Date of issue: 22nd March 2004

New Law Paves the Way for 'Backstreet Accountants'

Chartered Accountants, Clement Keys Birmingham believes new legislation which brings the UK into line with the EU on organised crime, in particular the problem of money laundering, could create a black market in unregulated accountancy.

Government estimates put the amount of illegally obtained money which might be available for money laundering within the UK at around £25 billion per annum. The new law therefore seeks to prevent the proceeds of crime being converted into assets which appear to have a legitimate origin and are then lawfully invested in the economy or ploughed into further criminal enterprises.

In addition to setting out tough new powers for police and customs officials, the Proceeds of Crime Act 2002 establishes the Asset Recovery Agency (ARA), a new national agency empowered to confiscate assets and recover property and cash which have been illegally acquired.

The ARA can set in motion civil, as well as criminal, proceedings against the perpetrators of organised crime. In instances where criminal proceedings cannot be brought, the agency's director has the power to tax businesses and individuals he suspects of profiting from criminal activity.

It is this element of the new act which concerns Phil Cook, partner and head of taxation at Clement Keys, Birmingham.

"We are certainly in favour of measures which will drive out the drug traffickers and money launderers who weaken our economy and create instabilities within society and at first sight the new law appears to be targeting hardened criminals," he says.

"However, the scope of the legislation means it will affect all businesses. Technically, for example, directors who book travel or hotel accommodation for business purposes, then stay on for the weekend and claim it all as business will be deemed to be profiting from 'criminal activity'."

There is a further provision in the Act which places the onus on accountants to highlight all their clients' misdemeanours, no matter how trivial. NCIS (National Criminal Investigation Service), is the government body which collects information on people who benefit from business fraud and financial institutions and accountants are private sector representatives of this body. These accountants and financial personnel themselves will be subject to prosecution if they do not disclose information on criminal activities.

"While we would always decline to do business with companies which have no qualms about breaking the law if it means they can 'get one over' on the Inland Revenue or Customs and Excise, others would not," adds Phil Cook, who is writing to all clients to make them aware of the full implications of the Proceeds of Crime Act 2002.

"This mandatory requirement to report even minor wrong-doings could put some of our business relationships under unnecessary strain but, ultimately, our concern is that this legislation will lead to the creation of an underclass of back street accountants, which is not in the interests of the business community or the profession."