It does come as no surprise, therefore, that the Financial Services Authority (FSA) has recently censured and banned three directors from acting as senior managers for failing to meet their supervisory standards. The FSA investigation found that the directors had been relying too heavily on external consultants for advice on how to run their business.

It is equally unsurprising then that HM Revenue & Customs (HMRC) have also announced that they take the same view to the FSA in relation to businesses meeting their obligations under the Money Laundering Regulations.

HMRC also state that they have no objections to businesses getting advice from external consultants regarding their obligations under the Regulations, as long as the responsibility for complying with the Regulations remains on the business rather than any consultant.

What does come as a surprise is that some consultants, who should frankly understand the Regulations better, have recently offered their services to act as the Nominated Officer for a business. HMRC has no formally announced that it does not consider that a consultant outside the business can be appointed Nominated Officer for any of the businesses HMRC supervise under the Regulations.

HMRC now state that between the four sectors they have responsibility for supervision they now have over 18,000 registered firms, of which just over 12,000 are accountancy service providers (ASP’s).
HMRC in 2009, data mined tax return information and found that there are over 92,000 ASP’s, ranging from the small bookkeeper or payroll bureau to the major firm of Chartered Accountants.

When you actually work out who, from this total figure, is actually supervised by one of the other supervisory bodies, you find a massive short fall in registered firms.  For example, the ICAEW has around 16,500 firms it supervises, this is the largest of the accountancy bodies; the AAT for example has 3,500 generally smaller firms under its wing. In total you find that between the professional body supervisors they account for less than 38,000 of the total in the sector.

When you add in the 12,000 HMRC firms you find you have a short fall over around 42,000 firms, for whom, after one and a half years of committing a criminal offence by operating unregistered for AML supervision still carry on regardless.

With HMRC setting the starting penalty for non-registration at £5,000, you would think it would act as a deterrent. HMRC have been working in conjunction with the other supervisor bodies to work out who of the 92,000 is not currently registered. With HMRC’s policy of ‘policing the perimeter’, I believe that a lot of penalty notices will be hitting many a firms door mat by the end of 2010.

HMRC announce that a new late registration penalties policy has been introduced for Money Service Businesses, (MSBs) High Value Dealers, (HVDs) Trust or Company Service Providers, (TCSPs) and Accountancy Service Providers (ASPs).

Should businesses fail to register with HMRC they will be liable to a fixed penalty and any unpaid fees. These penalties only apply to businesses that must be registered with HMRC.

The new late registration penalty will be based on fixed penalty and any unpaid fees. This fixed penalty had been set at a £5,000. HMRC may issue a reduced penalty to businesses who notify them that they have been operating without being registered with us. This partial voluntary disclosure may lead to reductions in the penalty up to 70%.  

Additional information for Trust of Company Service Providers and Accountancy Service Providers

From 01 April 2010 Trust or Company Service Providers and Accountancy Service Providers who have not registered with us will be liable to a penalty or prosecution.

If you send HMRC your completed application form and appropriate fees without further delay you may be given a reduced penalty. Under the Money Laundering Regulations Trust and Company Service Providers also have to apply for a ‘fit and proper’ test as part of the registration process.

If you are a Trust or Company Service Provider which should be registered with HMRC but cannot submit all completed fit and proper forms, then you should at least send us application form MLR 100 immediately.

Send the completed F&P forms with the fee as soon as possible thereafter because, without them, your application is not complete. Forms and fees should be sent, along with a brief note explaining why your application is late and/or incomplete, to:

Money Laundering Regulations Registration Team
HM Revenue and Customs
7th Floor, Alexander House
21 Victoria Avenue
Southend-on-Sea
SS99 1AG

Carrying on business having failed to do so could result in the imposition of a fine by the OFT, a prison sentence, or both.

Money laundering controls help prevent legitimate businesses being used to launder money, which is where cash or assets obtained by criminal activities are exchanged for clean money or assets with no obvious link to their criminal origins.

John Parker, OFT Director of Anti Money Laundering, said:

‘The consequences for estate agents and consumer credit financial institutions of not registering under anti-money laundering regulations are severe. It is important that businesses register immediately to avoid breaking the law.

