Money laundering: Levy to be based on revenue
Larger law firms face a new levy of £100-200 per £1m of revenue to support the government’s economic crime plan, under proposals outlined by the Treasury yesterday.
Plans for the economic crime levy were announced in the Budget in March.
It will paid by those subject to the Money Laundering Regulations, which in the case of the legal profession are lawyers and firms supervised by the Law Society, Bar Council, Chartered Institute of Legal Executives and Council for Licensed Conveyancers.
The £100m the Treasury intends to raise will supplement public funding. “Businesses, such as banks, law firms, and casinos, are already required to take steps to address the risk that they are used by criminals to launder money,” according to the newly published consultation.
“They work alongside the public sector to tackle money laundering. But, through the actions in the plan, both public and private sectors have committed to go further.”
It said a levy would provide “the fairest and most simple method” to recover money from the sectors subject to anti-money laundering (AML) rules.
Funding would also come from more public money, to be finalised at the upcoming spending review, updating the asset recovery incentivisation scheme, “and exploring whether suspended funds can be unlocked to pay for economic crime reform”.
The consultation on how the levy would work said the AML-regulated sector consists of around 90,000 entities.
It could consist of three separate elements: a levy based on revenue, a small business exemption and, if possible, a money laundering risk weighting.
The Treasury sought views on whether the levy should be calculated simply as a single fixed percentage of revenue, or fixed amounts based on revenue bands.
Were small businesses with a turnover of less than £1m exempted, 13,700 would pay the levy, falling to 5,390 if the threshold was £5m, and 3,520 companies if the Companies Act threshold of £10.2m was used.
The Treasury is considering an alternative to a complete exemption for small businesses – such as a small flat fee – to reflect that they are likely to still pose a money laundering risk.
Another alternative would be to add the other two Companies Act criteria for small businesses – balance sheet totals of not more than £5.1m and no more than 50 employees – and exempt businesses that meet two of the three criteria.
Identifying a suitable metric that reflected money laundering risk and could be easily used for the purposes of the levy “has proven challenging”, the Treasury admitted.
One could be the number of suspicious activity reports (SARs) submitted, but the consultation recognised the danger of discouraging businesses from making them. Its proposal model would multiply the levy liability of businesses that have submitted over 10,000 SARs on average over the previous two years by 1.1.
“This threshold has been chosen so that only the most consistent high-volume reporters are affected by the risk weighting.” Given the low level of reporting in the legal profession, none would be affected by this.
The Treasury said that, with a £10.2m small business threshold, “our initial analysis suggests a levy rate of between £100 and £200 per £1 million of revenue for affected businesses would achieve the target of raising £100 million/year.
“This is based on the latest available data from HMRC and other supervisors. It would give a minimum levy payment of around £1,000 to £2,000.”
Lowering the threshold, even to £1m, would have “a negligible impact” on the levy rate.
It would be levied on UK revenue only and at partnership level for partnerships. The government intends for the first set of levy payments to be made in the 2022/23 financial year.
The consultation asks whether a new agency should be created to collect the levy or to leave it to the existing AML supervisors.
Law Society president Simon Davis said: “Our sector devotes substantial resources to fighting financial crime. We have strong concerns that a further unjustified burden will fall on a sector already under strain.”
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