Written evidence submitted by the Association of Accounting Technicians (AAT)

1. Introduction

1.1.   Association of Accounting Technicians (AAT), a professional body supervisor, welcomes the opportunity to respond to the Treasury Select Committee inquiry into Economic Crime, having provided both written and oral evidence to the previous Select Committee inquiry into the same.

2. Executive summary

2.1.   AAT is wholeheartedly committed to tackling money laundering and economic crime and has made considerable investment in doing so.

2.2.   AAT remains concerned that approximately a third of the accountancy and tax advice sector is unregulated.

This unregulated sector poses a greater money laundering and economic crime risk than those who are members of a professional body and it would therefore make sense to require anyone offering paid for tax and accountancy services to be required to be a member of a professional body.

2.3.   The effectiveness of OPBAS should be independently reviewed as soon as possible.

When giving oral evidence to the Treasury Select Committee’s Economic Crime inquiry in 2018, AAT recommended that this occur in 2020 and this has not happened.

2.4.   AAT does not believe government plans to impose a £100m annual economic crime levy on British business is acceptable.

New annual AML costs have very recently been imposed via OPBAS and the economic climate for many businesses as a result of both the pandemic and Brexit is very challenging. In addition, the level of uncertainty about how to calculate and collect such a levy in a fair and reasonable manner makes its introduction inappropriate at the present time.

2.5.   AAT does not believe that the timescale for the Law Commission to consider the issue of Corporate liability for economic crime is reasonable.

The intention to only publish an options paper at the end of 2021 and to then work with the Government on next steps, including the potential for a full Law Commission project on Corporate Criminal Liability is unacceptable, not least given the many years that have been wasted examining the issue without deciding on a course of action.

2.6.   AAT believes that company directorships should be limited to a maximum of no more than 20.

The Government chose to abandon plans for limits when announcing its intentions in this area in September 2020 and so AAT urges the Treasury Select Committee to closely examine this issue.

3. AAT response to the consultation document

AAT support for tackling money laundering and economic crime

3.1.   AAT is wholeheartedly committed to tackling money laundering and economic crime and has made considerable investment in doing so.

3.2.   Since the creation of OPBAS, AAT has continued to work collaboratively with supervisors across the regulated sector to ensure consistent AML data collection processes and risk assessment criteria.

3.3.   AAT produces a raft of guidance and template documents to support best practice in AML compliance by all AAT supervised firms and individuals. AAT also provides a wealth of information for members via our Knowledge Hub portal, through AAT Comment[1]and its bi-monthly magazines and AAT regional branches frequently hold educational events, meetings and Q&A sessions on the subject.

3.4.   AAT also ensures that at least 5% of its licensed accountants are subject to a practice assurance review each year. This involves an AAT representative assessing a firm's compliance with AAT's standards, policies and regulations and crucially statutory requirements and Anti Money Laundering legislation.

3.5.   Furthermore, the AAT governance framework enacted in 2019 ensures that AML issues are monitored at a senior, independent level.

Unregulated accountants

3.6.   AAT remains concerned that approximately a third of the accountancy and tax advice sector is unregulated and believes that this unregulated sector poses a greater money laundering and economic crime risk than those who are members of a professional body. This belief was recently supported by HMRC who stated in their 2020 consultation on tackling the promoters of tax avoidance, “Promoters of tax avoidance schemes are rarely members of professional bodies”[2] This was similarly alluded to by Sir Amyas Morse in his review of the Contractor Loan Charge issue, which recommended that the government establish a more effective system of oversight, “which may include formal regulation, for tax advisers.”

3.7.   Commander Karen Baxter, Head of Economic Crime, City of London Police, last year said; “Another big problem we have in the finance sector is that anyone can turn up on the high street and say they’re an accountant or tax adviser. We have cases where people use this loophole as an opportunity to defraud people. We need to look at disqualifying them from setting up a business and engaging in financial advice in the first place. Strong regulations have to be part of this for prevention.” [3]

3.8.   The fact that the unregulated sector is likely to pose a greater risk than their regulated counterparts is also partly evidenced by the fact that regulated accountants and tax advisers submitted just 1% of Suspicious Activity Reports (SARS) in 2018/19.