Visit the BTC website for compliance help and support for firms in the regulated sector

The forums organised by HMRC’s ‘Money Laundering Regulations Team’ meet regularly to facilitate discussions where information is shared, presentations given. These forums are to share best practice tips and ideas and to support the supervisory regime through open dialogue and engagement so that HMRC supervisory and compliance teams and the businesses they supervise can improve their compliance efforts.

The first meeting of the TCSP’s forum is to be held in London on 5th October 2009. Steve O’Neill will report back on this blog of matters arising and of supervisory ideas and best practice generated at these meetings.

Visit the BTC website for compliance help and support for firms in the regulated sector.

HMRC has published its Code of Practice for supervisory purposes for visits to businesses under Money Laundering Regulations (COP28). This Code of Practice tells you what you can expect from HMRC Supervisory staff and what they expect of you when they visit your business under the Money Laundering Regulations 2007.

This is a simple but very helpful document for preparing for a supervisory visit under the Regulations, however one item contained within the documents raised concern for Steve O’Neill of BTC, namely;

 Examples of business records the officer is likely to want to see include:

“Records/copies of suspicious transactions, action taken, copies of any Suspicious Activity Reports (SAR’s) submitted to the Serious Organised Crime Agency and any correspondence from them concerning consent.  We will look at Suspicious Activity Reports for anti-money laundering legislation purposes only and not for tax purposes”.

It is Steve O’Neill’s (Business Tax Centre’s BTC) understanding that SAR’s are an individual’s obligations covered under the Proceeds of Crime Act and not covered under the Money Laundering Regulations which covers a ‘Firms’ obligations to put into place appropriate policies and procedures for the prevention, detection and reporting of suspicious activity, and not the actual SAR itself which has a subjective test  and offences which are covered in PoCA.

When HMRC regulatory team was asked about their powers to view a SAR, they responded by way of reference to two sections of the Regulations. One of these references was to CDD only and the other to refers to the ‘Policy and Procedures’ for reporting.

These correspondences have been passed on to other supervisory authorities who can confirm that their opinion also states that the ML Regulations do not give authority for a supervisor to view a SAR, which should only be done by an accredited and trained financial investigator.   

We understand from a response received from these bodies that this subject will be raised with HMRC at the next ‘affinity group’ meeting of accountancy and taxation supervisors.

If HMRC point of view is upheld, then the Treasury approved CCAB guidance and the notes of each professional boy will need to be updated accordingly. We will post updates as we receive them.

Visit the BTC website for compliance help and support for firms in the regulated sector.

The type of businesses that is required to register with HMRC under the Money Laundering Regulations and be supervised accordingly are;

• Money Service Businesses
• Trust or Company Service Providers
• Accountancy Service Providers
• High Value Dealers

The focus of the visit will be on your business’s risk sensitive anti-money laundering policies and procedures to make sure they successfully manage and reduce the money laundering and terrorist financing risks faced by your business.

During a visit HMRC supervisory staff we will always:

• check that the information held on the HMRC register is correct
• check that the right people within Money Service Businesses and Trust or Company Service Providers have undergone the fit and proper test
• ask you to explain how your risk sensitive anti-money laundering policies and procedures work
• answer any questions you have on your legal responsibilities under anti- money laundering legislation
• look at your risk assessment of the business’s customers, products and services
• look at the anti-money laundering policies, procedures and training you have implemented to manage and reduce the risks you have identified.

They may also:

• examine transaction records and related documents to check that the customer due diligence measures have been adequately applied
• evaluate your systems for identifying and reporting suspicious activity to the Serious Organised Crime Agency
• check that your staff are aware of the law relating to money laundering and terrorist financing and are sufficiently trained to recognise and deal with suspicious activity
• ensure you have adequate systems in place to manage your compliance with the Money Laundering Regulations 2007.

If you are a Money Service Business or High Value Dealer HMRC may inspect any cash found on the premises.

The full document can be downloaded in PDF format by clicking on the following link  HMRC Guidance COP28

Visit the BTC website for compliance help and support for firms in the regulated sector.

