Transparency Initiatives Increase Pressure on US Tax Advisers

Reproduced with permission from Tax Management In-
ternational Journal, 47 TM International Journal 10,
1/12/18. Copyright ஽ 2018 by The Bureau of National Af-
fairs, Inc. (800-372-1033) http://www.bna.com
A Brave New World:
Transparency Initiatives by
Foreign Governments and
International Organizations
Place Increased Pressure
on U.S. Tax Advisers, Other
Gatekeepers
By Bruce Zagaris*
INTRODUCTION
As a result of international initiatives to improve
transparency in tax and financial matters, U.S. gate-
keepers are facing increased pressure from foreign tax
authorities. Although the United States had declined
to adopt the Common Reporting Standard (CRS),
which requires the automatic exchange of financial in-
formation, the standard nevertheless will have a sig-
nificant impact for U.S. gatekeepers with international
clients. The European Union also has adopted new
transparency rules requiring tax intermediaries to re-
port certain tax planning schemes. In addition, the
United Kingdom’s passage of the Criminal Finances
Act of 2017 establishes a new criminal offense for tax
professionals accused of enabling tax evasion. Given
these developments, it is more critical than ever that
tax advisers adopt and maintain strict anti-money-
laundering due diligence procedures. In this brave
new world of heightened scrutiny, it is no longer pos-
sible to claim ignorance if a client is found to have
engaged in abusive tax planning or worse.
This article provides a brief review of recent trans-
parency initiatives, followed by a discussion of re-
sponses from U.S. lawyers engaged in gatekeeping
activities and recommendations for due diligence
practices. The article also considers the accounting
profession insofar as it is engaged in tax and financial
planning and independent audits. Finally, it looks at
auctioneers, who are also subject to international anti-
money laundering standards.
INTERNATIONAL ORGANIZATION
INITIATIVES
The initiatives of international organizations such
as the Organization for Economic Cooperation and
Development (OECD), and informal groups such as
the Financial Action Task Force (FATF), the Group of
Seven (G7), the Group of Twenty (G20), and the
Group of Five (G5), have focused recently on ex-
change of beneficial ownership information. These
initiatives have been important in developing new in-
ternational financial enforcement regimes and net-
works that establish new international standards, both
in the way of hard law standards in treaty law (e.g.,
COE/OECD Convention on Mutual Administrative
Assistance in Tax Matters) and soft standards (e.g., 40
anti-money laundering recommendations of the FATF
and standards of the OECD’s Global Forum on Tax
*
Bruce Zagaris is a partner with Berliner, Corcoran & Rowe
LLP, in Washington, D.C., and the founding editor of International
Enforcement Law Reporter (www.ielr.com). He is an adjunct pro-
fessor in the LLM Wealth and Risk Management Program at
Texas A&M. This article is taken in part from ‘‘Pressure from For-
eign Governments and International Organizations on U.S. Tax
Practitioners: A Brave New World,’’ presented at the ABA Tax
Section, Civil and Criminal Tax Penalties Committee, Austin,
Texas, on September 16, 2017, and at the Association of Certified
Financial Crimes Specialists, Panel on Trends in Tax Transpar-
ency and Enforcement, on October 17, 2017, and the author’s pa-
per on International Issues in U.S. Criminal Tax Enforcement,
presented at 34th Annual National Institute on Criminal Tax Fraud
and the Seventh Annual National Institute on Tax Controversy,
December 5–7, 2017.
This article is current as of December 13, 2017.
International JournalTM
Tax Management International Journal
஽ 2018 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc. 1
ISSN 0090-4600

Transparency and Exchange of Information for Tax
Purposes).
OECD Common Reporting Standard
The OECD has long been a key player in interna-
tional and comparative tax policy, with a focus on ex-
change of information. It unveiled its Harmful Tax
Practices Initiative in 1998, under which it began to
identify and publish a list of uncooperative tax ha-
vens.1
In 2007, the OECD issued a report on tax in-
termediaries, highlighting their roles in promoting ag-
gressive tax planning. In recent years, partly due to
the insistence of the United States, the OECD has
turned its focus to automatic exchange of information,
both in supporting the enhanced financial reporting
standards under the U.S. Foreign Account Tax Com-
pliance Act (FATCA) and in simultaneously develop-
ing the Common Reporting Standard (CRS), which
requires the automatic exchange of financial account
information.
Under the CRS, more than 100 jurisdictions have
agreed to start automatically exchanging financial ac-
count information beginning in September 2017 and
2018,2
and at present, more than 1,800 bilateral rela-
tionships are in place. Most of them are based on the
Multilateral Competent Authority Agreement on Au-
tomatic Exchange of Financial Account Information
(‘‘CRS MCAA’’). The OECD website has the full list
of automatic exchange relationships3
in existence un-
der the CRS MCAA.
Facility to Combat CRS Avoidance Scheme
On May 5, 2017, the OECD announced the estab-
lishment of a facility to disclose CRS avoidance
schemes.4
Accessible through the CRS Automatic Ex-
change Portal on the OECD’s website, the facility en-
ables interested parties to report potential schemes to
circumvent the CRS.5
Once someone reports a scheme, the OECD will
identify and systematically analyze all actual or per-
ceived loopholes in order to decide on appropriate
courses of action. The expectation is that the facility
will help increase the effectiveness of the CRS, which
by design already limits opportunities for taxpayers to
circumvent reporting to the greatest possible extent.6
The process to deal with CRS avoidance schemes
complements the ongoing peer reviews that the
OECD’s Global Forum on Tax Transparency and Ex-
change of Information for Tax Purposes will conduct
to ensure the effective implementation of the CRS in
all jurisdictions.
The CRS also requires that jurisdictions, as part of
their effective implementation of the Standard, impose
anti-abuse rules to prevent any practices intended to
circumvent the report and due diligence procedures.7
On December 11, 2017, the OECD issued a consul-
tation document requesting stakeholder input on such
model mandatory disclosure rules. The model rules
are designed to target promoters and service providers
with a material involvement in the design, marketing
or implementation of CRS avoidance arrangements or
offshore structures. According to the proposed rules,
such intermediaries must disclose information on the
scheme to their national tax authority. The rules
would require that information on those schemes (in-
cluding the identity of any user or beneficial owner)
would then be made available to other tax authorities
consistent with the requirements of the applicable in-
formation exchange agreement.8
In this regard, on April 27, 2017, the U.K. Parlia-
ment enacted the Criminal Finances Act, which pro-
vides law enforcement agencies more powers to re-
cover the proceeds of crime, helping to combat tax
evasion, money laundering, corruption, and the fi-
nancing of terrorism.
The U.K. measure includes a new corporate of-
fense: Failure to prevent the facilitation of tax eva-
sion. The offense was expected to take effect after the
1
OECD, List of Unco-operative Tax Havens, available at:
http://www.oecd.org/countries/liechtenstein/listofunco-operative
taxhavens.htm; Bruce Zagaris, The OECD Harmful Tax Practices
Initiative and the FATF International Cooperation Standards Ini-
tiative, Beyond the Level Playing Field? Lowering Barriers to
Trade in Financial Services Between International Financial Cen-
tres and OECD States (Sept. 2005).
2
OECD, OECD Launches Facility to Disclose CRS Avoidance
Schemes; Over 1800 Relationships Now in Place to Automatically
Exchange CRS Information Between Tax Authorities, (‘‘OECD
Launches Facility’’), available at: http://www.oecd.org/tax/crs-
avoidance-schemes-disclosure-facility-over-1800-exchange-
relationships.htm (May 5, 2017).
