Money laundering reporting – PRE

In 2006, the Proceeds of Crime Act and Money Laundering Regulations were amended to extend to certain professional advisers, not being practising lawyers, the equivalent of legal professional privilege and, therefore, exemption from reporting knowledge or suspicion of money laundering formed in confidential circumstances between the professional adviser and client. The exemption is known as the Professional Reporting Exemption (PRE).

The PRE applies to qualified tax advisers and accountants, their business partners and staff.

To benefit from the PRE, the knowledge or suspicion of the wrongdoing must have been formed by the professional adviser in the course of giving legal advice such as, for example, advising a person over tax compliance obligations or the legality, or otherwise, of a course of tax planning. The PRE does not apply to information or knowledge obtained by the professional adviser in conducting some other professional activity such as, for example, auditing a company's financial statements.

The exemption from reporting, which is not a relieving provision but an obligation imposed upon the relevant personal adviser, does not apply where there is a crime or fraud exception.

This exception, found at section 330 (11) POCA, disapplies the PRE where information is communicated, or given, by the adviser to someone who has an intention of furthering a criminal or fraudulent purpose. A fraud need not be a criminal offence and is widely construed to include civil offences also.

Whether the crime or fraud exception applies is a difficult area and requires more than mere speculation by the professional adviser. In terms of emphasis, the professional adviser must be aware of reasonably compelling circumstantial evidence which demonstrates that the legal advice sought or communicated to the individual (whether in writing or orally) will be intended to further a crime or a fraud.

It should be noted that the professional adviser is obliged to comply with the PRE, i.e., not to make a disclosure report, unless it is felt by the firm's MLRO that this obligation is over-ridden by the crime or fraud exception. It is not, therefore, advisable for the MLRO to make a report in any event on the grounds that it is better to be safe than sorry.