Testing your Suspicions

Suspicion is subjective.  It is more than mere speculation but falling short of proof based on firm evidence.  A suspicion must be of a settled nature and must be based on the facts as they present themselves – that is to say you are able to point to a fact or facts which cause you to feel uneasy about the client or his transaction.  It is important to keep a written note on the confidential file as to exactly why you have filed a SAR; the feeling that the client is in some way “slippery” is not enough.

Examples of when you might be suspicious about a client or transaction include:

• Where it is impossible to obtain evidence of the business applicant's identity
• When the business applicant is reluctant to supply evidence of identity
• Where an intermediary is used for no discernible reason
• When the transaction is an unusual one whether for the business applicant or in the light of normal market transactions
• When the business applicant is introduced by a financial institution from a country with inadequate money laundering regulation in place (especially those outside the EU – HM Treasury maintains a list of those countries which it believes have equivalent legislation to the UK)
• When the business applicant is introduced by a financial institution from a country where drug production or sales are prevalent
• When settlements are made in large amounts of cash (this may typically be the case with a builder, for instance, where cash payments – with or without VAT paid – are often made).  Cash should always be accounted for
• When settlements are made by a third party, apparently unconnected with the business applicant
• When the payment is made to a third party, apparently unconnected with the business applicant
• When securities are delivered to an unconnected third party
• When the transaction just doesn’t feel right in the context of what you know about the client or from your experience of business or transactions of that nature

There is a defence if:

• You have a “reasonable excuse” for not disclosing
• You discovered this in legally privileged circumstances (beware – legal professional privilege is not always accepted by the courts)
• You didn’t know or suspect there was money laundering and your employer hasn’t trained you [However, your employer may be charged under MLR 2007 if he has failed to train you]

The Legal Professional Privilege defence has been (theoretically) extended to professional advisers who are members of the IFA.  A situation can enjoy legal privilege where it satisfies all three of the following criteria:

• A confidential communication
• Between the relevant professional adviser and his client or a third party
• Made for the dominant purpose of being used in actual, pending or contemplated litigation

Examples of this have been suggested to include:

• Advice on taxation matters, where the adviser is giving advice on the interpretation or application of elements of tax law and in the process of assisting a client understand his tax position*
• Advice on legal aspects of a takeover bid
• Advice on the duties of directors under the Companies Acts
• Advice to directors on legal issues relating to the Insolvency Act 1986 (for example, wrongful trading)

However, the courts do not universally accept legal professional privilege as a defence for any professional other than a lawyer.  You would do well to consult a solicitor if you are in any doubt.

*Typically, you, as the client’s tax agent, bring to his attention that you believe he has more income than he is declaring to HMRC.  If he does then not heed your advice in this respect, you should report him to SOCA and HMRC. You must always document client meetings of this sort carefully.