3
OECD, The Common Reporting Standard, available at: http://
www.oecd.org/tax/automatic-exchange/international-framework-
for-the-crs/exchange-relationships.
4
Bruce Zagaris, OECD Announces Initiative to Combat CRS
Avoidance Activities, 33 Int’l Enf’t L. Rptr. (May 2017).
5
OECD, ‘‘OECD Launches Facility,’’ above.
6
OECD, The Common Reporting Standard, available at: http://
www.oecd.org/tax/automatic-exchange/common-reporting-
standard.
7
OECD, The CRS Implementation Handbook, ¶39 at p. 23,
available at: http://www.oecd.org/tax/exchange-of-tax-
information/implementation-handbook-standard-for-automatic-
exchange-of-financial-information-in-tax-matters.pdf.
8
OECD, OECD Seeks Input on New Tax Rules Requiring Dis-
closure of CRS Avoidance Arrangements and Offshore Structures
(Dec. 11, 2017), http://www.oecd.org/tax/automatic-exchange/
news/oecd-seeks-input-on-new-tax-rules-requiring-disclosure-of-
crs-avoidance-arrangements-and-offshore-structures.htm.
2 ஽ 2018 Tax Management Inc., a subsidiary of The Bureau of National Affairs, Inc.
ISSN 0090-4600

HM Revenue & Customs promulgated regulations.9
HMRC issued draft guidance on October 20 regard-
ing penalties for enablers of ‘‘defeated tax avoid-
ance,’’ with comments due November 30.
Once the OECD identifies and analyzes the
schemes to circumvent the CRS, it will be interesting
to see what recommendations it makes and/or deci-
sions it takes to implement the anti-avoidance initia-
tives, as many of the structures to avoid the CRS are
being put in place in the United States, in jurisdictions
such as South Dakota, Wyoming, Nevada, and Dela-
ware. These states are notorious for their lack of en-
tity transparency and are marketing anonymity to at-
tract investment.10
Nevertheless, given the large number of participat-
ing countries and the existence of ongoing peer re-
views by the Global Forum, the OECD should have
significant intelligence with which to undertake its
work. It should be able to provide ample feedback to
participating jurisdictions with respect to gaps and
loopholes in their implementation of CRS.
OECD Initiative Against Tax Intermediaries
On January 17, 2007,11
the OECD also announced
details of a work program to examine the role of tax
intermediaries (e.g., law and accounting firms, other
tax advisers, and financial institutions) within tax sys-
tems, including in relation to unacceptable tax mini-
mization arrangements.12
The program has been in
development for more than 10 years, since it was
originally agreed by countries participating at the
third meeting of the Forum on Tax Administration
(FTA) in Seoul, Korea, in September 2006. The proj-
ect’s primary goals are to increase the understanding
of the role tax intermediaries play in tax administra-
tion and to identify strategies for strengthening the re-
lationship between tax intermediaries and revenue
bodies.
The tax intermediaries project represents a new
frontier for the OECD, aiming at individuals and en-
tities rather than countries. However, it also focuses
on the potential for international cooperation between
revenue bodies. Hence, in a sense, the project will tra-
verse in a different way a favorite hobby-horse:
strengthening international tax enforcement coopera-
tion.
Along those lines, the OECD also is compiling a
directory of aggressive tax planning schemes. The di-
rectory targets identifying the type of tax schemes that
are being used, explaining how and why they are suc-
cessful in certain countries, describing their interac-
tion with national tax law, and setting forth measures
that countries have taken or can take to counteract
their impact. While information in the directory is
shared between tax authorities, it has not been made
available to the public.13
European Union
The EU is important for its political power and the
fact that its members dominate the G7, the G20, and
the OECD. The EU also has uniform foreign policy,
tax transparency standards, and financial regulatory
policy (e.g., anti-money laundering and entity trans-
parency). Like the OECD, it has its own initiatives fo-
cusing on the role of tax intermediaries in aggressive
tax planning.
EU Proposed Initiative Requiring Intermediaries
to Report Cross-Border Tax Plans
On June 21, 2017, the European Commission pro-
posed new transparency rules for intermediaries14
—
such as tax advisers, accountants, bankers, and law-
yers — who design and promote tax plans for their
clients.15
The release of the Panama Papers (and the
more recent Paradise Papers) illustrates how some in-
termediaries actively help companies and individuals
to escape taxation, usually through complex cross-
border schemes. The Commission’s proposal is di-
rected at curbing malfeasance in aggressive tax plan-
ning by increasing scrutiny around the activities of in-
termediaries.
Under the proposal, cross-border tax planning
schemes with certain characteristics or ‘‘hallmarks’’
that can result in losses for government will have to
be automatically reported to the tax authorities before
they are used. Examples of such cross-border arrange-
ments are those that:
(1) involve a cross-border payment to a recipient
resident in a no-tax country;
9
For a copy of the bill, see http://www.legislation.gov.uk/
ukpga/2017/22/contents/enacted/data.htm. See in particular Part 3,
Failure of relevant bodies to prevent tax evasion facilitation of-
fences by associated persons. For background, see Andrew Good-
all, U.K. Enacts New Tax Evasion Offense to Hold Employers Ac-
countable, 2017 Worldwide Tax Daily 83-1 (May 2, 2017).
10
See, e.g., Casey Michel, The United States of Anonymity
19-30 (discussing Wyoming, South Dakota, and Nevada) (Hudson
Institute, Nov. 3, 2017), available at: https://www.hudson.org/
research/13981-the-united-states-of-anonymity.
11
This section of the article is taken from Bruce Zagaris,
OECD Starts Tax Intermediary Project, 23 Int’l Enf’t L. Rptr. 84
(Mar. 2007).
12
OECD, OECD Tax Intermediaries Project — Terms of Refer-
ence (Jan. 17, 2007), available at: http://www.oecd.org/document/
50/0,2340,en_2649_37427_37930802_1_1_1_37427,00.html.
13
Lawrence J. Speer, OECD Launches New Initiative on Role
of Tax Intermediaries, 11 Daily Tax Rep. I-1 (Jan. 18, 2007).
14
This section is taken from Bruce Zagaris, EU Proposes Ini-
tiative Requiring Intermediaries to Report Cross-Border Tax
Plans, 33 Int’l Enf’t L. Rptr. 246 (July 2017).
15
European Commission, Commission Forges Ahead on New
Transparency Rules for Tax Planning Intermediaries, Press Re-
lease (June 21, 2017).
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(2) involve a jurisdiction with inadequate or weakly
enforced anti-money laundering laws;
(3) are established to avoid reporting income as re-
quired under EU transparency rules;
(4) circumvent EU information exchange require-
ments for tax rulings;
(5) have a direct correlation between the fee
charged by the intermediary and what the tax-
payer will save in tax avoidance;
(6) ensure that the same asset benefits from depre-
ciation rules in more than one country;
(7) enable the same income to benefit from tax re-
lief in more than one jurisdiction; and
(8) do not respect EU or international transfer pric-
ing guidelines.16
The obligation to report such a scheme falls to the
intermediary that furnished it, but when the interme-
diary is not based in the EU or is otherwise bound by
professional privilege or secrecy, the client company
or individual must report. Further, an individual or
company implementing a scheme developed by in-
house tax consultants or lawyers is also obligated to
report.17
EU Members will automatically exchange the in-
formation on tax planning schemes through a central-
ized database, giving them early warnings about new
risks of avoidance and enabling them to take mea-
sures to block harmful arrangements. The requirement
to report a scheme does not mean that it is harmful,
but only that it merits scrutiny by the tax authorities.
