Most solicitors specifically exclude tax advice in their retainers, unless they have a dedicated tax department. This does not mean that they are shielded from the Money Laundering Regulations.
Yes, there are many areas of legal advice that skirt around tax (e.g. property, commercial, employment, pensions, family, wills and trusts). But the lawyer – unless they are a tax specialist – does not typically provide a full advice on the tax element.
Until recently, that was the accepted position.
The 5th Money Laundering Directive has turned that on its head
The recent change to AML legislation significantly expands the definition of ‘tax advice’ to:
‘a firm or sole practitioner who by way of business provides material aid, or assistance or advice, in connection with the tax affairs of other persons, whether provided directly or through a third party, when providing such services.’
That’s pretty broad. Anything more than signposting clients to other resources or external advice could be caught by the new definition.
Why is this change important? Simply this: ‘tax advisers’ are subject to the Money Laundering Regulations in the same way as property and other transactional lawyers.
That means that many more areas of law are likely to come within scope of the Money Laundering Regulations and all of the compliance burden associated with that.
- Wills and trusts – where solicitors routinely advise on estate planning and tax efficiency
- Employment – settlement agreements often have individual tax implications
- Family and matrimonial – financial settlements can involve HMRC involvement
There will be many other nuanced situations where tax plays a part.
Where can we find a definitive list of what practice areas are in scope of the Money Laundering Regulations?
It may come as no surprise that there is no such list. The closest we get at the moment is the SRA’s Tax Adviser Guidance, but essentially that says ‘you must decide for yourself if the matter in question involves tax advice’. Helpful.
See also the recent SRA Webinar on the topic.
So what do we need to do?
If your firm is already subject to the Money Laundering Regulations:
- Review what new areas may be brought into scope
- Update your Firm Wide Risk Assessment
- Decide whether you apply full client due diligence (CDD) as a blanket across all departments or matters. If not, have a plan to ensure CDD will be carried out where matters involve tax advice and decide how you will ensure nothing falls between the cracks.
- Update your policies, procedures, controls and risk assessments (client and matter) to reflect this.
- Ensure that your AML registrations at the SRA are up to date.
- Train your staff. Money laundering regulation may be less familiar to those who were previously out of scope. Some might assume nothing much has changed since pre-2017 Regulations.
If your firm is not currently subject to the Money Laundering Regulations:
- Review your practice areas and see what will fall within the tax advice definition.
- Register for AML authorisation with the SRA using Form FA10 on your firm’s mySRA Ensure you register your Beneficial Owners, Officers and Managers (BOOMs), a Money Laundering Reporting Officer (MLRO) and, if relevant to your size, a Money Laundering Compliance Officer (MLCO). You will have to supply basic DBS checks as part of the application.
- Carry out a Firm Wide Risk Assessment. There is a lot of guidance on how to do this, but if you use a template make sure you really tailor it to your firm. It is a good idea to get all departments involved and it needs to be signed off by the senior team.
- Develop and implements a range of Policies, Controls and Procedures. This includes client and matter risk assessments.
- In depth training for all staff.
“But we exclude tax advice in our retainer!”
This is where the terminology is unhelpful. There’s tax advice and then there’s tax advice.
We are talking here purely about whether the specific activity related to a tax element triggers the Money Laundering Regulations.
It might be quite appropriate for you to provide limited guidance on tax, without classing that as full tax advice. This is what solicitors generally do. There’s an argument to say that you could be negligent if you did not help your client in this way.
Everything tends to be caveated with “if you want proper tax advice ask your accountant”. From an insurance and limiting liability point of view that is probably correct.
But it is a question of fact whether the advice falls within the ‘tax advice’ definition. You can’t contract out of the Money Laundering Regulations.