Tag: HMRC & Supervisory Issues

  • 08.09.09 Accountant jailed for eight years for tax fraud

    John Warman who holds no qualifications to be an accountant, operated a sole practitioner practice dealing with the affairs of a number of clients. He conspired to steal £2.5m from HMRC was told by the Judge that he lived in a ‘fantasy world’ as he jailed him for eight years. John Warman drove a £165,000 Bentley Arnage and led a lifestyle of the pretence that he had substantial capital in the bank.

    Judge Andrew Hamilton sentenced 70-year-old Warman, of West Bridgford, at Derby Crown Court. He told Warman, who was a self-employed accountant, that he was simply interested in using his clients to feather his own nest.

    He said: “You cleverly manipulated the finances of clients in such a way that you provided yourself with a very comfortable lifestyle and could not possibly have afforded the running costs of the Bentley on his income. You ran it because you lived in this fantasy world. You took in everybody you ever dealt with.”

    John Warman connived with his client, Simon Fields, who was a property tycoon to manipulate his tax returns to evade paying tax and then to pocket the proceeds.

    Simon Fields, 34, of Trowell Road, Wollaton, pleaded guilty to one count of cheating the public finances to the tune of £392,000 by manipulating his business accounts. He was found guilty of one charge of conspiracy to ‘cheat the revenue’.

    Warman was found guilty of that same charge and a further 28 others which 14 of them were for ‘cheating the Revenue’ and 14 further offences of obtaining money by deception. Both defendants had conspired to understate the profits from Fields’ property empire, and that of his father, Roger Fields, which John  Warman also managed the tax affairs of through his practice, stealing a further £1.5m due in tax revenues.

    False accounts had been prepared showing a “reduced income” and an “increased expenditure” by understating the amount received for renting out the properties, and then overstating the interest paid on loans and the amount paid for repairs and renewals. These false statements were then submitted to HM Revenue & Customs, lying about the level of profit that had been made over a eight-year period from April, 1996, to April, 2004.

    Warman had also acted alone in manipulating the accounts for a second time, stealing more than £1m by further corrupting the business accounts of Roger Fields. He also stole £80,000 from three other Nottingham businesses; a farmer, a firm of solicitors and a transport company.

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

  • 02.09.09 BTC to participate in HMRC Forum for TCSP’s

    Steve O’Neill of Business Tax Centre has been chosen to be a part of HMRC’s supervisory forum for Trust and Company Service Providers. This is the second such forum organised by HMRC, the first being one for large money service businesses.

    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.

  • 26.08.09 BTC Challenges HMRC over right to view SAR’s on supervisor compliance visits

    BTC Challenges HMRC over right to view SAR’s on supervisor compliance visits

    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.

  • 20.08.09 HMRC has published its Code of Practice for supervisory purposes for visits to businesses under Money Laundering Regulations (COP28).

    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.

    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.

  • 10.08.09 JMLSG to Update AML Best Practice

    Proposed amendments to key AML guidance in the UK were released on August 10th by the Joint Money Laundering Steering Group (JMLSG), a group of leading UK financial services trade associations that includes the British Bankers Association. JMLSG guidance is seen as the standard for AML compliance.

    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.

  • 05.08.09 Passwords stolen for tax returns

    HMRC self Assessment

    Gangs are stealing taxpayers’ passwords and submitting claims for tax refunds to be paid to them, HM Revenue and Customs has warned.

    A series of attempted fraudulent claims through the self-assessment repayments system has been discovered.

    No figures have been released outlining the extent of the fraud, but a HMRC spokesman said this was a new method of trying to extract money.

    He urged people to ensure passwords sent to them by HMRC were kept secure.

    “They should treat these details as carefully as they would a Pin for their bank account,” he said.

    Attempt
    More than 9.5 million taxpayers are in the self-assessment system, which was changed this year to encourage more people to submit their details via the internet.

    Two-thirds of all filings for 2007-08 were submitted via the internet, rather than on paper.

    When people apply to use the system they are sent a password through the mail which is then used when the taxpayer logs onto the HMRC website over the following 30 days.