EU Members will be required to implement effective
and dissuasive penalties for those companies that do
not comply with the transparency measures, creating
a powerful new deterrent for those that encourage or
facilitate tax abuse.
The proposal takes the form of an amendment to
the Directive for Administrative Cooperation (Coun-
cil Directive 2011/16/EU), which was to be submitted
to the European Parliament for consultation, and to
the EU Council for adoption. It is foreseen that the
new reporting requirements would enter into force on
January 1, 2019. The EU Members will be required to
exchange information every three months thereafter.18
The Commission said the information exchange re-
quirements will not create new burdens for national
tax authorities because authorities already automati-
cally exchange information on some forms of income
(e.g., financial accounts) through well-developed EU
systems. As of July 2017, authorities are exchanging
information on their tax rulings. In 2018, they will ex-
change country-by-country reports for the first time.
The new requirements for intermediaries would be
built into this existing framework. EU Members can
use all the procedures and processes already in place,
making it quicker and easier for them to apply the
new rules.19
In addition, the United Kingdom,20
Ireland, and
Portugal have enacted similar legislation to protect
their tax bases, targeting harmful tax planning.
The EU project may also establish in the tax field a
gatekeeper initiative somewhat analogous to the Fi-
nancial Action Task Forces (FATF) gatekeeper initia-
tive: it sets requirements and due diligence standards
for attorneys, accountants, notaries, and other corpo-
rate and trust service company providers. The Com-
mission proposal illustrates one of the main initiatives
targeting intermediaries in the aftermath of the release
of the Panama Papers.
Many other transparency initiatives are underway.
Already, the EU is moving to update its Fourth Anti-
Money Laundering Directive (AMLD), which the Eu-
ropean Parliament approved in March 2014. The
AMLD requires EU member states to establish a pub-
lic register that lists the owners of shell companies
and trusts as a way to reduce tax evasion and illegal
money laundering.21
EU Fourth Anti-Money Laundering Directive
Money laundering constitutes as much as 5% of the
world’s Gross Domestic Product and is a challenge
both for the competitiveness of the legal sector as well
as a drain on government revenues. The Fourth
AMLD is aimed at limiting the scope of criminal and
terrorist activity in Europe. Estimates indicate that
money laundering accounted for as much as 2.7% of
the world’s economic activity, or $1.6 trillion, in
2009.22
16
European Commission, Questions and Answers on New Tax
Transparency Rules for Intermediaries (‘‘Q&A’’) (June 21, 2017).
17
Id.
18
Id. For a recent discussion of the EU blacklisting initiative,
see Nana Ama Sarfo, News Analysis: Selective Shaming in the
EU’s Tax Haven and Tax Avoidance Fight, 2017 Worldwide Tax
Daily 218–19 (Nov. 13, 2017).
19
European Commission, Q&A, n.16, above.
20
For a copy of the U.K. Criminal Finances Act, see http://
www.legislation.gov.uk/ukpga/2017/22/contents/enacted/
data.htm. See in particular Part 3: Failure of relevant bodies to
prevent tax evasion facilitation offences by associated persons.
For background, see Andrew Goodall, U.K. Enacts New Tax Eva-
sion Offense to Hold Employers Accountable, 2017 Worldwide
Tax Daily 83-1 (May 2, 2017).
21
Joe Kirwin, European Parliament Backs Measure to Force
Public Register of Shell Companies, Trusts, 48 Daily Tax Rep. I-1
(Mar. 12, 2014).
22
European Parliament, Enhanced Anti-Money Laundering
Rules (Mar. 11, 2014), available at: http://www.eppgroup.eu/
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The directive introduced an EU-wide register of
beneficial ownership,23
which lists information on the
ultimate beneficial owners of all sorts of legal ar-
rangements, including companies, foundations, hold-
ings, and trusts. It also introduced: a ‘‘white list’’ for
jurisdictions with high anti-money laundering stan-
dards; a ‘‘politically exposed persons’’ (‘‘PEPs’’) list
of high-ranking government officials; exemptions for
certain gambling services and products (e.g., state lot-
teries) subject to approval by the European Commis-
sion; and certain exemptions for e-money products.
The AMLD also would require banks, financial in-
stitutions, auditors, lawyers, accountants, tax advisors,
casinos, and real estate agents, among others, to be
more vigilant about suspicious transactions made by
their clients.24
Public Registers
The directive provided that the public central regis-
ter in each EU country would be interconnected
across the EU. While it included provisions to protect
data privacy,25
it required companies to provide ben-
eficial ownership information such as name, date of
birth, nationality, contact information, and jurisdiction
of incorporation. Trusts would have to give similar in-
formation.26
The deadline for creation of the beneficial owner-
ship registries was set for June 2017, but some mem-
ber states have yet to complete that task.
While the strengthening of the AMLD can be seen
as a victory for the civil society watchdog groups that
have lobbied for the requirement of an EU-wide reg-
ister,27
the debate over the use and disclosure of ben-
eficial ownership information has been intense and is
continuing. Trust practitioners have criticized the in-
clusion of trusts in the public registry proposal, and
practitioners generally are concerned that the public
registers would be intrusive on families, expensive to
implement, and ultimately ineffective in tracking il-
licit funds.
Future and Analysis
Where the EU is going, however, might be dis-
cerned from the debate that took place on March 21,
2017, when the European Parliament held its first po-
litical trilogue on the Commission’s proposal to
amend Directive (EU) 2015/849 on preventing the use
of the financial system for purposes of money laun-
dering or terrorist financing.28
The public registers were a subject of intense de-
bate, as the European Parliament underscored the
need for provisions on public access to be included in
the Company Law Directive, since protection of third
parties is a legitimate basis for public access to the
registers. The EP referred to the opinion of the Euro-
pean Data Privacy Supervisor, which criticized the
public registers as inimical to data privacy. The Com-
mission underscored the need for a registration re-
quirement for all trusts and the need to expand public
access to beneficial ownership information through
amending the Company Law Directive. The Commis-
sion also emphasized the need to provide for transpar-
ency while ensuring an appropriate level of data pro-
tection.
During the trilogue, the EP also presented newly
added obliged entities, which in its view also should
be subject to the implementation of anti-money laun-
dering and counter-terrorism financing policies. The
EP noted that several of the EP’s additions are already
covered, such as persons performing tax-related ser-
vices, traders in art, and e-money issuers — and ques-
tioned the rationale for including art galleries, leasing
agents (e.g., real estate agents), e-money distributors,
and traders in services.
Expanding Scope
The first political trilogue on the AMLD indicates
that the EU will proactively implement the proposal
to amend the AMLD by clarifying and enlarging the
list of obliged entities.
The most controversial issue remains beneficial
ownership information and public access to beneficial
ownership registers. Despite the reservations of the
European Data Privacy Supervisor, the Commission is
pushing to expand public access to beneficial owner-
ship information, including for all trusts. The inclu-
sion of linked real property and life insurance regis-
ters also indicate the continued expansion of the cov-
erage of AML/CTF.29
The EU’s proposed enlargement of AML/CTF
regulation and enforcement likely will lead much of
the rest of the world to emulate the initiatives. How-
ever, some countries, such as the United States, are
press-release/Enhanced-Anti-Money-Laundering-Rules.
23
Id.
24
Kirwin, above.
25
EU Reporter Correspondent, Parliament Toughens Up Anti-
Money Laundering Rules (Mar. 12, 2014).
