In this issue

Dirty money: professionals beware
Last Orders
Agents: a hidden danger
Employment Update
Stop Press
Keeping it in the family Inheritance tax planning can really work
Going (?), Going (?), Gone

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Dirty money:
professionals beware

Money laundering is becoming widespread. Tough new regulations are being phased in to crack down on this crime. In addition to the money laundering provisions in the Proceeds of Crime Act 2002 ('the Act') which are already in force, the Money Laundering Regulations 2003 ('the Regulations') will soon also be in force.

Previously the regulations focused on drug trafficking, terrorism or other serious crime. Now money laundering offences apply to the proceeds of any criminal activity. In addition to the offences under the Act which apply to 'a person' the Regulations contain additional duties which broadly apply to those in the regulated sector (e.g. solicitors, accountants, insolvency practitioners). Any of these professionals failing to report a suspicion is at risk.

Three new offences are punishable by up to 14 years imprisonment and/or a fine. They focus on the treatment of 'criminal property'.

What is criminal property?
Criminal property is property which

• constitutes the benefit of criminal conduct where the offender knows or suspects that the property is the proceeds of crime

What are the new offences?
You will be involved in money laundering if you

• conceal, disguise, convert, transfer or remove (from the UK) criminal property
• become concerned in an arrangement which you know or suspect facilitates the acquisition, retention, use or control of criminal property
• acquire, use or have possession of criminal property

For professionals and their employees constructive knowledge or suspicion of money laundering is sufficient. They are at risk if they have reasonable grounds for suspicion and fail to report them. Criminal conduct is defined widely as an offence in any part of the UK or which would be an offence if it occurred here.

How do professionals comply with the Regulations?

• check the identity of new clients and keep records of the evidence provided
• appoint a Money Laundering Reporting Officer (MLRO). Any suspicion or knowledge of money laundering can be reported to this individual by employees.
• train your employees to verify the identity of clients, how to recognise situations which may involve money laundering and how to report to your MLRO
• set up systems within your firm to prevent money laundering
• report any suspicions to the National Criminal Intelligence Service (NCIS)

There are defences. If you do have the requisite knowledge or suspicion, it is possible to avoid committing the offences by

• making a report to the MLRO in your firm (or if you are that person to NCIS) or directly to NCIS and receiving consent before the act is committed. The MLRO will be committing an offence if he or she gives consent before obtaining it from NCIS
• making a report after the act is committed where there is a good reason for the delay and the report is made on your own initiative and as soon as practicable
• intending to make such a report and having a reasonable excuse for not doing so

If you know or suspect that a report about money laundering has been made you must be careful that you do not tip-off a money launderer or you will be committing an offence punishable by up to 5 years imprisonment and/or a fine. You should not make a disclosure to anyone - not just the person under suspicion - if it is likely to prejudice an investigation.

The potential for creating a problem is enormous. The best advice is to put all required procedures in place and if in doubt - report it!

For further advice or information contact Alison Bluck adb@meadeking.co.uk

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Last Orders

At the time of writing, it is far from certain that the Licensing Bill 2003 which will introduce radical changes in liquor licensing arrangements will receive Royal Assent in July 2003 as still intended by the government. When the bill becomes law, it will replace the current system of liquor licensing administered by the Magistrates' Court with a new system organised and authorised by local government. Premises licences and personal licences will be considered and approved or refused by local authority licensing sub-committees.

The new system is intended to

• free up the magistrates' time
  to improve the turnaround in criminal and family matters and
• simplify the licensing procedure in the vast majority of cases by eliminating the need for a hearing. Licensing applications will routinely be processed on paper

However, it is no minor ambition to re-organise an entire industry on such a major scale, particularly as the government is taking the opportunity to unify the provision of liquor, entertainment and refreshment at night licensing.

The new legislation is under-pinned by 4 stated licensing objectives:

• The prevention of unreasonable public nuisance
• The prevention of crime and disorder
• Public safety
• Protection of children from harm

All local authorities must issue a licensing statement setting out the policy of the authority, which must reflect the licensing objectives. There will be a presumption in favour of grant of licences which can only be refused insofar as they conflict with the four licensing objectives. In the event of a refusal, there will be a right of appeal to the Magistrates' Court.