    However, fraudsters have been getting hold of these passwords and other personal details. This could have been by stealing the mail, tricking people out of the details or even finding the letters discarded in bins.

    They then used these details to make fraudulent repayment claims, requesting funds be sent to other bank accounts.

    The HMRC spokesman said this was different from so-called phishing e-mails which pretended to be from the tax authority and aimed to discover taxpayers’ banking details so their accounts could be raided.

    Liability for any losses would be judged on a case-by-case basis, he added.

  • 04.08.09 FSA bans Cornwall broker for fraud

    The FSA has banned Cornwall mortgage broker Stephen Sanders for submitting at least three mortgage applications on behalf of customers which he knew contained false and misleading income information.

    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

  • 23.07.09 SOCA – Belfast Anti-Money Laundering Conference

    SOCA – Belfast Anti-Money Laundering Conference

    Businesses in Northern Ireland are invited to a free one day conference on Tuesday 22 September 2009 to learn how to safeguard themselves against serious organised crime and money laundering.

    The event, organised by the Asset Recovery Working Group ‘Payback’ Team, and hosted by the Organised Crime Task Force (OCTF) and SOCA’s UK Financial Intelligence Unit (UKFIU) is aimed at small and medium sized businesses in Northern Ireland who are covered by the Money Laundering Regulations 2007.

    David Thomas, Head of the UK Financial Intelligence Unit, said: “Such businesses – by their very nature – are vulnerable to abuse by those attempting to launder the proceeds of crime. The conference will make businesses more aware of their role in identifying any suspicious activity taking place during their day-to-day work, thereby protecting their business and reducing harm caused to communities by serious organised crime.”

    This conference is specifically designed for employees of regulated businesses who are responsible for combating money laundering and aims to raise their awareness of the Suspicious Activity Reporting regime (SAR regime) and the requirements of the Money Laundering Regulations in order to better protect their businesses against the threat from money laundering.

    The conference includes presentations on law and practice, as well as smaller sessions, providing sector-specific guidance from regulators and case studies from the law enforcement community highlighting the value of SARs in reducing the harm caused by crime.

    The event will commence at 9.30am and finish at 4.30pm, anyone interested in attending should contact: eventmanagement@soca.x.gsi.gov.uk for an application form.

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

  • 26.04.09 HMRC issue revised guidance to MSB’s

    This guidance is being sent to Money Service Businesses (MSBs) with a copy of the first direction issued under the Counter Terrorism Act 2008 Schedule 7 which affects them and will shortly be included in Public Notice MLR8: Preventing money laundering and terrorist financing.

    Who is this guidance for?
    This guidance is for MSBs supervised by HM Revenue & Customs (HMRC).
    Purpose of this guidance. The purpose of this guidance is to provide MSBs that are supervised by HMRC with comprehensive guidance on complying with directions issued by HM Treasury (HMT) under the Counter Terrorism Act 2008 Schedule 7

    The guidance:
    • Outlines the legislation in the Counter Terrorism Act 2008 Schedule 7
    • Explains the requirements of the Counter Terrorism Act 2008 Schedule 7 in relation to MSBs and how these should be applied in practice
    • Explains the link between these requirements and those under the Money Laundering Regulations (MLR) 2007

    The Counter Terrorism Act 2008 Schedule 7
    Schedule 7 of this Act:
    • addresses the risks from money laundering, terrorist financing and the proliferation of nuclear, radiological, biological or chemical weapons

    • gives new powers to HMT to issue directions to firms in the financial sector including MSBs

    • requires MSBs to comply with directions issued by HMT

    • appoints HMRC as an enforcement authority and gives new powers to HMRC to supervise MSBs to ensure their compliance with the requirements imposed by any direction

    What is a direction?
    A direction will contain specific legal requirements imposed by HMT on businesses in the financial sector in relation to their transactions or business with:
    • a person carrying on business in a country
    • the government of a country
    • a person resident or incorporated in a country

    The requirements may be imposed on particular businesses in the financial sector, a category of businesses, or all businesses in the financial sector.
    When can HM Treasury issue a direction under the Counter Terrorism Act Schedule 7?

