wmlro.com: Get ready for another watch list

The UK Government today announced that it is bringing into force s.94 of the Finance Act 2009 with effect from 1 April 2010.

That section provides for the "naming and shaming" of persons - individuals or businesses - where it is established that they have committed certain serious tax offences.

This does not, necessarily, mean that they have been convicted of a tax offence after a trial.

It is planned that names will be published on HMRC’s website.

And that's where the trouble starts for all UK financial institutions - and many offshore.

The list is not a list that regulators say must be consulted - it is not produced by an international or supranational body. But - and here's the big but - if one links that to the reports that OECD members are scheming to have tax evasion classified as money laundering (rather than, or in addition to, being a predicate offence) the risk that a global list to which governments contribute is clearly on the horizon.

For UK financial institutions, the list will have an immediate effect: any accounts held for anyone whose details appear on the HMRC website will be suspicious and therefore subject to reporting.

In one fell swoop, HMRC has secured a mechanism which will provide them, within a day or so, with a list of assets of those they name. That's because, unlike in many countries, there are no information boundaries between the FIU that receives suspicious transaction reports and the tax authorities. Indeed, HMRC has officers stationed inside the FIU. And, because the reports are made under the UK's Proceeds of Crime Act, those assets will be, immediately, frozen.

Neat and brutal.

And international for the list will operate at head office level - and therefore be pushed down through the branch and subsidiary networks of all UK regulated financial institutions.

All foreign institutions operating in the UK will be in a similar position - even those EU passported institutions. Passported institutions frequently forget that it is the regulatory regime which is passported. They are required to comply with UK criminal law - and that means the Proceeds of Crime Act and the Money Laundering Regulations. There is no escape.

Offshore businesses which are not part of the UK regulatory regime e.g. wealth managers incorporated offshore and not a subsidiary of a UK institution may think they can escape. But that's not so, even without the OECD members putting their scheme into effect.

That's because if there is evidence of a predicate crime, then if that same conduct would also be an offence in that offshore jurisdiction, then dealing with funds relating to it- or where there is reasonable suspicion that it relates to it - is money laundering in their own jurisdiction. It's called "commonality of offence." So, except for those jurisdictions where tax evasion is not an offence - and there are not many of those - the list will have de facto effect.

Those businesses will find themselves having to make suspicious transaction reports locally and acting in accordance with local law. If there is effective information exchange between the UK and where the report is made, even offshore accounts may be subject to direct attack.

The USA has been blustering about trying to bully everyone about tax evasion. Maybe the UK Government did just think that people would be so worried about finding their name on a list they would pay up.

Whether or not they worked it out, the result is elegant and utterly ruthless and has near global effect.

If they did know what they were doing - it's brilliant.

Nigel Morris-Cotterill is Head, The Anti Money Laundering Network, the Group which, inter alia, owns and publishes BankingInsuranceSecurities.Com. He is well known for identifying risks and trends far before they become obvious.

http://www.antimoneylaundering.net