Money Laundering

  • By Derek Williamson
  • 28 Oct, 2016

New Directive Brings Due Diligence to the Fore

As we all know the EU anti-money laundering directive came into force on 26th June 2015; with member states having 2 years to turn the directive into Law. This directive covered Banks, Accountants, Solicitors and any business making or receiving cash payments worth at least €10,000 regardless of whether the payment was made in a single transaction, or via a series of linked transactions. As always the Directive is vague as “Gambling Operators” could also be subject to the new rules.

The new regime has brought into force new customer/client due diligence checking requirements together with new obligations to report suspicious transactions and maintain records of payments (which I know all solicitors do). Professional firms will also have to install internal controls to control money laundering and terrorist financing activities (if not already done). Since June this year all Limited Companies now have to file “People with Significant Control” as part of the Annual Return. This is supposed to expose individuals and so reduce the risk of money laundering.

In May this year David Cameron, just before the launch of the Anti-Corruption Summit, revealed plans to require all foreign companies buying property in the UK to disclose their true owners in a public register for the first time. The government’s intention is to go further than merely requiring firms to prevent bribery and “TAX EVASION”. Indeed, should an employee be charged with money laundering, the company will be deemed liable if it cannot show that it had put procedures in place to prevent money laundering and fraud.

Money laundering problems clearly afflict the largest banks such as Citigroup and HSBC and JP Morgan Chase Here it is not “cash” that is laundered but millions of dollars or pounds, usually emanating from Mexico, Columbia or the Middle East.

Solicitors need to carry out due diligence when receiving funds from clients even for property purchases. Did the funds come from the sale of another property owned by the client, or was it from a third party? If so what due diligence has been carried out on them? It is not enough to accept the claim by the client that it is a loan from a friend.

Whether it is a large firm, or a tiny practice, the potential for money laundering is always present. Anywhere that money flows, there is danger that the proceeds of financial crimes will be washed through the financial system.

By Derek Williamson 28 Oct, 2016
What is Forensic Accounting?
The integration of accounting, auditing and investigative skills yields the specialty known as “forensic accounting” which provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution. Forensic Accounting encompasses both Litigation Support and Investigative Accounting.
As forensic accountants, we utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is our ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting. Forensic accountants are trained to look beyond the numbers and deal with the business reality of the situation.

What does a Forensic Accountant do?
A forensic accountant is often retained to analyse, interpret, summarize and present complex financial and business related issues in a manner which is both understandable and properly supported.
Forensic accountants can be engaged in public practice or employed by insurance companies, banks, police forces, government agencies and other organizations.

A forensic accountant is often involved in the following:
  • Investigation and analysis of financial evidence
  • Development of computerized applications to assist in the analysis and presentation of financial evidence
  • Communication of their findings in the form of reports, exhibits and collections of documents. 
  • Assistance in legal proceedings, including testifying in court as an expert witness and preparing visual aids to support trial evidence.

In order to properly perform these services a forensic accountant must be familiar with legal concepts and procedures. In addition, the forensic accountant must be able to identify substance over form when dealing with an issue.

What should you consider when retaining a Forensic Accountant?
The following issues should be considered on retaining a forensic accountant:
  • The experience and qualifications of the forensic accountant.
  • The forensic accountant should be retained as early as possible in order to obtain the maximum benefit. The assistance that a forensic accountant can provide early in the process can be significant in reducing the overall cost and maximizing the benefit. If retained early, the forensic accountant can assist with the Examination for Discovery, identify additional areas of damages, assist with settlement negotiations and provide a preliminary assessment of the quantum of damages.
  • If the forensic accountant is being engaged as an expert witness then he or she should be given access to all of the relevant documentation. If restrictions are imposed upon the scope of the investigation there may be an impact upon the acceptance of the findings.
  • In situations where counsel is involved, the forensic accountant should be retained by counsel so that the privilege which exists between the client and counsel will be extended to the work product of the forensic accountant.

Criminal Investigations:
Forensic investigations often relate to criminal investigations on behalf of police forces. For example, a forensic accountant may be retained by local police forces and organizations such as the Law Society.
A forensic accountant's report is prepared with the objective of presenting evidence in a professional and concise manner.

Shareholders' and Partnership Disputes:
These assignments often involve a detailed analysis of numerous years' accounting records to quantify the issues in dispute. For example, a common issue that often arises is the compensation and benefits received by each of the disputing shareholders or partners.

Personal Injury Claims / Motor Vehicle Accidents:
A forensic accountant is often asked to quantify the economic losses arising from a motor vehicle accident. The forensic accountant needs to be familiar with the legislation in place which pertains to motor vehicle accidents.
Cases of medical malpractice and wrongful dismissal often involve similar issues in the calculation of the resulting economic damages.

