Guidance for accountants

Anecdotal evidence suggests that accountants who are approached in the course of their profession by escorts, or others in the industry, tend to react with a mixture of horror, fascination, puzzlement, and occasionally sniggering. There is nothing particularly difficult, magical or scary about acting for escorts but it does raise some unusual questions. This section aims to address those questions and point out some of the issues that ought to be considered by anyone acting for people in the paid sex industry.

Most of this page is about the legal issues, but there is a brief section dealing with specific tax issues at the end.

In some cases you might want to take specialist legal or regulatory advice.

What’s legal, and what’s not?

It is important to understand which activities are illegal if you want to be clear about your responsibilities under the anti money laundering regulations. If there is no crime there can be no proceeds of crime.

The Proceeds of Crime Act applies throughout the UK but the law on prostitution varies. The main offences in England and Wales are set out in the Sexual Offences Act 2003. Readers in Scotland and Northern Ireland have their own legislation which is broadly similar but differs in some of the details.

S 52 Causing or inciting prostitution for gain

(1)A person commits an offence if—

(a)he intentionally causes or incites another person to become a prostitute in any part of the world, and

(b)he does so for or in the expectation of gain for himself or a third person.

The key section which follows is the one which replaced the old offence of “living off immoral earnings.”

S 53 Controlling prostitution for gain

(1)A person commits an offence if—

(a)he intentionally controls any of the activities of another person relating to that person’s prostitution in any part of the world, and

(b)he does so for or in the expectation of gain for himself or a third person.

The important issue here is that there must be both control and gain. And it is control of any of the activities relating to prostitution, which on the face of it might include controlling her bookings. Control does not necessarily imply coercion. Of course it is perfectly legal for a woman (or man for that matter) to control and gain from her own prostitution.

The definition of gain is extremely widely drawn:

S 54 Interpretation

(1)In sections 52, 53 and 53A, “gain” means—

(a)any financial advantage, including the discharge of an obligation to pay or the provision of goods or services (including sexual services) gratuitously or at a discount; or

(b)the goodwill of any person which is or appears likely, in time, to bring financial advantage.

This part of the Act also contains sections which criminalise soliciting in a public place, including a car, (S 51A), and also paying for the sexual services of a prostitute who is subject to force or exploitation from someone else (S 54A). Sections 57 to 60 deal with trafficking for sexual exploitation.

There is also one section of the Sexual Offences Act 1956 which is still relevant – most of the rest of the Act was repealed.

S 33A Keeping a brothel used for prostitution

(1)It is an offence for a person to keep, or to manage, or act or assist in the management of, a brothel to which people resort for practices involving prostitution (whether or not also for other practices).

That of course raises the question: what is a brothel? The legislation is not precise but the legal definition has been gradually refined by judicial decisions in a number of cases, including these two:

A house used by a woman for the purpose of prostitution of herself only is not a brothel.

A brothel is the same thing as a ‘bawdy-house’ – a term which has a well-known meaning as used by lawyers and in Acts of Parliament. In its legal acceptation it applies to a place resorted to by persons of both sexes for the purpose of prostitution. It is certainly not applicable to the state of things described by the magistrates in this case, where one woman receives a number of men.

Singleton v Ellison (1895)

To constitute a brothel, it is not essential to show that premises are in fact used for the purpose of prostitution which involves payment for services rendered. A brothel is also constituted where the women (for there must be more than one woman) do not charge for sexual intercourse.

It is not essential that there be evidence that normal sexual intercourse is provided in the premises. It is sufficient to prove that more than one woman offers herself as a participant in physical acts of indecency for the sexual gratification of men.

Kelly v Purvis (1983)

The essential criteria for a place to be considered a brothel are:

  • More than one woman working – but not necessarily at the same time
  • Men (or women) go there for extra-marital sex – not necessarily normal sexual intercourse
  • Money does not need to change hands

It is important to note that it is not illegal for a working girl to ply her trade in a place that it is considered to be a brothel, provided she is not involved in its management.

So, how does all this apply to the most common business models within the paid sex industry?

Independent escorts

Typically an independent escort is working of her own free will and without coercion. She normally works on her own and indoors, either from her own premises or a hotel room she has booked (which are described as in-calls), or she may visit clients in their homes or hotel rooms (described as out-calls). She will choose what bookings she offers, which may range from 30 minute quickies to overnight bookings, and the services she offers, and she will also set her prices. Typically she will manage her website which will include pictures, details of her services, and frequently links to her reviews on some of the popular review sites. Bizarrely these reviews are usually known as ‘Field Reports’, although encounters in fields are evidently rare. Almost invariably she will want to guard her privacy and will have a working name. As well as her own website she may advertise on other websites and have mutual links with the websites of other independents.

Bookings are normally made by phone to her ‘working’ mobile or by email. Payment is nearly always made in cash on the day, or occasionally by bank transfer in advance.