If the Bill meets its current timetable all local authority licensing statements will need to be in place by 31 December 2003 in time for the first applications for personal and premises licences on 1 January 2004. Magistrates' Courts will then be entirely phased out of licensing by June 2004, save for dealing with appeals against local authority decisions

For further information contact
Judith Kelly jhk@meadeking.co.uk

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Agents:
a hidden danger

It is nearly ten years since the introduction of the Commercial Agents Regulations. These regulations were the UK parliament's attempt to translate foreign legal concepts on which the EU directive is based. The aim of the regulations is to offer some protection to an agent who works hard to build a customer base for a manufacturer only to be denied the opportunity to reap the rewards of his investment. This in itself may be a laudable objective. As so often the reality is somewhat different.

The default position for UK agents is a right to compensation for the damage suffered as a result of termination. The regulations make it clear however that the damage is not limited to the losses which would normally compensate for a breach of contract but includes the loss of the opportunity for the agent to earn further commission.

The English and Scottish courts have struggled to calculate the appropriate levels of compensation. Little assistance is given by the regulations themselves. In trying to apply the regulations judges have been tempted to look to the French legal system because the compensation that the drafters of the European directive had in mind was that which had been developed under French law. The starting point for calculating a French agent's compensation is the aggregate of the commission earned over the last two years of the agency or twice the average annual commission earned during the course of the entire agency. This may appear somewhat arbitrary but it is an attempt to assess the capital value of the agent's business which he will lose (and which the manufacturer may acquire).

This may still not seem so unreasonable where the manufacturer terminates the agency without cause before it has run its full course but is it fair that an agent should be entitled to claim the same level of compensation on the expiry of the agency? Surely it is not reasonable for the agent to be compensated when he has not been deprived of the opportunity to earn the commission as he will have enjoyed the commission throughout the term that he negotiated in the first place? Recent cases have tried to distance themselves from the French approach but there is no doubt that for some while the French model will continue to have an appreciable impact on compensation calculations.

There is no way a manufacturer can exclude the agent's right to protection under the regulations but it is possible to agree from the outset that the agent should be paid an indemnity on termination instead of compensation. An indemnity can be calculated by limiting the payment to the agent to no more than the equivalent of one year's commission (based on the average commission over the last five years). Indemnities are usually regarded with suspicion but this may be a case where they are preferable to the payment of damages so as to limit the manufacturer's exposure to claims for compensation from agents - at least until our courts succeed in devising a basis for calculating compensation which has more regard to the expectations of the parties when they entered into an agency agreement.

For further information contact
James Hawkins jnh@meadeking.co.uk

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Employment Update

New Legislation

The DTI has set 6 April and 1 October as the two dates each year when domestic employment legislation comes into effect. This will not alter the date of the annual increase in compensation limits which will remain 1 February.

From January 2004, the DTI will publish a list of all employment legislation due to be implemented that year.

Any EC Directives will be implemented on a 'case by case' basis having regard to the commencement dates for domestic regulations.

It is hoped that the set dates will simplify matters for businesses.

Rolled up holiday pay

In the case of MPB Structure Limited v Munro, the Court of Session in Scotland stated that it is unlawful, under the Working Time Regulations, to provide 'rolled up' holiday pay instead of allowing workers to have four weeks' pay when holiday is taken.

Equal pay and city bonuses

The Employment Appeal Tribunal decided in favour of Louise Barton in the much reported case of Barton v Investec. She claimed that the secretive and unaccountable way in which city bonuses are awarded was discriminatory on grounds of sex. The ETA said:

'This Court would certainly wish to make it clear that no Tribunal should be seen to condone a city bonus culture involving secrecy and/or lack of transparency because of the potentially large amounts involved as a reason for avoiding equal pay obligations'

The case is a warning to any employer of the risk of a sex discrimination claim where salary increases or bonuses are awarded on grounds that are not transparent. If there are grounds for inferring that the sex of the employee may have affected the level of the bonus then the employer will have to prove that sex did not play any part in the decision

Agency Workers

The Court of Appeal has decided another case on the status of agency workers. In Franks v Reuters Mr. Franks went to work as a temp for Reuters through an employment agency. He ended up working for 5 years but continued to be paid by the agency as a temp. The Court of Appeal said that he counted as an employee of Reuters under an implied employment contract.

