What are the money laundering risks associated with a very small client’s business – and how should AML issues be addressed? Is it acceptable for an accountant, bookkeeper or tax adviser simply to transcribe figures provided by the client into a tax return and submit them to HMRC without obtaining any supporting information or documents?
I raised this question with a group of accountants recently.
What the client wants
The client may be looking for the cheapest possible service to get his or her tax return completed and submitted. So they may be expecting simply to send a note of their figures of business income and expenditure to the accountant and have the accountant put them into a tax return and submit it to HMRC.
The minimum the accountant has to do
The reality is that the accountant is obliged to comply with the UK Money Laundering Regulations 2017 and in order to satisfy the requirements of those he or she necessarily has to obtain at least some information from or about the client. Not necessarily any accounting documents (by which I mean items such as bank statements and invoices) but in order to act for the client the accountant will need to have completed Client Due Diligence, including verifying the client’s identity, and to have completed an AML Risk Assessment.
So the work will involve more than mechanically transcribing figures received from the client into a tax return and submitting that to HMRC.
Professional obligations
If the accountant is a member of one of the professional bodies of accountants, bookkeepers and tax advisers they will also have professional obligations to, for example, issue an initial letter to the client (referred to as a letter of engagement) setting out the services to be provided to the client, the basis of fees to be charged, and the respective responsibilities of the accountant and the client.
In practice the accountant will be expected at a minimum to use their experience, knowledge, skill and judgement to review the information received from the client in the light of what they know of the client’s business, financial affairs and history and form an opinion as to whether the figures produced to them seem reasonable. Only if they are satisfied that the figures do seem reasonable will they submit them to HMRC without seeking additional information.
Confirming client ID and KYC information
The Money Laundering Regulations 2017 require the accountant, bookkeeper or tax adviser to verify the identity of the client (for example by seeing the client’s passport, driving licence or other document or undertaking an electronic ID check) and to collect ‘Know Your Client’ information so that they have an understanding of the client’s business and the nature of the services the accountant is being instructed to provide to that business. These requirements apply to even the tiniest business client.
The AML risk assessment
The accountant, bookkeeper or tax adviser also has to prepare an assessment of the risk of money laundering, terrorist financing or proliferation financing associated with the client.
My own view is that the money laundering risk associated with a client who does not provide any supporting accounting documents (such as bank statements or invoices) is higher than the AML risk associated with a similar client who does provide those accounting documents.
I would suggest that the increased AML risk can be addressed in one of two ways.
- The accountant could obtain accounting documents from the client and examine them to confirm the figures.
- Alternatively, the accountant can obtain from the client general information about the client’s business, financial affairs and financial history (for example in discussion with the client) which enables them to satisfy themselves that the figures produced by the client are reasonable.
In either case the accountant, bookkeeper or tax adviser will need to retain evidence on their file of the steps they have taken. That evidence may be in the form of a file note or a completed questionnaire on the accountant’s file.
In this way the accountant will mitigate the higher money laundering risk presented by the client and have a record to demonstrate to their AML supervisory body that they have done so.
If you are concerned that your firm’s AML compliance is inadequate, or even non-existent, get in touch now using the link below and we can work together to fix this. The hardest part is getting started.