All of this is perfectly legal. She is a free agent and pretty clearly self-employed.

Escorts working through agencies

The agency will have a website advertising a number of girls, and will arrange all the bookings, which are normally outcalls. The client usually pays the escort, who gives the agency their cut afterwards.

Some independents will also use agencies to get some of their work.

As far as the escort is concerned this is, again, perfectly legal.

Sex-workers in brothels

As we have seen all sorts of premises come under the heading of brothels. Typical scenarios would be a number of girls working in a ‘massage’ parlour, or a group of girls working together in a shared flat. The house would provide the premises, maids and advertising, as well as setting the prices and house rules around the services offered.

Payment is normally made to the girl (who hands it over to the maid for safe-keeping, and later sharing out between the girl and the house), or in larger establishments may be made to the receptionist.

So far as the individual sex-worker is concerned her activities are perfectly legal. She will invariably be regarded as self-employed – on the hair-dressing salon chair rental model.

Street workers

Soliciting on the streets, in a window overlooking the streets, or from a car are all illegal. In practice street workers are very unlikely to consult an accountant.

Escort agencies

People running escort agencies seem universally to believe that their activities are within the law. Typical views are set out by an outfit called the UK National Escorts Association – which I won’t link to because their legal and tax advice is utter cobblers, and it’s clear from the terminology and bad spelling (attorney, “file your taxes”, skeptical) that it wasn’t written by a Brit. Anyway, their advice, which as I say is representative of much of the industry, seems to be:

  • an escort is selling a whole package of services including time, attention and entertainment, which may incidentally include sexual activity; whereas a prostitute just sells sex
  • legal problems can be avoided by including a disclaimer along the lines of “you are paying for time and companionship. Anything else that may happen is between consenting adults.” This disclaimer seems to have originated in the US and is now fairly common on escort and agency sites here, but lawyers tell me it has no value whatever
  • escorts and agencies can further protect themselves by not charging a fee but inviting their client to make a “donation”
  • agencies are not controlling prostitution because they just take the booking; what the escort gets up to with the client is her concern.

The UK National Escorts Association also make the extraordinary claim “if you accept only direct cash payments, you don’t have to file taxes because you don’t have much declared income.”

This advice really does not stand up to scrutiny. On most escort agency websites it is pretty obvious that sexual services are an integral part of what is being sold. I picked one of the agencies at random from the links on the UKNEA site and found the agency had helpfully annotated the photographs with various comments: A-levels, CIM, OWO, GFE etc. For the uninitiated these stand for anal sex, cum in mouth, oral without (i.e. without a condom) and girl friend experience. Most agency websites also contain links to reviews which give a clear, and sometimes explicit, idea of the services being offered.

Are most escort agencies controlling “any of the activities of another person relating to that person’s prostitution”? Yes, they are controlling the advertising and bookings. Are they doing so “for or in the expectation of gain”? Yes, they are in business to make a profit. So on the face of it there is a crime, there are the proceeds of that crime, and the agency has “acquired, uses and has possession of that criminal property.”

It is certainly true that few escort agencies have been successfully prosecuted under S 53 Sexual Offences Act 2003. That is probably because the police and Crown Prosecution Service have got better things to do; although they do act if there is evidence of trafficking, coercion or drug crime.

However for an accountant in the regulated sector the fact that the CPS may not decide to prosecute is irrelevant. The key issue is whether the accountant gets information in the course of his work that gives him reasonable suspicion (or as a professional accountant ought to give him reasonable suspicion) that a money laundering offence has been committed. If I were an MLRO I would make a Suspicious Activity Report to SOCA: my suspicions might be wrong, but reporting is preferable to risking 7 years imprisonment for not reporting.

Brothel keepers

Again this is illegal, although brothels, particularly well run flats managed by the women themselves, may be tolerated if they do not cause a public nuisance and are not associated with trafficking, coercion or other serious crime. Police raids are often co-ordinated with the Immigration Service, Benefits inspectors and, sometimes, the HMRC black economy guys.

The proceeds of crime issues are the same as for escort agencies.

Tax issues

Finally, there are a few specific tax issues to be aware of.

  1. Before advising an escort (or anyone else providing immoral services) to form a limited company you need to consider the decision in R v Registrar of Companies, ex parte Attorney General  which resulted in Lindi St Clair (Miss Whiplash) having the registration of her company quashed.
  2. This is a consequence of the contract law rule that immoral contracts are not legally enforceable.
  3. Escorts sometimes want to register for tax using a euphemistic description of their business. Provided the income is properly declared HMRC do not seem to object to that, indeed at one time their guidance to inspectors was that the income description should be discussed before an assessment was issued.
  4. Escorting businesses are predominantly cash based which makes them susceptible to attack if proper records are not maintained. We produce a book-keeping system (the TaxRelief Diary) specifically for escorts which is designed to ensure their cash transactions are properly recorded and that the cash account is reconciled weekly with no cash surpluses or deficiencies.