26
Stephanie Soong Johnston, EU Beneficial Ownership Regis-
try Proposal Advances, Tax Notes Int’l 966 (Mar. 17, 2014).
27
Id.
28
European Union, AMLD, 1st Political Trilogue on March 21,
2017.
29
However, as of November 27, 2017, the EU is not able to
reach agreement on expanding the Fourth AML Directive. See,
e.g., Elodie Lamer, EU Institutions Fail to Agree on Trust and
Shell Company Transparency, 2017 Worldwide Tax Daily 221-1
(Nov. 16, 2017).
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not likely to follow this lead, especially during the
Trump Administration. As a result, the gap between
AML/CTF policies can be expected to widen, at least
in the short term.
Eventually, the expansion of AML/CTF is likely to
be integrated with tax transparency and the automatic
exchange of tax information. Already, the OECD has
discussed the possibility of expanding the scope of
exchanges under the CRS from bank to non-bank as-
sets, such as real property and art.
FOREIGN GOVERNMENT INITIATIVES
In the last five years, tax authorities and prosecu-
tors in several EU countries have prosecuted banks
and other intermediaries for their roles in conspiring
with and/or assisting taxpayers to commit tax crimes.
French, Belgian, and German prosecutors have all
brought cases against Swiss banks. The United King-
dom, although long an important international finan-
cial services jurisdiction, has been in the forefront of
initiatives to change the conduct of tax intermediaries
it believed to be enablers of tax evasion.
The United Kingdom was one of five EU countries
to announce the start of a pilot initiative for automatic
exchange of information on beneficial ownership.30
On April 14, 2016, the United Kingdom, Germany,
France, Italy, and Spain submitted a letter to the G20,
calling on the international community to take ‘‘firm
collective action’’ on increasing transparency with re-
gards to beneficial ownership, noting that criminals
continue to find ways to exploit the gaps in the cur-
rent system. The letter called on the OECD, in coop-
eration with the FATF, to prepare a new, single global
standard for such exchange, as well as a system of in-
terlinked registries. As of December 14, 2016, 54
countries had committed to sign on to a joint state-
ment calling for a multilateral system of automatic ex-
change.
U.K. Criminal Finances Act 2017
On April 27, 2017, the United Kingdom enacted the
Criminal Finances Act 2017, which took effect in Sep-
tember 2017. Several provisions will significantly al-
ter the investigation of corporate crime and enforce-
ment of laws in the U.K. The Act creates a new of-
fense for tax professionals — such as solicitors and
accountants — who render tax advice.31
Corporate Facilitation of Tax Evasion
The new offense targets entities for actions of their
employees in facilitating tax evasion or assisting cus-
tomers to evade tax. The law criminalizes only acts by
a relevant body — a legal entity such as a company
or partnership — wherever incorporated or organized
and not an individual. Hence, non-U.K. firms (e.g.,
U.S. firms) can commit offenses, especially as the law
has extraterritorial effect.32
The law criminalizes two acts related to failure-to-
prevent: (1) the failure to prevent facilitation of do-
mestic tax evasion, and (2) the failure to prevent fa-
cilitation of foreign tax evasion. A person who is ‘‘as-
sociated with’’ a relevant body and who commits a
foreign or U.K. tax facilitation evasion offense, makes
the relevant body vicariously liable. According to the
law, an ‘‘associated person’’ includes an employee,
agent, or any other person performing services on be-
half of the relevant body. However, the Director of
Public Prosecutions or Director of the Serious Fraud
Office (SFO) must approve a prosecution.33
Under §44(4) the scope of ‘‘associated with’’ is
quite broad. In this regard,
‘‘A person (P) acts in the capacity of a per-
son associated with a relevant body (B) if P
is —
(a) an employee of B who is acting in
the capacity of an employee,
(b) an agent of B (other than an em-
ployee) who is acting in the capacity of
an agent, or
(c) any other person who performs ser-
vices for or on behalf of B who is act-
ing in the capacity of a person perform-
ing such services.
(5) For the purposes of subsection (4)(c) the
question whether or not P is a person who
provides services for or on behalf of B is to
be determined by reference to all the rel-
evant circumstances and not merely by refer-
ence to the nature of the relationship be-
tween P and B.’’34
U.K. Offense
Section 45 criminalizes: (i) being knowingly con-
cerned in, or acting with a view to, the fraudulent eva-
30
Letter by Ministers of Finance from England, Germany,
France, Italy, and Spain (Apr. 14, 2016), available at: https://
www.gov.uk/government/uploads/system/uploads/attachment_
data/file/516868/G5_letter_DOC140416-14042016124229.pdf.
31
For the text of the Act, see http://www.legislation.gov.uk/
ukpga/2017/22/contents/enacted/data.htm.
32
Section 48(1) states ‘‘(i)t is immaterial for the purposes of
section 45 or 46 (except to the extent provided by section 46(2))
whether — (a) any relevant conduct of a relevant body, or (b) any
conduct which constitutes part of a relevant UK tax evasion fa-
cilitation offence or foreign tax evasion facilitation offence, or (c)
any conduct which constitutes part of a relevant UK tax evasion
offence or foreign tax evasion offence, takes place in the United
Kingdom or elsewhere.’’
33
Act, §49(6).
34
Id.
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sion of tax by another person, and (ii) aiding, abetting,
counselling, or procuring the commission of a tax
evasion offense. The explanatory notes accompanying
the bill explain that the Act does not criminalize ag-
gressive avoidance falling short of evasion, nor does
it criminalize inadvertent or negligent facilitation. In
practice, evidence of dishonesty could include con-
cealment, misrepresentation, non-disclosure, or even
reckless disregard of circumstances and willful blind-
ness.35
Foreign Offense
Under Section 46, a ‘‘foreign tax evasion facilita-
tion offense’’ is criminalized. It refers to non-U.K. tax
evasion by a U.K. company. Its provisions cover con-
duct where the relevant entity has a nexus with the
U.K., and it consists of conduct which (i) is an offense
under the law of a foreign country; (b) concerns the
commission by another persons of a foreign tax eva-
sion offense under that law; and (ii) would, if the for-
eign tax evasion offense were a U.K. tax evasion of-
fense, constitute a U.K. tax evasion facilitation of-
fense. Hence, the act must fulfill a dual criminality
test.
Jurisdictional Reach
With respect to the U.K. offense, a relevant body
incorporated or located anywhere outside the United
Kingdom (e.g., the United States) will be liable if an
associated person located outside the United Kingdom
has facilitated U.K. tax evasion.
With respect to a foreign offense, the nexus for a
foreign criminal offense is narrower. The foreign of-
fense can be committed either if the relevant entity is
incorporated or situated in the United Kingdom or if
an act facilitating the foreign tax evasion occurs in the
United Kingdom. In that regard, the U.K. link can be
as small as having money pass through a U.K. bank
account. However, the associated person directing the
money transfer does not have to be present in the
United Kingdom. The offense is committed equally
whether or not the associate is present in the United
Kingdom.
Penalties and Ancillary Consequences
Penalties that can be imposed on an entity or firm
include unlimited financial penalties and ancillary or-
ders, such as confiscation orders or serious crime pre-
vention orders.
A convicted entity will have to disclose the convic-
tion to regulators both in the United Kingdom and
overseas and may be ineligible for procurement of
contracts (e.g., may be suspended or debarred).