Business Interruption / Other Types of Insurance Claims:
Insurance policies differ significantly as to policy conditions. Accordingly, these assignments involve a detailed review of the policy to investigate
coverage issues and the method of calculating the loss.
A forensic accountant is often asked to assist from either an insured or insurer's perspective in the settlement of the case.
Examples of these types of assignments include; business interruptions, property losses and employee dishonesty (fidelity) claims.

Business/Employee Fraud Investigations:
Business investigations can involve funds tracing, asset identification and recovery, forensic intelligence gathering and due diligence reviews.
Employee fraud investigations often involve procedures to determine the existence, nature and extent of fraud and may concern the identification of a perpetrator. These investigations often entail interviews of personnel who had access to the funds and a detailed review of the documentary evidence.

Matrimonial Disputes:
Matrimonial disputes from a forensic accounting point-of-view often involve the tracing, locating and evaluation of assets. The assets to be evaluated and valued may be businesses, property or other assets.

Business Economic Losses:
Examples of assignments involving business economic losses include; contract disputes, construction claims, expropriations, product liability claims, trademark and patent infringements and losses stemming from breach of non-competition agreements.

Professional Negligence:
These investigations are often approached from two different but complimentary perspectives, these being:
  • Technical - has a breach of Generally Accepted Accounting Principles or Generally Accepted Auditing Standards or other standards of practice occurred;
  • Loss Quantification.
  • If the professional in question is an accountant then we are often involved with both perspectives. If the matter involves some other professional the forensic accountant will normally be retained to perform only a loss quantification.
By Derek Williamson 28 Oct, 2016
What happens when the relative of a victim asks you to act on their relatives’ behalf to claim damages for serious life threatening injuries?

Ideally the family should contact a Solicitor as soon as possible after the injury. This is because many claimants do not know the systems and procedures, i.e. are there any Statutory Benefits they can claim; or, are there any interviews or photos that need to be acquired; or, should local authority Social Services be accessed; and, what is the Hospital doing? Remember that the medical condition and quality of life may be improved by early intervention, and you can help clients with this.

All too often we are asked by Solicitors to put a value on a Compensation Claim weeks or even days before a Court Hearing; which means the case does not get the benefit of a Cold Review. In our experience, the sooner a Forensic Accountant is involved; the greater the potential claim.

On a recent case, we were only approached during the adjournment and at the request of the Judge. Once we had completed our review. We assessed that the claim for £50,000 in damages, made by the Solicitors, was far too small. We expressed in detail our reasons for a revision of the claim; and the claimant’s solicitors then revised the claim before the next hearing. As a result, the plaintiff received £250,000 in damages together with all the costs. If the Judge had not requested our involvement the Plaintiff would have only received £50,000.

We have also noticed a reluctance amongst Solicitors to report the other side for failing to disclose material evidence. Why? Surely this reflects on the whole profession.

We have also noticed that key evidence is often hidden amongst “rubbish evidence”. Indeed, when Solicitors inform us of “unimportant dross” that has been produced; we immediately suspect something has been hidden in full view; and in over 60% of cases, we find important evidence.
Consideration should be given to how the Compensation is to be utilised. As we are Deputies to the Court of Protection, we are very cynical about members of the family managing the funds. In our experience too many cases result in financial abuse by family members. During the case the Solicitor should have gained an insight into the family and its probability to exploit the situation; and so should be steering all partners toward a “protective” Deputyship.
By Derek Williamson 28 Oct, 2016

With more and more people living longer, there is an increasing risk that they become unable to make financial decisions or manage their affairs.

Since October 2007 it has not been possible to form Enduring Power of Attorney, this had been replaced by Lasting Power of Attorney. It is possible to have joint attorneys to manage over affairs. Lasting Power of Attorney should be applied for before the “Donor” losses his or her facilities; and the Donor and at least 3 of their relatives must be notified of the intention to request the LPA.

The normal priorities would be:

·        Donors Husband/Wife/Civil Partner anticipates

·        Donors Children

·        Donors Parents

·        Donors Brothers and sisters

There are others relatives who may be required to be notified if there are no immediate family members.

In addition when making out the Lasting Power of Attorney; the proposed Attorneys should also ensure that the power has an up to date will.

Goddards Accountants Disputes Division can assist with all these matters.


By Derek Williamson 28 Oct, 2016

A Solicitor approached us, his client’s husband had been killed when run over; and the Solicitor had been offered £50,000 for the widow. He asked us to check the figures and agree the pay-out was fair. We found that the husband was 66 and a driver for a large firm which had agreed to continue to employ him until he was 70 because his wife was crippled and in a wheelchair.

