Your Questions: Answered - Written by on Sunday, October 14, 2012 11:25 - 1 Comment

Your questions answered: David Lawler, Partner Forensic Risk Alliance answers the question: Can my lawyer or accountant turn me in to the SFO?

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David Lawler, forensic accountant and partner of Forensic Risk Alliance, and author of Frequently Asked Questions in Anti-Bribery and Corruption to answer……. and very good friend of thebriberyact.com has joined our panel of experts answering questions on money laundering and bribery!  They’re coming in thick and fast…

This question is in fact one which we’ve asked various accountants to answer.  When you read the answer you will understand why no-one so far (until now) took up our challenge…The short answer is the auditor who successfully cross sells Bribery Act compliance – might have to shop you.

Dear David:

I have retained our accountants to carry out an anti-bribery compliance review of our operations.   What would happen if they found something ‘interesting’?  Although I have an engagement letter with a confidentiality clause, could they report me to the Serious Fraud Office without my knowledge?

David says:

To answer this fully, we need to look at the law relating to money laundering.  One of the complications here is that the law applies very widely, and encompasses far more than hiding drug money for the mob.  Indeed, it need not involve either money, or laundering.  Money laundering  is the possession or handling or becoming concerned in an arrangement involving any proceeds of any crime committed at any time in any place (as long as it would have been an offence over here).  So a shoplifter stealing a shirt from a shop is guilty of both theft, and money laundering, because they have possession of the proceeds of a crime (the shirt which they stole).   Applying this to bribery, possession of money which represents the benefit of a contract obtained by bribery overseas constitutes money laundering.  Company directors knowing that their company has laundered money commit a criminal offence.

Responsibilities for professional advisors

The Proceeds of Crime Act 2002  imposes fairly onerous reporting obligations on professional advisors who may have suspicions of money laundering.   The obligations to report  under POCA depend on whether or not the advisor works in the ‘regulated sector’.  This  comprises banks, financial institutions,  firms of accountants, insolvency and tax advisers, external lawyers, trust or company service providers, estate agents, casinos and high-value dealers who may sell items worth more than €15,000.

Reports of suspicious activity relating to money laundering must be made to the UK’s Serious Organised Crime Agency (SOCA), not the SFO. All those working in this regulated sector are under a positive obligation  to report to SOCA their suspicions about money laundering committed by other people (including their own clients).  The obligation overrides any confidentiality agreement, although legal privilege might apply in some circumstances.  There are serious penalties for failing to report  – the maximum  penalty is 5 years’ imprisonment for the advisor, and so you can understand why  SOCA receives over 200,000 confidential reports a year.

And if a report is made, it is an offence for the advisor to tell the client about it, so you might never know. (Although you may eventually wonder why SFO investigators are standing in reception!).

When deciding whether a report must be made, there are 2 questions that a regulated advisor must ask themselves:

  • Did the information come to me in the course of an activity falling within the regulated sector? (Note that it is not the individual or firm which falls within this test, but the activity), and
  • Do I have knowledge or suspicion of money laundering by another person?

For lawyers, they will be in the ‘regulated sector’ when, and only when, engaged in an activity which involves planning or executing a financial or real property transaction.  (So a lawyer in general practice might move into and out of the ‘regulated sector’ numerous times in the course of a typical day’s work.)  This means that if you engage a lawyer to advise you on bribery law, or to investigate a fraud, or act on a dispute, the lawyer does not need to confidentially report to SOCA if he or she did come across money laundering.

For a firm of accountants, the position is different.

This is because  “The provision to other persons of accountancy services by a firm or sole practitioner who by way of business provides such services to other persons”  is within the ambit of POCA.   So if your auditor comes across money laundering, or your tax advisor comes across tax evasion (not tax avoidance – which is not a crime), they are likely to have to make that confidential report to SOCA.

Some boutique firms providing forensic accounting as part of their consulting and compliance services, who may have accountants on their staff but do not carry-out routine accounting work  – such as my firm, Forensic Risk Alliance – are not in the regulated sector, and are not subject to routine reporting obligations under POCA.  That means that clients’ affairs are kept as confidential as possible.

This is vitally important now that the most minor  facilitation payments come under the money laundering definition, and auditors, accountants, insolvency practitioners, and tax advisors now have an obligation under the POCA to report suspicions of the most trivial offences to the authorities.

Privilege

Some information about potential money laundering may be obtained under privileged circumstances.  This will routinely apply to legal advisors.  This can also apply to accounting experts or forensic accountants who are engaged by lawyers, but only where the work is performed  in anticipation of, or for the purposes of litigation.  This is unlikely to apply if bribes are discovered during a compliance audit or regulatory review, where many regulated accounting firms decide they will report.

It is therefore crucial that before you embark on a review which might unearth bribes (and therefore money laundering offences) do all you can to ensure your forensic accountants can keep  your information as private as possible, including having instructions and a reporting protocol which puts privilege in place.

Instructing your accountants directly to carry out this work means that confidential Suspicious Activity Reports might need to be made to SOCA – which you do not want to happen!

And as a final point, I’d always recommend using a different forensic accounting firm from your routine auditors to carry out anti-bribery work.  If you do come across transactions which you are concerned about,  you may want to have a conversation with your auditors about why they weren’t spotted previously!  Best to avoid any conflicts at the outset.

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