Reasonable Preventive Procedures Defenses
Under the Act a reasonable prevention procedures
defense exists, which emulates §7(2) of the Bribery
Act 2010. The HM Revenue & Customs draft guid-
ance states that, ‘‘if a relevant body can demonstrate
that is has put in place a system of reasonable preven-
tion procedures that identifies and mitigates its tax
evasion facilitation risks, then prosecution is unlikely
as it will be able to raise a defense.’’ Sections 47(1)
and 47(2) require the Chancellor of the Exchequer
(‘‘the Chancellor’’) to prepare and publish guidance
about procedures that relevant bodies can implement
to prevent persons acting in the capacity of an associ-
ated person from committing U.K. tax evasion facili-
tation offenses or foreign tax evasion facilitation of-
fenses and may periodically prepare and publish new
or revised guidance to add to or replace existing guid-
ance.
Due Diligence
Companies and firms that engage in tax advice will
need to review and enhance their compliance controls
to ensure that they adequately address the risk of in-
volvement in tax evasion. In October 2016, HMRC is-
sued draft guidance, stating that a similar set of prin-
ciples to those issued by the Ministry of Justice con-
cerning Bribery Act compliance will apply, namely:
(a) risk assessment; (b) proportionality of risk-based
prevention procedures; (c) high-level commitment;
(d) due diligence; (e) communication and training;
and (f) monitoring and review.
On September 1, 2017, HMRC issued its final guid-
ance. With regards to the ‘‘reasonable procedures’’ de-
fense, the guidance advises that reasonable procedures
should be ‘‘proportionate to the risk the relevant body
faces of persons associated with it committing tax
evasion facilitation offenses.’’36
The United Kingdom has also undertaken an Entity
Transparency Initiative. At the G20 meeting in An-
kara, Turkey, in November 2015, it announced a nine-
point plan to expand its efforts to ensure disclosure of
beneficial ownership of various entities, including
trusts, and promised to establish a central registry and
other mechanisms for sharing ownership information.
The United Kingdom said it would implement these
commitments in 2017 through new U.K. Money
Laundering Regulations, which would transpose the
regulations of the Fourth EU Anti-Money Laundering
Directive, carrying out the 2012 revised FATF Rec-
ommendations.37
Clearly the United Kingdom has led the entity
transparency initiative, both by putting it on the
35
Roger Sahota, Criminal Finances Act 2017, Law Gazette
(May 22, 2017), available at: https://www.lawgazette.co.uk/legal-
updates/criminal-finances-act-2017/5061170.article.
36
HMRC Final Guidance, Sept. 1, 2017, at 21; https://
data/file/642714/Tackling-tax-evasion-corporate-offences.pdf.
37
U.K. Explains Implementation of G-20 Beneficial Ownership
ISSN 0090-4600

agenda of the G20 meetings and by quickly enacting
laws and issuing regulations to implement the prin-
ciples. The action has been important insofar as the
United Kingdom has control over its overseas and de-
pendent territories, especially since the overseas and
dependent territories have important financial centers
of their own.38
Notwithstanding the efforts of the
U.K. government, a gap exists between its efforts and
those of many of the other G8 and G20 governments
on beneficial ownership transparency.
Despite the U.K. leadership role, Transparency In-
ternational has criticized the United Kingdom for cov-
ering only domestic law and not the beneficial owner-
ship standards for legal entities and trusts incorpo-
rated in the British Overseas Territories and Crown
Dependencies. According to TI, the ‘‘weaker perfor-
mance in many of the British Overseas Territories and
Crown Dependencies on key beneficial ownership is-
sues threatens to undermine the U.K.’s implementa-
tion to the G20 principles as a whole.’’39
The U.K. Financial Conduct Authority (FCA) on
July 24, 2017, issued proposed guidance on a source-
book for professional body supervisors on anti-money
laundering (AML) supervision.40
The proposed guid-
ance was issued pursuant to Articles 17, 18(4) and
48(1) of the Fourth AMLD.41
The consultation is most relevant to the bodies and
their members that will be supervised by the Over-
sight of the Professional Body Anti-Money Launder-
ing Supervision Regulations 2017, which the govern-
ment published in draft on July 20, 2017. In particu-
lar, the bodies are: the Association of Accounting
Technicians; the Association of Chartered Certified
Accountants; Association of International Accoun-
tants; the Association of Taxation Technicians; the
Chartered Institute of Legal Executives; the Chartered
Institute of Management Accountants; the Chartered
Institute of Taxation; the Council for Licensed Con-
veyancers; the Faculty of Advocates; the Faculty Of-
fice of the Archbishop of Canterbury; the General
Council of the Bar/Bar Standards Board; the General
Council of the Bar of Northern Ireland; the Insol-
vency Practitioners Association; the Institute of Certi-
fied Bookkeepers; the Institute of Chartered Accounts
in England Wales; the Institute of Chartered Accounts
in Ireland; the Institute of Chartered Accounts of
Scotland; the Institute of Financial Accountants; the
International Association of Bookkeepers; the Law
Society/Solicitors Regulation Authority; the Law So-
ciety of Northern Ireland; and the Law Society of
Scotland.
The proposed regulations supplement the Money
Laundering, Terrorist Financing and Transfer of
Funds (Information on the Payer) Regulations 2017
(S.I. 2017/692) (‘‘MLR’’) by giving the FCA the nec-
essary powers to supervise professional body AML
supervisors, and to ensure that they are fulfilling their
supervision obligations under the MLR.
POTENTIAL RESPONSES BY THE
UNITED STATES
Responses From the Legal Profession
As a result of this international trend towards
stricter regulations of gatekeepers and entity transpar-
ency, the American Bar Association’s Task Force on
the Gatekeeper and the Profession has prepared and
discussed a new ABA Model Rule of Professional
Conduct that would impose basic ‘‘client due dili-
gence’’ requirement on lawyers.42
Clearly, due dili-
gence for lawyers will increasingly be on the radars
of banks, financial institutions, and law firms.
In General
Kevin Shepherd, the past President of the Task
Force, said in a recent op-ed that lawyers would have
to perform reasonable, proportional, risk-based due
diligence on prospective clients, and certain new legal
matters brought by existing clients and would have to
monitor their clients during the scope of their services
in order to determine whether the clients are engaging
in money laundering or terrorist financing. If the ABA
Transparency Principles, 2015 Worldwide Tax Daily 222–25
(Nov. 16, 2015).
38
For a technical guide to implementing the G20 Initiative on
beneficial ownership and corporate transparency, see Maı´ra Mar-
tini, Transparency International, Technical Guide Implementing
the G20 Beneficial Ownership Principles (2015).
39
Transparency International, Transparency International Re-
port Shows G20 Countries Fail to Keep Their Promises on Fight-
ing Crime (Nov. 12, 2015); https://www.transparency.org/news/
pressrelease/transparency_international_report_shows_g20_
countries_fail_to_keep_their_pr.
40
U.K. FCA, GC17/7: Offıce for Professional Body Anti-Money
Laundering Supervision: A Sourcebook for Professional Body Su-
pervisors (July 24, 2017), available at: https://www.fca.org.uk/
publication/guidance-consultation/gc17-07.pdf.
This section of the article is taken from Bruce Zagaris, U.K.
Issues Proposed Guidance for Professional Body Supervisors on
AML Supervision, 33 Int’l Enf’t L. Rptr. __ (Aug. 2017).
41
For the text of the EU Fourth AMLD, see http://eur-
lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:
32015L0849&from=EN.