    HMT may give a direction if one or more of the following conditions is met in relation to a country outside the European Economic Area (EAA.)?
    The Financial Action Task Force (FATF) has advised that measures should be taken in relation to the country because of the risk of terrorist financing or money laundering activities being carried on
    – in the country
    – by the government of the country
    – by persons resident or incorporated in the country

    HMT reasonably believes that there is a risk of terrorist financing or money laundering activities being carried on:
    – in the country
    – by the government of the country
    – by persons resident or incorporated in the country

    and that this poses a significant risk to the national interests of the UK
    HMT reasonably believes that:
    • the development or production of nuclear, radiological, biological or chemical weapons in the country
    • or the doing in the country of anything that facilitates the development or production of any such weapons poses a significant risk to the national interests of the UK.

    What is The Financial Action Task Force (FATF)?
    FATF is an inter-governmental body which develops international standards to combat money laundering and terrorist financing. It also produces lists of countries that do not have sufficient legal and regulatory standards to combat money laundering and terrorist financing.

    How will HM Treasury issue a direction?
    HMT may issue a direction to a particular firm following a ministerial decision. In such cases it will communicate directly with the firm.
    When a direction is issued to more than one firm, HMT will lay an order before parliament.

    How often will directions be issued?
    Directions can only be issued to counter significant threats from high risk jurisdictions and so will not be used frequently.

    How long will a direction last?
    A direction will last for one year. However, it may be withdrawn before this time.

    Will HM Treasury take account of the impact on businesses when they issue a direction?

    HMT has a duty to consider the proportionality of any direction, which includes the likely impact upon businesses.

    When HMT gives a direction they will consider the administrative burdens it will impose on affected businesses and if possible will give businesses time to prepare.

    Does HM Treasury have similar powers under the Money Laundering Regulations 2007 (MLR 2007)?

    Under Regulation 18 of the MLR 2007 HMT can direct any relevant person
    • not to enter into a business relationship
    • not to carry out an occasional transaction
    • not to proceed any further with a business relationship or occasional transaction

    with a person who is situated or incorporated in a non-EEA state to which the FATF has decided to apply counter-measures. The powers to issue directions under the CT Act 2008 are broader, reflecting the range of counter measure options identified by the FATF. Under the CT Act 2008 HMT can issue directions where the FATF has only advised measures be taken and can only direct businesses operating in the financial sector. Under the MLR 2007 HMT can direct any relevant person, but only where the FATF has decided to apply counter measures.

    What does this mean for MSBs?
    HMT could issue directions to all MSBs, or to some types of MSBs or to a particular business. This means that you must be ready to deal with these directions by training your staff and including how to deal with them in your anti money laundering systems.

    Will cheque cashers or bureaux de change be affected?
    Cheque cashers and bureaux de change are MSBs and therefore fall within the scope of the Counter Terrorism Act. Directions may specify some or all types of MSB, but as the purpose of any direction will be to prevent the flow of money to and from the countries affected it is unlikely that cheque cashers or bureaux de change will be affected. Despite this they should always include how to deal with any directions in their anti money laundering polices and processes and sign up to the email alert system.

    What will a direction say?
    Directions can impose a range of requirements on a business in relation to their transactions or business with the targeted country or institution:
    • enhanced due diligence
    • enhanced ongoing monitoring
    • systematic reporting
    • limiting or ceasing business

    The requirements to carry out enhanced customer due diligence and ongoing monitoring are in line with similar requirements under the MLR 2007. The requirements for systematic reporting and limiting or ceasing business are new.

    What will I have to do?
    Specific guidance will be issued with each direction and you will need to read the conditions imposed very carefully to find out what you need to do.
    You will have to identify the customers or transactions that are affected and may need to carry out more detailed checks on them.
    You may need to do one or more of the following:
    • Carry out enhanced customer due diligence (see MLR 8 para. 7.12). You would normally do this in high risk situations such as when the customer is a politically exposed person.

    • Carry out ongoing monitoring of customers in a business relationship (see MLR 8 Part 9). This is the kind of monitoring you would normally do in high risk situations.

