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Beware of the new money laundering regulations by Ian McTernan


Our tax specialist Ian McTernan explains the new Money Laundering Regulations that have come into force as of 1st March 2004. 

Under the regulations, any tax evasion is deemed to be a money laundering offence.

For the first time accountants, tax consultants and other professional advisers including estate agents are brought into the net of those legally obliged to report any suspected case of money laundering to the National Criminal Intelligence Service (NCIS).

Tax evasion is deemed to include any omission of any income or gains from a Tax Return or failure to report any transaction which may give rise to a gain. Typically for property investors this will include not declaring rental income or not declaring the sale of a property.

Now for the real sting - the professional adviser must make a report to the NCIS as soon as he becomes aware of any offence.

A good example of this is when a new client comes along and says he hasn’t declared his income for several years from his properties, but now wants to make a voluntary declaration to the Revenue. In this scenario the adviser must inform the NCIS of this and he/she is specifically banned by law from telling the client that such a report has been made.

This is regardless of whether the client asks if such a report has been filed. If the adviser fails to file the report then he/she will face prosecution!

Of course, the NCIS will pass the report to the Inland Revenue for action and before long the client will find himself subject to a full scale Revenue investigation.

Under these new rules, it will also be necessary to submit a letter to the Revenue advising them that the client will be making a voluntary declaration in the near future. 

This needs to be submitted as soon as contact is made with the client in order to make sure that the Revenue do not come down too heavily on the client. The rules surrounding a voluntary declaration are more advantageous than a Revenue investigation!

Case Study
William comes to McTernan Associates Ltd for a reference for his mortgage company. They have insisted that he has an accountant’s reference before they will grant him a mortgage.

William has not previously declared his rental income as he feels he is making a loss overall.

Under the Money Laundering Regulations he has committed an offence and any professional is under an obligation to make a report to the NCIS without being able to tell the client that he has done so.

Imagine William’s surprise when he gets a letter from the Revenue opening an investigation into his affairs!

The above case study demonstrates how the government and the Inland Revenue are working proactively to prevent money laundering and other methods of tax avoidance.

Therefore, it is best to keep on top of you tax matters right from the outset!