3.9.   AAT continues to believe that this problem would best be addressed by requiring anyone offering paid-for tax and accountancy advice to be a member of a relevant professional body. This would mean they would have to be qualified, undertake continuing professional development (CPD), be regulated for AML purposes, hold appropriate insurance and be subject to professional bodies robust disciplinary processes.

OPBAS

3.10.                      OPBAS is now well established and has finally managed to decide upon a fee structure. Its operational dynamics as an overarching regulator for professional supervisory bodies appear to be working well but there were many issues when OPBAS was initially established and some of these issues, for example around a lack of a level playing field (the Gambling Commission and HMRC remain exempt from OPBAS regulation) continue. It would seem prudent for a review into the effectiveness of any new regulator after a few years of operation, but for a regulator in this economically and ethically important space it is vital.

3.11.                      When giving oral evidence to the Treasury Select Committee’s Economic Crime inquiry in 2018[4], AAT recommended that the effectiveness of OPBAS be independently reviewed in 2020, AAT notes this has not yet happened, continues to believe a review is necessary and urges the Treasury Select Committee to recommend that this happens at some stage in 2021.

Economic Crime Levy

3.12.                      At Budget 2020 the government announced its intention to introduce an economic crime levy. On 21 July 2020, HM Treasury launched a public consultation on its plans for a £100m levy, which closed last month.

3.13.                      AAT does not believe imposing such a substantial additional cost is reasonable given the very recent imposition of new costs due to the establishment of OPBAS, the challenging economic climate for many businesses as a result of both the pandemic and Brexit and the level of uncertainty about how to calculate and collect such a levy in a fair and reasonable manner.

3.14.                      There is disagreement amongst interested parties as to how to best calculate the levy to ensure it is proportionate and reflective of risk, while also being simple to calculate, predictable, and cost-effective to collect and administer.

3.15.                      There is also considerable disagreement about how best to collect the levy, with most professional bodies, including AAT, believing a centralised, single public agency (ideally an existing body such as HMRC or OPBAS) will prove the most effective and efficient mechanism, whereas government appears to favour imposing responsibility for collection on to professional bodies. It is clear that a model involving collection by AML supervisors would add disproportionate administrative burdens and costs on those bodies and risks a lack of consistency. As far as the accountancy sector is concerned it also means that again the third of the sector that is unregulated will contribute nothing to the costs of money laundering prevention and that the burden will instead fall entirely on the regulated i.e. members of professional bodies. This also increases the risk of some resigning their memberships of such body’s on cost and compliance grounds. Clearly neither outcomes are a desirable policy intention and further strengthen the case for a single body to be responsible for collecting the levy from ALL involved parties.

Corporate liability for economic crime

3.16.                      AAT notes that the Government finally published its response to the 2017 consultation on this issue earlier this month; that there were only 62 responses to the original consultation (AAT was not one of the respondents) and that the evidence submitted to the Call for Evidence was “… considered inconclusive by Government, as it had produced no new significant examples…”[5]

3.17.                      As the Government response states, “…given the absence of sufficiently strong evidence on a clear way forward, and the need to take account of the other recent reforms described above, the Government has concluded that at this time, it is not appropriate to proceed with immediate legislative reform. Instead, because of the highly complex nature of the laws concerned and the implications of any future change, the Government is commissioning the Law Commission to undertake a detailed review of the identification doctrine, with a particular focus on economic crime.”[6]

3.18.                      AAT has some sympathy with those who believe government has kicked this issue into the long grass given that this issue has been raised on so many occasions by policy makers, the media, campaign groups and others over the last seven or eight years and that the government consultation was three years ago and yet it has only responded this month. At the same time, AAT appreciates that a genuine lack of consensus on the way forward makes reform challenging for Government.