Holiday pay and overtime

In Bansey v Albion Engineering the Court decided that in calculating holiday pay under the Working Time Regulations an employer should not include the value of overtime which is not contractually guaranteed even if the employee generally works that overtime.

Bad language

In Ogilvie v Neyrfor-Weir the employee, an oil executive, was told that he must take a trip abroad over the bank holiday when he was expecting to attend a family engagement party. He objected to the short notice. His boss told him that he was a [expletive deleted] and would be dismissed if he did not go. He resigned claiming construction dismissal. The Employment Appeal Tribunal found in his favour. It said that language which might not justify resignation for a worker on an oil rig was not necessarily acceptable when applied to a senior executive. The use of foul language by managers had to be judged in its context.

Our employment team has prepared a briefing note on the Flexible Working Regulations. For a copy contact either Richard Holmes rwfh@meadeking.co.uk or Ben Thomas bt@meadeking.co.uk

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Stop Press

Meade King is sponsoring 2 performances of Shakespeare's The Tempest on the evenings of 2nd and 3rd July.

The play will be performed in Queen Square and will be open to the elements - so we hope the weather will be kind. If you would like to come along as our guest, please call Keith Mahoney on 0117 926 4121 who will be pleased to arrange tickets for you

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Keeping it in the family
Inheritance tax planning can really work

Earlier last month the Court of Appeal gave judgment in Inland Revenue v Eversden, a case which concerned capital tax planning and an attempt by the testatrix to pass on assets to her daughter and grandchildren free of Inheritance Tax (IHT).

The current position is that on death assets left to a surviving spouse are free of IHT. However, if the deceased leaves assets to his/her children or remoter issue only the first £255k of the deceased's estate is tax free. The remainder is taxed at 40%.

In Eversden the settlor Mrs Greenstock created a settlement in 1988. She owned the matrimonial home in her sole name. She put 95% of her interest in the house into a trust for her husband for life. She retained the remaining 5% share in the home. After her husband's death the property was to be held for a class of discretionary beneficiaries, including the settlor, for 80 years. Thereafter, the property was to be held on trust for her daughter and grandchildren. The trustees had power to acquire property for the use and enjoyment of the beneficiaries.

The husband occupied the matrimonial home as life tenant of the trust with the settlor until he died in 1992. The trustees then sold the matrimonial home and used the sale proceeds to acquire a replacement property at a lower value, with the surplus funds being used to purchase an investment bond. The settlor had a 5% interest in the replacement property and the bond. She did not draw any benefit from the bond. From the date of the purchase of the replacement property until she died in 1998 Mrs Greenstock was in sole occupation of the replacement property.

On her death the issue was whether or not the replacement property and bond were included in her estate for IHT purposes: this in turn would depend on whether the reservation of benefit principles in section 102 of the Inheritance Tax Act 1984 applied. These principles provide that if you make a gift but continue to have an interest in the gift it will be ineffective for IHT purposes. The Inland Revenue argued that as the settlor was included in the class of discretionary beneficiaries and had occupied the replacement property those principles should apply.

The Court of Appeal ruled that the reservation of benefit rules did not apply in this particular instance. The Court accepted that s.102 does not apply where the gift is exempt by virtue of the spouse exemption. The acquisition of an interest in possession is equivalent to the acquisition of the property itself. In the present case the estate of the settlor's husband was taxed on the property but that of the settlor was not.

Although the Inland Revenue has acted swiftly to close the loophole there are other schemes available.

For further information please contact Richard Boulding rjb@meadeking.co.uk or Jackie Martin jam@meadeking.co.uk

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Going (?)

Wigs may go

Lord Chancellor Lord Irvine recently issued a consultation paper on wigs and gowns. Quite possibly the use of wigs in civil trials may disappear but gowns are likely to be with us for a while yet.

Going (?)

Silks too

Speaking at a ceremony to mark the appointment of new Queens Counsel Lord Irvine raised a question mark over the future of the silk system.

Gone!

Lord Irvine

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Whilst every effort has been made to ensure accuracy, information contained in the Orchard may not be comprehensive and should not be acted upon without professional advice.

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