42
This section of the article is based in part on Bruce Zagaris,
AML Due Diligence for US Lawyers, MoneyLaunderingWatch-
.com (July 4, 2017), available at: https://
www.moneylaunderingwatchblog.com/2017/07/2657/
?utm_source=Ballard+Spahr+LLP+-+Money+Laundering+
Watch&utm_campaign=6cc63388dc-RSS_EMAIL_CAMPAIGN
&utm_medium=email&utm_term=0_790b46fdeb-6cc63388dc-
72964793.
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adopts these rules, a lawyer who does not comply
may be subject to potential disciplinary action by the
state disciplinary authority. Hence, the state courts
and their state bar agencies would be in charge of the
compliance and enforcement.
On June 30, 2017, the ABA Standing Committee on
Ethics and the Professional Responsibility communi-
cated its rejection of the proposed change recom-
mended by the ABA Task Force on the Gatekeeper
and the Profession as unnecessary.
Even without a change in the ABA Model Rule of
Professional Conduct, the New York State Bar Asso-
ciation has responded to an inquiry concerning
‘‘(a) client who is a citizen and resident of a
foreign country’’ [consulting with an
attorney] ‘‘about a proposed transaction
(‘‘Transaction’’) in which the client would
open a bank account in his name at a New
York bank, or create a wholly-owned corpo-
ration in a zero tax jurisdiction (‘‘Offshore
Corporation’’) and have the Offshore Corpo-
ration open a bank account at a bank in New
York.’’43
The attorney in question learns that the client does
not want to report the Transaction in the foreign coun-
try because reporting would result in tax or other le-
gal liability.
The New York State Bar opined in 2008 that DR
7-102(A)(7), which requires a lawyer not to counsel
or assist the client in conduct that the lawyer knows
to be illegal or fraudulent, encompasses conduct that
is ‘‘illegal or fraudulent’’ under the laws of jurisdic-
tions other than New York.44
One issue remaining unresolved to this day is
whether state bars would actually engage in compli-
ance and enforcement. Normally this occurs through
some type of audit. Regulatory agencies conduct au-
dits through both offsite and onsite examinations. In
this regard, voluntary self-regulatory organizations,
such as the Canadian and Jamaican Bar Associations,
have developed procedures to audit law firms with re-
spect to their compliance with the standards.45
In contrast to the United Kingdom, the United
States has not seen governmental or self-regulatory
bars take proactive steps to ensure compliance of the
various professional bodies with anti-money launder-
ing requirements.
Responses by Law Firms
U.S. law firms and other gatekeepers engaged in fi-
nancial transactions may want to develop their own
AML due diligence policies. Indeed, increasingly U.S.
banks and financial institutions will ask law firms if
they have a policy and may even want to see it to de-
termine if it is adequate. Although this section is lim-
ited to law firms, most of the considerations apply
equally to the accounting profession, insofar as they
are engaged in tax and financial planning. The issues
that apply to independent auditors and auctioneers
have different risk factors, and hence different due
diligence policies would apply.
The types of financial transactions covered by AML
due diligence include: buying and selling of real es-
tate; managing of client money, securities, or other as-
sets; management of bank, savings, or securities ac-
counts; organization of contributions to create, oper-
ate, or manage companies; creation, operation, or
management of legal persons or arrangements; buying
and selling of business entities; and tax and business
advice, especially to foreign persons.
The AML due diligence policy should be risk-
based, considering country/geographic risks, client
risk, service risk, how to deal with high-risk clients
(e.g., ‘‘politically exposed persons’’ (‘‘PEPs’’)) as
well as low-risk matters, and precautions to mitigate
risk.
Know Your Customer (KYC) due diligence should
especially cover client intake and assessment. Among
the considerations are: initial information intake;
screening against Specially Designated Nationals on
the U.S. Treasury’s Office of Foreign Asset Con-
trols;46
client identification information and verifica-
tion of such information; proper KYC documents
prior to starting the work; online searches to verify
client information; proper handling of clients who are
not physically present; procedures for existing clients;
reliance on third-party KYC; and apparent inconsis-
tencies in identification evidence.
Screening should entail checking whether a poten-
tial client is on the SDNs list, since U.S. nationals are
not allowed to take money from SDNs and must block
funds when they do receive them. Such lists can be
checked manually or by the use of software. The lat-
ter method gives a person a printout to keep for their
records.
The AML due diligence policy should specify how
to determine beneficial ownership of clients. The
43
New York State Bar Inquiry No. 14-08 (Oct. 8, 2008).
44
Id.
45
Id.
46
As part of its enforcement efforts, OFAC publishes a list of
individuals and companies owned or controlled by, or acting for
or on behalf of, targeted countries. It also lists individuals, groups,
and entities, such as terrorists and narcotics traffickers designated
under programs that are not country-specific. Collectively, such
individuals and companies are called ‘‘Specially Designated Na-
tionals’’ or ‘‘SDNs.’’ Their assets are blocked and U.S. persons are
generally prohibited from dealing with them. For more informa-
tion on Treasury’s Sanctions Programs, see https://
www.treasury.gov/resource-center/sanctions/SDN-List/Pages/
default.aspx.
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policy should consider circumstances of a particular
client and the purpose and intended nature of the busi-
ness relationship with the client.
The policy should set forth how to conduct a risk
assessment with Customer Due Diligence, in which
there is a standard level of CDD, a reduced CDD for
low-risk clients; an enhanced CDD for high-risk cli-
ents; and the timing of CDD should be specified. The
CDD should provide for ongoing monitoring and ac-
tions if a client presents an unacceptable risk.
The policy should provide for a Compliance Offi-
cer, and should provide for recordkeeping and train-
ing. It should require the maintenance of logs to iden-
tify personnel receiving training, and should have
forms for intake, CDD, and reporting problems to the
Compliance Officer.
Periodically the firm or gatekeeper will need to up-
date its AML, due diligence policy and compliance
manual to reflect changes to OFAC, AML, and inter-
national laws.
The Accounting Profession
The accounting profession is considered a gate-
keeper. This section looks at activities of two classes
of accounting professionals in the context of anti-
money laundering: tax and financing planners, and in-
dependent auditors.
Tax and Financial Planners
Accounting firms point out that every financial
transaction can have important tax implications for
both individuals and businesses. They properly ex-
plain that different types of taxation, from federal to
state and local, can make planning and filing challeng-
ing. While taxpayers must file once a year, conduct-
ing analytical, in-depth reviews of a taxpayer’s exist-
ing tax strategy with an accountant knowledgeable
about tax policy can be vital. Taxpayers will receive
recommendations that will allow them to reduce the
overall tax burden and foresee a successful financial
future for themselves as individuals as well as for
their business entities.47
Accounting firms also pro-
vide important services for trusts and companies.
Hence, accountants can play important roles in finan-
cial and tax planning, financial reporting, and related
services that can detect and prevent money launder-
ing. Conversely, if accountants do not have cutting-
edge AML/CTF due diligence policies, they may un-
wittingly facilitate money laundering and/or terrorist
financing.
The American Institute of CPAs (AICPA) is the
world’s largest member association representing the
accounting profession. According to its website
(www.aicpa.org), the AICPA ‘‘sets ethical standards,
auditing standards, and develops the CPA exam.’’ The
AICPA has not published on its website any guide-
lines specific to detecting and preventing money laun-
dering or fraud, but it does have a standard Code of
Professional Conduct.
