Datanamix | AML Sanctions Screening
AML Guide for Tax Consultants
This guide will review the risks that consultants face around Money Laundering, as well as what procedures they need to have in place to address them.
AML risks in the tax industry
Refusal to disclose owners or beneficiaries
- Tax consultant should be wary if, a client is placing a significant amount of importance on the confidentiality of owners or beneficiaries.
- This could indicate there is a structure in place to hide criminal activities, or that money laundering has occurred.
- For instance, the client may not want you to know the source of their income, because it was obtained through illegal measures or was used to commit crimes.
Overly complex international structures
- Another risk tax consultants face, is the use of overly complex international structures to conceal money laundering and facilitate tax evasion.
- If a client who is associated with a large number of jurisdictions, but is paying little to no tax in any of them, this is a red flag. It may be due to illegal arrangements to avoid tax by shuffling money around different countries and jurisdictions.
- There is also a concern if assets are being transferred to trusts or countries that have been identified as high risk when there is no clear rational reason for them to complete that type of transaction.
Proceeds from illegal activities
- Tax consultants may become aware or suspect that a client has proceeds that were the result of crimes or money laundering efforts.
- Tax consultants must be aware when clients ask them to create tax planning structures that help them evade taxes and conceal the source of their income.
- Perpetrators of money laundering and other criminal activities may refuse to correct errors on previous tax returns or on an ongoing basis.
- Money launderers may also deliberately declare profits or losses to falsify their taxes in a way to legitimise funds obtained through criminal activities.
How should tax consultants address AML concerns?
Due to their exposure to AML compliance risks, tax consultants must comply with anti-money laundering regulations and ensure that they have processes and procedures in place to prevent and detect it.
They can address these concerns and comply with regulations by:
- Employing customer due diligence measures
- Reporting suspicious activity
- Making use of a risk-based approach
Failure to comply with regulations can lead to hefty fines and penalties, so it is best to set up your tax consulting business to address these regulations ahead of time.
Customer due diligence
- Customer due diligence involves identifying customers at the beginning of the business relationship – and monitoring them throughout – to determine if they appear on any sanctions lists or PEP screenings.
- To properly conduct this research, tax consulting firms must collect identifying information like name, address, and photo identification so that they can verify identity. Reluctance to provide this information is a red flag.
- If someone does appear on a sanctions or PEP list, it means they’re either a known terrorist, criminal or sanctioned for some reason.
- A person with political influence will require additional due diligence measures.
- You can also perform adverse media screenings which will tell you if the individual or organisation has been involved with financial crimes or money laundering in the past.
Suspicious activity reporting
- Tax consultants are required to report suspicious activity and criminal offenses, such as tax evasion and money laundering.
- Tax consultants are obligated to report these findings to the appropriate regulatory authority.
- It is a criminal offense not to report these findings to the appropriate regulatory authority.
- Any tax consultant who has made a suspicious activity report must take care not to tip off the client or third party, so that authorities can conduct their investigation as needed.
NOTE: This is known as the crime and fraud exception, so tax consultants are not bound by confidentiality when reporting these illegal activities.
Use a risk-based approach
Tax consultants should use a risk-based approach when it comes to dealing with clients and structuring their AML procedures.
When you identify clients at the beginning of your business relationship, there should be a process in place to assign a risk level to them.
The greater the risk of doing business with a client, the more due diligence measures should be put in place to ensure that no money laundering or terrorist financing is occurring as a result of your tax consulting.
IMPORTANT NOTE: Just because somebody is a low-risk client at the beginning of your relationship,
it does not mean that they will always be low-risk.
When you use a risk-based approach, you can ensure more time is spent and more focus is placed on those clients that pose a greater risk.
Industry implications
Tax firms must implement AML procedures, not only so that they can comply with regulations, but also to protect their organisation from the risk of fines and penalties.
