News and views

MONEY LAUNDERING

Significant rise in international money laundering compliance

The Financial Action Task Force (FATF) has published a ‘Report on the State of Effectiveness and Compliance with the FATF Standards’. This is the first public report of its kind and outlines results from the 4th Round of Mutual Evaluations, which assessed the strengths and weaknesses of countries’ frameworks to combat money laundering and the financing of terrorism and proliferation.

Overall, the report finds that countries have made huge progress in improving technical compliance by establishing and enacting a broad range of laws and regulations to better tackle money laundering, terrorist and proliferation financing. This has created a firm legislative basis for national authorities to ‘follow the money’ that fuels crime and terrorism.

In terms of laws and regulations, 76% of countries have now satisfactorily implemented the FATF’s 40 Recommendations. This is a significant improvement in technical compliance, which stood at just 36% in 2012, demonstrating the positive impact of the FATF Mutual Evaluation and Follow-up processes.

However, many countries still face substantial challenges in taking effective action commensurate to the risks they face. This includes difficulties in investigating and prosecuting high-profile cross-border cases and preventing anonymous shell companies and trusts being used for illicit purposes.

FATF is an independent intergovernmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering and counter-terrorist financing standard.

RUSSIA

Ban on services exports to Russia

Foreign Secretary Liz Truss has announced a ban on services exports to Russia, cutting them off from doing business with UK sectors that are critical to the Russian economy.

The new measures will mean Russia’s businesses can no longer benefit from the UK’s world class accountancy, management consultancy and PR services, which account for 10% of Russian imports in these sectors.

Russia is heavily reliant on Western services companies for the production and export of manufactured goods, and these measures will further ratchet up economic pressure on Putin’s siege economy.

Foreign Secretary Liz Truss said: ‘Doing business with Putin’s regime is morally bankrupt and helps fund a war machine that is causing untold suffering across Ukraine. Cutting Russia’s access to British services will put more pressure on the Kremlin and ultimately help ensure Putin fails in Ukraine.’

OFFSHORE ASSETS RUSSIA

Huge spike in UK taxpayers admitting unpaid tax on offshore income

The number of wealthy UK taxpayers admitting to unpaid tax on offshore assets has jumped 35% from 3,301 to 4,443 in the last year, says multinational law firm Pinsent Masons.

These figures represent the number of declarations made to the Worldwide Disclosure Facility, a system by which taxpayers owing tax to HMRC on offshore income can come forward and confess. This allows taxpayers to potentially receive reduced penalties. Provided that an accurate and complete disclosure is made, the risk of criminal prosecution is also significantly reduced. HMRC reserves criminal investigations for where it needs to send a strong deterrent message or where the taxpayer’s conduct is such that only a criminal sanction is appropriate.

Pinsent Masons says the increase in individuals admitting to unpaid tax on offshore assets is likely to be due to a HMRC campaign warning taxpayers that it has received information from tax authorities abroad. HMRC has sent out letters in the last 12 months asking taxpayers to sign a declaration asserting they do not owe any tax from offshore sources.

HMRC now receives information on taxpayers’ offshore assets from tax authorities abroad through the Common Reporting Standard. Information shared with HMRC includes taxpayers’ names, addresses and the amount received in offshore income. Over 100 countries and territories participate in the Common Reporting Standard, including historically popular tax havens such as Switzerland, Bermuda, the British Virgin Islands and the Cayman Islands.

SANCTIONS

Deloitte fined £1.45million over audit failures

The Financial Reporting Council (FRC) has issued a financial sanction of £2 million against Deloitte LLP in relation to the statutory audit of the financial statements of Mitie Group for the financial year ended 31 March 2016. The fine was reduced to £1.45 million due to early admission and payment by Deloitte. John Charlton, audit engagement partner at Deloitte, was also fined £65,000.

The sanctions related to the audit breaches involving the impairment testing of goodwill in Mitie’s healthcare division. Deloitte has admitted that there were deficiencies in its audit work of goodwill in Mitie’s 2016 financial statements.

However, FRC did state that there is no suggestion that the breaches were intentional, dishonest or reckless.

Claudia Mortimore, deputy executive counsel at FRC, said: ‘It is vital that audit work in relation to the carrying amount of goodwill is conducted properly and the disclosures are sufficient to enable investors to understand the position and have confidence in the numbers included in the financial statements.’

IRELAND

Launch of a single integrated financial platform

Ireland’s National Shared Services Office (NSSO) has launched its Finance Shared Services on a new, single integrated financial platform. This launch represents the large-scale transformation of finance and accounting processes used by central government and offices.

Finance Shared Services will introduce the standardisation of accounting practices and new automation technology to produce standard accounts for central government and offices, delivering improved financial management information to ensure greater efficiency and effectiveness, and enhanced security and controls.

This new service offering by the NSSO will provide support for critical finance and accounting administration, such as the processing of suppliers’ invoice payments and receipting. It will manage the procurement of all goods and services in a new standardised way. The management of cash, the production of standard accounts and reporting to support the annual appropriation accounts and audit will also be provided by the NSSO. The new central finance accounting system will replace 31 different legacy finance systems over time, eliminating the need to maintain, support and upgrade multiple different systems, reducing cost and improving security. This single platform will consolidate expenditure through the Exchequer. It will support eInvoicing and eProcurement and the management of supplier data.

The implementation will enable the financial reporting reform required to support the move to international accounting standards.

In addition, the simplification and standardisation of accounting processes across central government will strengthen compliance with EU and international reporting and transparency requirements.

Commenting on the launch of this new financial service, Minister McGrath said: ‘The modernisation of accounting standards and comprehensive reporting of finance has been a key objective for this government. Coming from the accountancy profession, I know the extensive value that having rich centralised data available from a single central financial system can deliver, and the value that the NSSO is bringing. The ability to respond quickly to new and emerging fiscal and financial requirements today is critical for any government. This project will improve financial reporting, promote good governance and transparency and deliver value for money.’

Finance Shared Services went live with an initial eight public service bodies, including the Department of Finance, the Office of the Comptroller and Auditor General and the Department of Public Expenditure and Reform. Over 40 additional client organisations will be on-boarded on a phased basis over the next three to four years.

INTEREST RATES

Highest UK interest rates since 2009

The Monetary Policy Committee (MPC) at the Bank of England has voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%. Those members in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%. The May Report projections implied that some tightening in monetary policy was required to bring inflation back to the 2% target sustainably in the medium term. But, conditioned on the market path for Bank Rate, the endpoint of the forecast was characterised by a large margin of excess supply and CPI inflation well below target, although the mediumterm outlook was particularly uncertain.

Based on its updated assessment of the economic outlook, most members of the Committee judge that some degree of further tightening in monetary policy may still be appropriate in the coming months.

There are risks on both sides of that judgement and a range of views among these members on the balance of risks. The MPC will continue to review developments in the light of incoming data and their implications for medium-term inflation.