He had been run over and killed on a third parties premises, their insurers accepted liability. The only concern was that the £50,000 was acceptable.

Following representations to the employers, we were able to show the loss of earnings for the rest of his working life were substantially in excess of the £50,000 offered.

We wrote a report setting out why we believed £50,000 to be unacceptable and our basis for a revised pay out. As a result, the widow eventually received £250,000 compensation.

In another case the claimant had been in the Navy; and “struck” on the head with a Block and Tackle, resulting in him being permanently brain damaged and a “cabbage”.

On checking his service record we found that he had passed out of Dartmouth with honours, and was rated to “go far”. The Navy denied all responsibility or liability but we were able to prove that the accident was entirely avoidable and their fault. We used the claimants training and service listing as our basis for probable future earnings; with the result that our client was awarded over £2 Million in damages.

By Derek Williamson 28 Oct, 2016

As we all know the EU anti-money laundering directive came into force on 26th June 2015; with member states having 2 years to turn the directive into Law. This directive covered Banks, Accountants, Solicitors and any business making or receiving cash payments worth at least €10,000 regardless of whether the payment was made in a single transaction, or via a series of linked transactions. As always the Directive is vague as “Gambling Operators” could also be subject to the new rules.

The new regime has brought into force new customer/client due diligence checking requirements together with new obligations to report suspicious transactions and maintain records of payments (which I know all solicitors do). Professional firms will also have to install internal controls to control money laundering and terrorist financing activities (if not already done). Since June this year all Limited Companies now have to file “People with Significant Control” as part of the Annual Return. This is supposed to expose individuals and so reduce the risk of money laundering.

In May this year David Cameron, just before the launch of the Anti-Corruption Summit, revealed plans to require all foreign companies buying property in the UK to disclose their true owners in a public register for the first time. The government’s intention is to go further than merely requiring firms to prevent bribery and “TAX EVASION”. Indeed, should an employee be charged with money laundering, the company will be deemed liable if it cannot show that it had put procedures in place to prevent money laundering and fraud.

Money laundering problems clearly afflict the largest banks such as Citigroup and HSBC and JP Morgan Chase Here it is not “cash” that is laundered but millions of dollars or pounds, usually emanating from Mexico, Columbia or the Middle East.

Solicitors need to carry out due diligence when receiving funds from clients even for property purchases. Did the funds come from the sale of another property owned by the client, or was it from a third party? If so what due diligence has been carried out on them? It is not enough to accept the claim by the client that it is a loan from a friend.

Whether it is a large firm, or a tiny practice, the potential for money laundering is always present. Anywhere that money flows, there is danger that the proceeds of financial crimes will be washed through the financial system.

By Derek Williamson 28 Oct, 2016

A recent Fraud Case involved a Builder who purchased a house for himself, and a house for his mother; these properties costing approximately £150,000 each.

Both properties were valued at £750,000; and put up for sale.

HMRC could not understand how someone only earning £20,000 per year had managed to turn 2 dilapidated properties into luxury properties. Where did the money come from?

On investigation it was found that the Builder was trading in “cash deals” and not declaring them.

He was found guilty of Revenue Fraud for £240,000 and sent to Prison.

By Derek Williamson 28 Oct, 2016
If a business is damaged as a result of wrongdoing, there are two ways in which the plaintiff’s damages can be measured.

The first way is to calculate the plaintiff’s annual loss of profits; and the Second way is to calculate the value of the plaintiffs business at the time of loss; that being the amount that the plaintiff could have sold the business for at the time of loss.

Using the loss of profits route, the Accountant would forecast the annual profits for the damaged business based upon the industry and actual conditions applying at the time, and up until the date of the trial, and on into the future. This valuation should also take account of the fact that the projected profits were by no means “risk-less”.

Using the business valuation route, one would calculate as if the defendant were “purchasing” the damaged business from the plaintiff at a “fair market value” at the time of loss. This valuation would be equivalent to the present value of the cash flows that would accrue to the owner of the business over its lifetime. A risk adjusted discount is then applied to convert the projected annual cash flows to a single lump sum.

Where the claim is for personal injury, it should be noted that significantly higher damage claims can be made under the lost profit method than under the business valuation method. This is because the business valuation method imagines that the plaintiff would have sold the damaged business immediately prior to the damage happening; thus attempting to estimate the proceeds the plaintiff could have received at that point in time. To the extent that no sale was actually contemplated; a loss calculation based on the value of the business can in those circumstances lead to an amount far different then would have been achieved by the plaintiff but for the loss had they continued to operate the business.