3.19.                      AAT agrees with the Government that this lack of consensus does make it sensible for the Law Commission to consider the matter but believes they could have been asked to look at this much, much sooner. AAT also notes that the Law Commission web site last week stated it does not intend to publish an options paper until late in 2021 and will then work with the Government on next steps, including the potential for a full Law Commission project on Corporate Criminal Liability[7]. This appears to be an incredibly lengthy period of time, even more so considering the delays that have gone before. AAT therefore suggests that the Committee urges this timescale to be at the very least halved.

Companies House

3.20.                      Last year the Government consulted on the reform of Companies House and recently published its response, confirming many positive reforms. However, one of the originally proposed reforms, limiting the number of company directorships an individual can hold, has not been taken forward.

3.21.                      AAT’s original response to the 2019 consultation suggested that a cap of 15-20 directorships would be a sensible reform[8]. This is because directorships bring certain obligations. High numbers of directorships do not just mean an individual is likely spreading themselves too thinly to meet their obligations and being a cause for concern from a corporate governance perspective, it is often, although not exclusively, a warning sign that an individual may be involved in some form of economic crime, especially money laundering. As Transparency International highlighted in their 2017 report, Hiding in Plain Sight, “…as of July 2017 there were 1,980 officers with 50 or more appointments to active companies. This is an unusually high number of appointments for an actual director and a good proxy for nominee directorship.” [9]  Examples of the types of activities undertaken by those with high numbers of multiple directorships include the corruption scandals at Atlas Corporate Services, associated with eight people who between them have held directorships of 3,613 UK companies[10].

3.22.                      Several other countries already limit the number of directorships that an individual can hold. In Ireland, there is a cap of 15 directorships; while in France the maximum for public companies is 5. In India, there has been a cap since 1956. It was originally 15 but was increased to 20 in 2013. This appears to work well, probably because there is a minimum 500 rupee (£30) per day fine for holding more than 20 directorships. This can rise to a maximum 2,500 rupees (£150) per day. The upper limit is more than the average monthly wage for a highly-skilled Indian employee and suggests that if a cap were introduced in the UK, meaningful penalties for failing to comply are essential to success.

3.23.                      The Government response revealed that over 40% of consultation respondents failed to answer this question at all, that 40% opposed a limit and that only 20% were in favour. As a result, the Government concluded;

“The Government will not proceed to introduce a cap on the number of directorships held by an individual at this point. We believe it preferable to verify identities and to provide more accurate linkage of records, thereby providing a more accurate picture of involvement with companies. Analysis of the register conducted by Companies House, together with comparison against other data sets and reporting of anomalies from obliged entities, will assist in identifying circumstances in which we believe the number of directorships poses a risk of criminal activity. This information will be shared with the relevant enforcement and supervisory bodies.”[11]

3.24.                      This decision comes very shortly after the leaked FinCEN files showed that over 3,000 British companies were named in leaked Suspicious Activity Reports (SARs) – more than any other country in the world[12].

3.25.                      These activities have already damaged the UK’s international reputation as evidenced by a leaked US Treasury report describing the UK as a “higher-risk jurisdiction”, which the Treasury Select Committee is well aware of.

3.26.                      The Government’s decision not to take action in this area looks not only badly timed but ill-judged and short-sighted.

3.27.                      However, AAT notes the door to reform has been left ajar with the statement that a cap will not be introduced “at this point” indicating that it may still be possible in the future. AAT therefore suggests the Committee explore this issue further with a view to recommending the Government review its decision.

4. About AAT

4.1.        AAT is a professional accountancy body with over 50,000 full and fellow members and more than 80,000 student and affiliate members worldwide. Of the full and fellow members, there are more than 4,250 licensed accountants who provide accountancy and taxation services to over 400,000 British businesses.

4.2.        AAT is a registered charity whose objectives are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law.

November 2020

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