On September 20, 2017, an AICPA official, re-
sponding to an inquiry about whether there are any
other guidelines related to anti-money laundering for
its members, said there is nothing other than several
articles published in its Journal of Accountancy.48
One of the articles mentions the FATF requirement
for member governments, including the United States,
to establish anti-money laundering (AML) responsi-
bilities and oversight over practicing accountants in
firms and other ‘‘Designated Non-Financial Busi-
nesses or Professionals.’’49
The article observes that,
while the accounting profession and other profession-
als have important responsibilities and play key roles
in anti-money laundering, the United States currently
has not adopted the FATF recommendation on estab-
lishing AML responsibilities over these professions in
the same way as financial sectors. The article points
out those responsibilities include customer identifica-
tion and recordkeeping, reporting of suspicious activi-
ties, and implementing AML programs and controls.
The article adeptly notes that the demand for AML-
related services for accounting professionals has
steadily increased in response to regulatory and law
enforcement concerns since 1970.
On the product page on the AICPA site, my col-
league found a one-hour course titled ‘‘Money Laun-
dering and the Proceeds of Crime for Finance Profes-
sionals.’’ The AICPA official informed my colleague
via email, however, that ‘‘the product covering
money-laundering is no longer offered and was out-
dated, and although there is a product page for it, it is
technically not being offered any longer.’’
The Committee of Sponsoring Organizations of the
Treadway Commission (COSO) is a joint initiative of
five organizations ‘‘dedicated to providing thought
leadership through the development of frameworks
and guidance on enterprise risk management, internal
control and fraud deterrence.’’ The five organizations
included in the partnership are the American Account-
ing Association, the American Institute of CPAs, Fi-
nancial Executives International, The Association of
Accountants and Financial Professionals in Business,
and the Institute of Internal Auditors. COSO does not
47
Sikich Services, Tax Planning, accessible at: http://
www.sikich.com/audit-accounting-tax.
48
Phone call on September 20, 2017, between Zarine Kharaz-
ian, Legal Assistant, Berliner Corcoran & Rowe LLP, and Neil
Kolis, AICPA Member Services.
49
Alan S. Abel and Ian A. MacKay, Money Laundering: Com-
bating a Global Threat, J. Accountancy (Sept. 1, 2016).
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have anti-money laundering guidelines, but it does
provide a Fraud Risk Management Guide available to
the public.50
Contrasting the United States, the United Kingdom
in 2008 saw the Institute of Chartered Accountants in
England and Wales (ICAEW) — acting under the
U.K.’s laws implementing the FATF AML standards
and guidance51
and the European Union’s Anti-
Money Laundering Directive — issue guidance for
those providing audit, accountancy, tax advisory, in-
solvency, or related services in the United Kingdom
(including such firms providing trust or company ser-
vices) on the prevention of money laundering and the
countering of terrorist financing.52
The guidance addresses all entities providing audit,
accountancy, tax, insolvency, or related services in the
United Kingdom by way of business, irrespective of
membership of a recognized professional body. The
stated goal of the guidance is ‘‘to promote consistency
of compliance with requirements, both between com-
peting firms and where work is subcontracted from
one firm to another.’’ Accounting firms expect to fol-
low the guidance when they also provide trust or com-
pany services within the meaning of the Money Laun-
dering Regulations 2007 (the 2007 Regulations).
The guidance has been approved by Treasury (ap-
proval granted in July 2008 — Appendix A —
Supplementary guidance for the Tax Practitioner ap-
proved June 2009). Treasury’s approval means that
courts must take it into account when determining
whether an accountant’s conduct gives rise to certain
offenses under anti-money laundering legislation. It
will also be taken into account in relevant profes-
sional disciplinary inquiries.53
Independent Auditors
An important function of accountants and account-
ing firms is conducting an ‘‘audit’’ or providing ‘‘au-
dited financial statements.’’ An audit refers to the
work product resulting from the independent exami-
nation of a nonprofit’s financial records by a licensed
certified public accountant.
Independent auditors analyze, review, and express
an opinion on the reliability and fairness of their cli-
ents’ financial statements, communicating this infor-
mation to persons outside the client, such as investors,
creditors, and government organizations. Independent
auditors also may provide various auditing, tax, and
consulting services for their clients, who may be indi-
viduals, corporations, government, or not-for-profit
entities. However, since the enactment of the
Sarbanes-Oxley Act in 2002, independent auditors in
the United States are restricted in the types of services
they can provide for clients they also audit. Indepen-
dent auditors may work for public accounting firms or
be self-employed. Many independent auditors are
Certified Public Accountants (CPAs) or Chartered Ac-
countants (CAs).54
‘‘Independent’’ refers to the fact that the auditor/
CPA is not an employee of the entity under examina-
tion. Instead, the entity retains the auditor/CPA
through a contract for services, and hence is ‘‘inde-
pendent.’’55
The AICPA has rules about the conduct of audits.
SAS no. 54, Illegal Acts by Clients,56
requires that in-
dependent auditors be aware of the possibility that il-
legal acts may have occurred, indirectly affecting
amounts recorded in an entity’s financial statements.
Additionally, if the auditor learns of specific informa-
tion concerning possible illegal acts that could have a
material indirect effect (for example, the entity’s con-
tingent liability resulting from illegal acts committed
as part of the money laundering process) on the enti-
ty’s financial statements, the auditor must apply audit-
ing procedures specifically designed to ascertain
whether such activity has occurred.57
The AICPA guide lists specific information that
raises concern about possible illegal acts. They are
similar to red flags for AML/CFT and corruption.
They are:
• unauthorized transactions, improperly recorded
transactions, or transactions not recorded in a
complete or timely manner in order to maintain
accountability for assets;
• investigation by a governmental agency, an en-
forcement proceeding, or payment of unusual
fines or penalties;
50
Committee of Sponsoring Organizations of the Treadway
Commission, Fraud Risk Management Guide Executive Summary
(Sept. 2016), available at: https://www.imanet.org/-/media/
3cb65dc3904c426199bd2a05856e5f1b.ashx.
51
FATF, RBA Guidance for Accountants (June 17, 2008),
available at: http://www.fatfgafi.org/media/fatf/documents/
reports/RBA%20for%20accountants.pdf.
52
ICAEW, Anti-Money Laundering Guidance for the Accoun-
tancy Sector, available at: https://www.icaew.com/membership/
regulations-standards-and-guidance/practice-management/anti-
money-laundering-guidance.
53
Id.
54
Association of Certified Fraud Examiners, Independent Au-
ditor, available at: http://www.acfe.com/independent-auditor.aspx.
55
National Council of Non-Profits, What Is an Independent Au-
dit? available at: https://www.councilofnonprofits.org/nonprofit-
audit-guide/what-is-independent-audit.
56
AICPA, AU Section 317 Illegal Acts by Clients SAS 54,
available at: http://www.aicpa.org/Research/Standards/
AuditAttest/DownloadableDocuments/AU-00317.pdf.
57
Alan S. Abel and James S. Gerson, The CPA’s Role in Fight-
ing Money Laundering, J. Accountancy (June 1, 2001), available
at: https://www.journalofaccountancy.com/issues/2001/jun/
thecpasroleinfightingmoneylaundering.html.