Over recent months, the JMLSG carried out a review of its Money Laundering Guidance (“Guidance”) for the financial sector. The newly released amendments cover Part 1 of the text.  Further amendments to Part 2 are still under consideration.

Important revisions to the Guidance have taken place at various stages in order to reflect the implementation of AML and CTF laws and regulations. Amendments to Part 1 of the text are minor in nature and include, inter alia, the following:

• Further clarification of the MLRO’s role has been introduced and the Guidance now states that the decision over whether to make a SAR should not be subject to the review of others. It clearly sets out that any decision made must be that of the MLRO and should not be exposed to the direction or approval of other parties within the firm.
• An additional category of customer has been added to the Guidance at paragraph 4.16. It is suggested that along with PEPs and activities involving large amounts of cash, firms should also be on alert when faced with customers who are engaged in industries that might relate to proliferation activities (transfer or export of nuclear, chemical or biological weapons, their means of delivery and related materials).
• At chapter 5, a new category of customer is added to the Guidance. ‘Clients who are listed on exchanges that are not equivalent’ are still subject to some degree of accountability and transparency. The Guidance suggests that as part of their risk-based approach, firms should have regard to the listing conditions that apply in the relevant jurisdiction when deciding whether that company falls into the private company category and consequently one that is deemed to have clear and comprehensive structure, ownership, purposes and activities.
• Other amendments to this chapter comment on PEPs and make it clear that it is for each firm to decide the steps required to implement EDD in respect of higher risk customers. Examples are provided of some jurisdictions that make it illegal for (a generally defined list of) PEPs to hold foreign bank accounts, some require asset declarations to be made and others will make this information publicly available.
• The Guidance now states that the power for firms to carry out EDD is contained within section 7 of the Counter-Terrorism Act 2008. Following the Royal Assent of this piece of legislation in February 2008, section 5.8 was added to the Guidance. The Guidance sets out the circumstances in which HM Treasury has the power to issue directions to firms in the financial sector in relation to their CDD. The Guidance also sets out the types of directions that may be imposed.

Firms must remain vigilant when it comes to updating their AML/CTF policies and procedures. A constant awareness of the changing legislation and resulting amendments to the Guidance is essential. By remaining sufficiently flexible, responsive and well resourced, firms will ensure they better protect themselves from the risks associated with financial crime.

Visit the BTC website for compliance help and support for firms in the regulated sector.

Sanders withheld information from a prospective employer relating to an investigation into him by his former employer which resulted in his suspension. He also failed to disclose to the FSA that he was the subject of an ongoing disciplinary investigation into his conduct by his former employer when applying to the FSA to perform a controlled function.

For the first customer mortgage application, the income as stated in the mortgage application, was substantively higher that that declared by the customer to HM Revenue & Customs (HMRC). In the second mortgage application the income stated in a mortgage application included some of the income of the customer’s parents which was falsely described as his own. And in the third case there were discrepancies in the application about the income sources of the two customers who were making a joint application.

Margaret Cole, director of enforcement at the FSA, said: “Sanders submitted mortgage applications which he knew to be false and this posed a serious risk to lenders and confidence in the financial system. Our work on mortgage fraud continues as a priority in our campaign against financial crime.”

She added: “We have banned more than 60 mortgage brokers over the last three years and we will continue to ban such people to reinforce the message that knowingly giving false and misleading information to prospective lenders is dishonest. Approved persons must also be open and honest with the FSA and prospective employers about their circumstances. Behaviour which shows lack of honesty and integrity will result in a ban.”

Visit the BTC website for compliance help and support for firms in the regulated sector

To avoid penalties or prosecution, however, make an unprompted disclosure and send HMRC your completed application form MLR100 and appropriate fee (£95.00) without further delay. Forms and fees should be sent to:

Money Laundering Regulations Registration Team.

7th Floor, Alexander House, 21 Victoria Avenue Southend–on-Sea, SS99 1AG

If you are prompted over non registration by your supervisor either by letter or by phone, the minimum penalty will be £500.

The penalty for breaches of the registration  process is up to a maximum of £5,000 if the breach was a failure to take reasonable steps. However this can be increased if the breach was deliberate. This will also include future amendments to your registration details.

Visit the BTC website for compliance help and support for firms in the regulated sector.