Indeed relying solely on the business valuation approach can be risky if there is any doubt as to the permanency of the loss. In these circumstances, the preparation of a detailed lost profits calculation on a year by year basis is essential. It should be noted that the business valuation and lost profits approaches often yield similar damages calculations. When they do not, it is usually due to the factors noted above. H.M. Courts may also subjectively prefer one approach to another. Experts should consider calculations under each of the above methods; and adopt the approach that best fits the facts of the case.
By Derek Williamson 28 Oct, 2016

When we were appointed as Deputy by the Court of Protection; for a “Non Compus” lady; we found that she was living at home with an illegal immigrant (with child); and the house was unsafe.

We immediately obtained a “Care Order” for her, and had her moved into a Care Home. We then obtained an eviction order for the illegal immigrant; and once we have vacant possession, we sold the property and invested the funds. We also found she had not been claiming/receiving her old age pension; and so we were able to collect the 5 year backlog and also invest that money.

As a result, we had funds to pay for her care home thus saving the local authority the cost.

By Derek Williamson 28 Oct, 2016

We had a German individual who was passed to us by the Local Authority and be appointed by the Court of Protection. No one knew anything about him.

The house was unfit to live in, and so we had him placed in care (he is now very happy).

We found he held over £500,000 in the Bank, so we spent £75,000 on making the house habitable; and we then let it out for £1,500 per month.

In addition, we approached the German Embassy who assisted us in searching his history. The German Department Work & Pensions, had been trying to find him to pay a State Pension for some 3 years; and also he had worked for a German Bank who had also been trying to find him. As a result, we obtained back pay on his pensions; and some £1,500 per month in pensions going forward.

As a result we had funds and income to pay for his Care Home, this saving the Local Authority the cost.

By Derek Williamson 28 Oct, 2016
In many UK marriages it is not unusual for one spouse to assume responsibility for the family finances during the life of a marriage and seldom do both spouses have equal knowledge of the couple's financial affairs. As a result the spouse that minds the money can sometimes have an unfair advantage which can be used to achieve a more favourable settlement for themselves. If it has been a long marriage then the spouse in control of the money may have, over years, squirreled away, often quite large sums of money out of reach of his or her spouse which they will later use after the divorce.

It is not unusual for those with higher income, contemplating divorce, to attempt to hide, transfer or defer income or assets in anticipation of the formal decision to divorce. The spouse may accomplish this by withdrawing from accounts, the family business, manipulating receipts and expenses transferring cash to other individuals or third parties, or by deferring the receipt of a bonus or other compensation until after the divorce is settled and in some cases intentionally reducing the profitability of the business.

It is no surprise then that financial issues are among the most contentious of divorce cases. Discussing finances in divorce can be complex and consume most of the effort and attention of the parties. Forensic Accountants possess unique skills that allow them to provide valuable support to divorcing spouses and their lawyers. While lawyers have traditionally engaged accountants to assist with general financial issues related to divorce, lawyers are increasingly relying upon Forensic Accountants to provide more in-depth forensic services beyond maintenance payments and child support calculations and employing the expertise of a qualified Forensic Accountant can make a considerable difference in the outcome for your client.

Through an examination of financial records, a Forensic Accountant plays a vital role in uncovering hidden or transferred assets and income that directly impact both support and equitable distribution. Forensic Accountants are uniquely qualified for this role because of their knowledge and experience in financial document analysis, accounting principles and auditing techniques.

A forensic investigation is advisable where one spouse suspects the other of concealing income or assets or when there is not other way to find out where the money has gone. Detecting hidden, transferred or deferred income can be difficult; however Forensic Accountants have the expertise and effective techniques for uncovering such income. An examination of the family's lifestyle to determine if the level of reported income is sufficient to support the family's expenditures, an examination of the couple's net worth at two or more points in time to determine whether the reported income during the period is consistent with the change in net worth, and an analysis of bank deposits.

Locating hidden income and assets has limitations and are not appropriate in all circumstances. While the discovery of unreported income can be extremely beneficial to the dependent spouse, it can also lead to serious adverse tax consequences, which should be considered when deciding how to utilise the information obtained through the investigation. In many situations, counsel may find that the identification of unreported income can be a very effective tool in negotiating a favourable settlement.

 

HM Revenue are now looking into all Divorces, especially those where there are alleged to be “Offshore Assets” or “High Net Worth’s”. In one case recently the Husband has £12 Million in hidden assets according to the ex Wife. It was found that the assets and revalued them at £6 Million for the wife to obtain 50%. However, HMRC then investigated how the husband had accumulated these assets; and why they were not declared. In another, the wife claimed and proved that the life style was “Champagne and Cars”. HMRC wanted to honor how he lived that life style on a mere “£30,000 especially as he was in a “Cash Business””.

 

Using a Forensic Accountant is not cheap so you need to weigh up the costs of employing one. However if your suspicions are correct the reward will generally exceed the money invested in fees and costs.

 

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