Implementating the Third Money Laundering Directive
Comments from ACCA
10 October 2006
General comments
ACCA is pleased to comment on the above consultation paper. Our comments on this matter reflect the fact that we represent many registered auditors, other practising accountants and tax advisers who are regulated persons under the Money Laundering Regulations 2003.
Our understanding of the changes being made is that the implementation of the Third Directive will not give rise to the same level of anxiety among accountants and others as did the requirements of the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2003. This is partly because the UK adopted such a hard-line position on that previous occasion and partly also because the consultation paper suggests the Government is minded now to adopt a more flexible approach to AML regulation, which we believe will be welcomed by regulated persons and regulators alike. In particular, we consider that there will be a particular welcome for the recognition in legislation of regulated persons' right to adopt risk-based approaches to the carrying out of CDD checks.
That being said, there will undoubtedly be further compliance costs for all in the regulated sector as the result of the implementation of the Third Directive. They will also face on-going difficulties with certain technical aspects of the new legislation, including with regard to the identification of beneficial owners in unlisted companies and dealing with politically exposed persons. In many areas, supplementary guidance prepared by bodies like CCAB will have to be revised materially so as to remain relevant to the new legislation, and regulated persons will have to come to terms with that revised guidance. It does not seem satisfactory that all these changes are having to take place so soon after the
introduction of the Money Laundering Regulations 2003. This is especially the case since, as we understand it, the Third Directive was enacted before some member states had implemented the requirements of the Second. It is to be hoped that any further EU legal initiatives on this matter can be deferred until such time as the regulated sector has had a suitable opportunity to digest the changes now being implemented.
Comments on specific questions
We have the following comments on specific questions posed in the paper.
i) Definition of 'accountants' (question after para 2.15)
The document proposes that the current definition applying to accountants be changed. We appreciate that the object is to try to align the UK 's definition more closely with that contained in the Directive, i.e. 'external accountant', but consider that the current provisions are generally understood and workable and that there is no real need for change.
We are not aware that the currently applicable UK definition, viz ' the provision by way of business of accountancy services by a body corporate or unincorporate or, in the case of a sole practitioner, by an individual', has caused any problems in its application. Its practical virtue is that it avoids the problem of using and defining the term 'accountant', which may be a more difficult thing to achieve. The use of the term 'accountancy services' is sufficient to cover all persons who offer such services to clients on a business basis, whatever their qualifications or lack of them - this is the intention of the Directive. Any changed wording would have to be careful not to endanger this wide scope.
In paragraph 2.12, the document proposes that a revised definition should provide expressly that the definition covers sole practitioners, partners and employed professionals within professional firms, and excludes 'internal' professionals that are employees of other types of businesses and professionals working for public authorities. We would not want to create a situation whereby all professionals are held to be regulated persons and required to assume AML responsibilities on a personal basis. The current situation, whereby the firm is the regulated person and its directors or partners have responsibilities to ensure that all persons in the firm contribute to the corporate compliance effort, is more appropriate. If it is clear that the practising firm is the regulated person, we see no need for providing that professional accountants working for public authorities fall outside the definition. As for employed professionals, they already come within the scope of the current definition in that they have to be exposed to adequate training by their firm and have responsibilities to report matters, where appropriate, to their firm's MLRO.
• Scope (question after 2.26)
We agree that there does not appear to be a pressing case for the expansion of the scope of the Directive beyond the parameters of the Directive.
• Reliance on Third Parties (question after para 5.23)
The new provisions regarding reliance on CDD checks carried out by other regulated persons will give a measure of additional flexibility to accounting firms. However, the fundamental responsibility for the principal firm to assure itself of a client's identity is likely to mean that, in practice, the great majority of firms will carry out their own checks. The considerations which firms should take into account when making their decisions stand to be addressed in supplementary guidance. A further reason why reliance by accountants on third parties is not likely to be widespread is that not all accountants will meet the test of article 16.1(a) of the Directive, which provides that [approved third parties] must be subject to mandatory professional registration, recognised by law. Even if statutory auditors are considered to satisfy this test by virtue of the statutory nature of their authorisations, those members of the same professional bodies who are not so authorised are not, we suggest, likely to do so – membership of professional bodies is not in any way mandated by law in the UK . Even licensed insolvency practitioners will not meet this test since they are not persons regulated by the Directive, even though they are regulated by UK law.
• Protection of employees (question after para 7.27)
We welcome the fact that the issue of SAR confidentiality is now being taken seriously and that strong action appears to be taken by SOCA and the Home Office. This remains a cause of legitimate concern for the reporting sector. ACCA has received a series of complaints from members who have submitted SARs to the effect that their identity has been compromised by law enforcement agencies. At best, breaches of security causes professional embarrassment to the adviser, but at worst they could undermine the integrity of the whole reporting regime, by deterring persons from reporting even where they should. We therefore support the steps that are being taken regarding this matter and trust that they will result in a sustained improvement in the security situation.
v) Copies of records (question after para 8.9)
Our understanding is that most accountants will have been keeping copies of CDD data, as opposed to references to such data. In the light of this, we think it would be reasonable for the law to require that copies should be kept unless it is not practicable to do so, in which case references to the evidence should be considered sufficient.
vi) The model of monitoring/supervision (question after para 10.14)
We support the proposals in paras 10.11-10.13 to devise the new supervision/monitoring system in accordance with the Hampton principles with the addition of an entitlement for supervisors to issue annual returns and/or statements of compliance.
• Supervision of external accountants/tax advisers/auditors
Subject to agreement on details with HM Treasury, ACCA would be prepared to assume responsibility to monitor its own members for AML compliance purposes.
viii) Supervision of 'other' accountants
We suggest that HM Treasury consider whether there is a need to adopt a more pro-active regulatory approach with respect to those accountants and tax advisers who are not monitored and supervised by prescribed professional bodies. Such a pro-active approach might be carried out on a random basis with the objective of ensuring that appropriate systems are in place and that the statutory procedures are being complied with.
We would have no operational objection to HMRC assuming responsibility for supervising those 'other' accountants and tax advisers. HMRC being a law enforcement agency, however, there is an obvious problem of data security. Any arrangements for monitoring these firms should be devised very carefully in order to assure firms that the confidentiality of their data will be absolutely respected.
Other points
(ix) insolvency practitioners
There is no separate mention in the consultation document of the position of licensed insolvency practitioners. It appears that, since this category of person is not specifically covered in the Directive, there is no intention to subject them to the regime of monitoring/supervision which the Directive requires for regulated persons. This would create a situation in which insolvency practitioners were regulated persons for the purposes of UK law, and subject to all compliance and reporting obligations, but were not monitored/supervised on the same basis as others in the regulated sector. This could in turn give rise to the question of whether they should be monitored or supervised in the capacity of external accountants or lawyers – although not all licensed insolvency practitioners are one or other of the two.
x) Definition of trust and company service providers
We appreciate that HM Treasury achieved an improved definition of 'acting as director' in article 3.7(b) of the Directive. But we still feel that, as it stands, the definition – acting or arranging for another person to act as a director or secretary of a company, a partner of a partnership or a similar position in relation to other legal persons [by way of business] – risks covering, at least, persons who act as Non-Executive Director for multiple companies, those who act as directors of group companies on behalf of parent companies and those who act as directors on behalf of finance companies. Such an outcome does not appear to be intended by the Directive but we consider that the definition adopted for UK purposes needs to be explicit on this matter to ensure that that outcome is avoided.