ISSN 0090-4600

• violations of laws or regulations cited in reports
of examinations by regulatory agencies that have
been made available to the auditor;
• large payments for unspecified services to consul-
tants, affiliates, or employees;
• sales commissions or agent fees that appear ex-
cessive in relation to those normally paid by the
client or to the services actually received;
• unusually large payments in cash, purchases of
cashier’s checks in large amounts payable to
bearer, transfers to numbered bank accounts, or
similar transactions;
• unexplained payments made to government offi-
cials or employees; and
• failure to file tax returns or pay government du-
ties or similar fees that are common to the entity’s
industry or the nature of its business.58
In addition to the above red flags, possible indica-
tions of money laundering activity include the follow-
ing:
• circumstances in which it is difficult to confirm
the identity of a person;
• large lump-sum payments from abroad, especially
from jurisdictions with AML/CFT laws not meet-
ing international standards;
• apparent structuring of currency transactions to
avoid regulatory recordkeeping and reporting
thresholds (such as transactions in amounts less
than $10,000);
• apparent structuring of wire or other transactions
to avoid complying with economic sanctions
laws;
• insurance policies with values that seem to be in-
consistent with the buyer’s insurance needs or ap-
parent means and/or with early termination that
enable the insured to obtain the amount of the ini-
tial premium; and
• forming companies or trusts that appear to have
no business purpose.59
FATF’s Risk-Based Approach for Accountants sets
forth key factors for high-risk clients to which ac-
countants should pay attention:
• factors indicating that the client is attempting to
obscure understanding of its business, ownership,
or the nature of its transactions;
• factors indicating certain transactions, structures,
geographical location, international activities, or
other factors which are not in keeping with the ac-
countant’s understanding of the client’s business
or economic situation; or
• client industries, sectors, or categories where op-
portunities for money laundering or terrorist fi-
nancing are particularly prevalent.60
BCCI — A Cautionary Tale
Lax oversight can have dire consequences, as dem-
onstrated in the case of Bank of Commerce and Credit
International (BCCI), which constitutes one of the
first highly publicized worldwide money laundering
operations. In 1988, Luxembourg-based BCCI was
the seventh largest private bank in the world, with ap-
proximately $20 billion in assets and 400 branches in
72 countries. In what has since become a common
tactic, perpetrators using drug money in six countries
bought BCCI certificates of deposit (CDs) and then
used them as collateral for loans. A reason for the suc-
cess of BCCI in its criminal activities was that bank-
ing regulators did not adequately oversee the bank’s
operations in the many jurisdictions in which it did
business.61
On April 18, 1990, in a confidential report to the
directors of BCCI, auditing firm Price Waterhouse ex-
pressed its growing concern about many troubled
loans to customers, suspected lending to shareholders
and transactions that were ‘‘either false or deceitful.’’
Yet, on April 30, 1990, Price Waterhouse signed BC-
CI’s annual report for 1989, attesting that the accounts
gave a ‘‘fair and true view of the financial position of
the group.’’ The annual report made no mention of
false or deceitful transactions or the auditor’s other
worries. Price Waterhouse’s unqualified approval to
BCCI’s last public annual report, notwithstanding the
clear signs of trouble, subjected Price Waterhouse to
scrutiny by government investigators, lawyers repre-
senting depositors, and accounting experts.62
Depositors filed lawsuits in the United Kingdom
charging Price Waterhouse with gross negligence.63
The liquidators, Deloitte & Touche, filed a lawsuit
against the bank’s auditors, Price Waterhouse and
Ernst & Young. It was settled for $175 million in
1998.64
58
AICPA, AU Section 317 Illegal Acts by Clients SAS 54, Spe-
cific Information Concerning Possible Illegal Acts .09, above.
59
Abel and Gerson, above.
60
FATF, RBA Guidance for Accountants, above, at 21.
61
Abel and Gerson, above.
62
Steve Lohr, Auditing the Auditors — A Special Report; How
B.C.C.I.’s Accounts Won Stamp of Approval, N.Y. Times (Sept. 16,
1991).
63
Id.
64
Wikipedia, Bank of Credit and Commerce International,
available at: https://en.wikipedia.org/wiki/
ISSN 0090-4600

Auctioneers
Auctioneers are considered gatekeepers and are
subject to international anti-money laundering stan-
dards. They are part of the group of dealers in high-
value or precious goods (e.g., jewel, gem and precious
metals dealers, art and antique dealers and auction
houses, estate agents, and real estate agents).65
The National Auctioneer’s Association (NAA) is an
advocacy group that provides auction education and
information for auction professionals and consumers.
Founded in 1949, NAA is the world’s largest profes-
sional association dedicated to auction professionals.
It represents the interests of thousands of auction pro-
fessionals in the United States, Canada, and across the
world.
The NAA does not have any guidelines for its
members specifically related to money laundering and
fraud prevention. An NAA representative with whom
my assistant spoke by phone referred her to its Code
of Ethics with respect to anti-money laundering due
diligence.66
Under Article II, members ‘‘shall not ac-
cept compensation from any party, other than the Cli-
ent, even if permitted by law, without the full knowl-
edge of all the parties to the transaction.’’ Article X
states that members must ‘‘abide by the laws and
regulations, which govern the profession as well as
those which, if violated, would negatively affect their
ability to appropriately represent the professionalism
of our industry.’’
CONCLUSION
Given the proliferation of new initiatives aimed at
preventing tax evasion or criminal misuse of financial
accounts, tax advisers and other gatekeepers must
conduct careful assessments of client activity. With
this in mind, many of the responses to the U.K. Crimi-
nal Finance Act apply to AML due diligence for other
gatekeepers as well.
Risk Assessment
The first step is risk assessment, which will deter-
mine whether any response is proportionate. A firm or
business must risk assess its business operations and
consider the geographies, divisions, products, rela-
tionships, and motivations that may result in a facili-
tation of tax and other related crimes. The firm must
identify the ‘‘associated persons’’ of the operations,
and the risks of facilitation. The firm must also con-
sider the counterparties to the transaction who poten-
tially could be committing tax crimes, and then iden-
tify where facilitation could occur (e.g., customers
and employees).
As the firm identifies and prioritizes risks, it will
also identify and evaluate existing controlling proce-
dures for design and operational effectiveness, taking
into account proportionality. Thereafter, the firm or
business can develop a plan to target any gaps in con-
trolling procedures. The response should have a top-
level commitment from the organization and sustained
communication, including training.67
Constructing Reasonable Procedures
After the risk assessment, the firm or business can
develop a proportionate response to the Act to ensure
that it meets the ‘‘reasonable procedures’’ test.
As time passes, firms and businesses must re-
evaluate their procedures, because what constitutes
‘‘reasonable’’ will change over time. Hence, firms and
businesses will need to adapt their systems and con-
trols on an ongoing basis as required by the Act.68
According to the HMRC Final Guidance, risk as-
sessments should be periodically reviewed and up-
dated in the context of changing circumstances.69
Hence, a mechanism to conduct internal investiga-
tions and self-reporting is critical.Bank_of_Credit_and_Commerce_International; see also Dan At-
kinson, Accountants in BCCI Net, The Guardian (Jan. 8, 1999),
available at: https://www.theguardian.com/business/1999/jan/
08/6.
65
The Wolfsberg Group, Wolfsberg Statement on a Risk-Based
Approach for Managing Money Laundering Risk 6 (2006), avail-
able at: http://www.wolfsberg-principles.com.
66
National Association of Auctioneers Code of Ethics, avail-
able at: http://www.auctioneers.org/naa-financials-and-
governance.
67
Ernst & Young, The U.K.’s New Corporate Criminal Offence
of Failing to Prevent the Facilitation of Overseas and Domestic
Tax Evasion — Are You Prepared? (2017).
68
Id.
69
HMRC Final Guidance, Sept. 1, 2017, at 17; https://
data/file/642714/Tackling-tax-evasion-corporate-offences.pdf.
ISSN 0090-4600

Transparency Initiatives Increase Pressure on US Tax Advisers

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