Professional clearance letters

'One of my clients wants to transfer his business to another accountant. The accountant concerned wants me to provide clearance on this client, but has asked specifically whether there is anything which has given rise to suspicion of money laundering.

'I cannot give that clearance, nor, for fear of 'tipping off', can I tell the succeeding accountant why I cannot comply. I feel that I am in something of a catch-22 situation. What can I do?'

This kind of situation is likely to become more and more common. Under the Proceeds of Crime Act (POCA) 2002, you cannot tell the new accountant that you reported the client to HMRC and to SOCA for apparent evasion of VAT, for instance.

As you rightly suggest, if you did so you would break the law. Nor can you give a vague answer that the client 'does not currently appear to be giving any suspicion of money laundering', because that might be taken to imply (quite correctly in this instance, but unlawfully) that there has been some suspicion in the past.

You must ignore the question on money laundering. Your defence is that you should not be asked the question and not be expected to answer it. You cannot legally declare possible money laundering under Section 333A of POCA; 'tipping off' is a criminal offence for which you could be liable to imprisonment and a fine.

Section 2.18 of the current CCAB guidance says that under Section 333C of POCA (as amended) a relevant professional adviser does not commit an offence if he makes a disclosure to another person of the same kind from a different undertaking but of the same professional standing as himself (including as to duties of professional confidentiality and the protection of personal data) where the disclosure relates to the same client or former client of both advisers and involves a transaction or provisions of a service that involved them both, and the disclosure is only made for the purpose of preventing a money laundering offence, and the disclosure is made to a person in an EU Member State or a State imposing equivalent money laundering requirements. In other words, there are very restricted circumstances under which you are able to disclose.

This also means that, for instance, an accountant may only disclose to another accountant, and not to a lawyer or another kind of relevant professional adviser. However, this clearly cannot apply when the disclosure took place before the client had a relationship with the new accountant.

The former version of the CCAB guidance said: 'If suspicion has been reported, or may be reported, businesses and individuals need to be cautious in responding to professional clearance letters ... in particular, it is recommended that businesses and individuals do not respond to questions in professional clearance letters concerning either their satisfaction as to the identity of an entity or individual or as to whether any report of suspicion has been made, or contemplated.'
 
Your duty of confidentiality is overridden by POCA 2002 only in respect of a report under Section 330 / 331 to the firm's MLRO (if there is one) or to SOCA.
 
In other words, in our view you must not notify either the new accountants or the local tax office regarding your report to SOCA.