melissa do actually perform the duties described (without being at the family home to watch them).

Malcolm asks if he should report the payments to Mrs Johnstone and Melissa to SOCA.

MLRO Support Ltd - Opinion

Malcolm is obliged to report to SOCA where, in the course of relevant business, he receives information which causes him to know or suspect, or have reasonable grounds to know or suspect, that another person is engaged in money laundering.

A client who is engaged in tax evasion is inevitably also engaged in money laundering as soon as tax falls due and is underpaid (or over-repaid) as a consequence of the evasion.

Tax evasion involves dishonesty, not just innocent error. The requirements apply equally to evasion of income tax, other direct taxes, VAT, other indirect taxes and duties.

In order to know or suspect money laundering, Malcolm should have some evidence related to the suspected wrongdoer. It may be very little evidence - for example in certain circumstances a single missing invoice, or even 'shifty behaviour', could be sufficient.

In our opinion it appears in this case that Malcolm has no evidence whatsoever to indicate that Mr Johnstone's explanations are misleading and, if what Mr Johnstone says is true, there appears to be nothing improper.

It is not a requirement of the money laundering regime that Malcolm should verify the explanation given by his client when he has no evidence on which to doubt it.

In short, there is no reason for Malcolm to report the matter to SOCA.