    • Report all transactions with these people and organisations. You may need to do this weekly.

    • Cease or limit business with certain people and organisations.

    If I have to impose additional requirements will I ‘tip off’ my customers?
    There is no tipping off offence under the Counter Terrorism Act. The tipping off offences under the Proceeds of Crime Act and Terrorism Act will not apply when businesses identify affected transactions and carry out any of the four requirements.

    Will there be any threshold for applying enhanced customer due diligence for affected transactions?
    There will be no threshold for requiring enhanced customer due diligence unless this is specified in the direction.

    What if I have to cease business with certain people or organisations?
    Within the time set out in the direction you must not do business with the people or organisations specified. HMT may grant a licence to exempt certain transactions or types of transaction from the requirements of the direction. Either your customers or you can apply for a licence. HMT will provide further information on how to apply for licences when they issue a direction.

    What will happen to the money if I have to stop a transaction?
    Preferably, the money should be refused before a transaction can be started. HMT will issue specific guidance with each direction on what to do with transactions that are underway.

    How will I carry out systematic reporting?
    HMT will explain in each direction what information should be provided about transactions and business including where and when the documents and information should be sent.

    Should I continue to submit Suspicious Activity Reports (SARs) in relation to these transactions and business?
    Yes, you should continue to submit SARs where necessary alongside systematic reporting.

    How will I know that a direction has been issued?
    All MSBs should sign up to HM Treasury’s email alert system to receive copies of any directions. HMT will put an announcement on their web site and issue a press statement when they issue a direction and HMRC will put an announcement on their Money Laundering Regulations web site and may contact affected businesses by a mail shot where this is possible.

    Will branches of my business based outside the UK be affected?
    Yes the direction will apply to all branches of your business within the EEA but not to any subsidiaries legally incorporated in another jurisdiction.
    Will the directions list the individuals within a business that I should not deal with?

    No, where you are required to limit or cease business with another business or organisation the directions will identify the organisation or business only. Although individuals will not be named in order to comply with the requirements of the direction, you should not deal with any representative of the business or organisation.

    What are the sanctions for non- compliance?
    There are civil and criminal sanctions for failure to comply with the Counter Terrorism Act 2008 Schedule 7. These include unlimited fines and imprisonment for up to two years.

    How will HMRC supervise compliance with the Counter Terrorism Act 2008?
    We will integrate monitoring compliance with the Counter Terrorism Act into our existing risk based approach to compliance with the MLR 2007 and Transfer of Funds Regulations 2007.

    How will this effect the assessment of customers and products under the MLR 2007?
    Customers that are carrying out transactions or business with countries where the FATF has highlighted deficiencies in systems to prevent money laundering and terrorist financing, will be high risk. Where the MLRs require customer due diligence measures to be applied they should be subject to enhanced due diligence and enhanced monitoring even if HMT has not issued any formal direction.

    Appendix 1
    What countries are included in the European Economic Area EEA?
    Austria, Belgium, Bulgaria, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. Iceland, Liechtenstein and Norway are EEA member states, but they are not members of the European Union (EU). Gibraltar is within the EAA.

    What countries are not included in the EEA?
    Any country that is not listed above including Switzerland which is not a member of the EU or the EEA. The Channel Islands and the Isle of Man are not part of the UK, EU or the EEA.

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

  • 16 March 2009 HM Treasury warns businesses of serious threats posed to the international financial system

    The Financial Action Task Force (FATF) has announced that it remains concerned by Iran’s failure to meaningfully address the deficiencies in its Anti-Money Laundering and Combating Terrorist Financing (AML/CTF) regime, particularly in respect of terrorist financing and suspicious activity reporting.

    The FATF has called on its members to consider effective countermeasures to protect their financial sectors from risks emanating from Iran, and to protect against the use of correspondent banking relationships to bypass or evade counter-measures and risk mitigation practices.

    All UK businesses regulated under the Money Laundering Regulations 2007, whether Money Service Businesses or other regulated persons should treat transactions associated with Iran as situations that by their nature can present a higher risk of money laundering or terrorist financing, and which therefore require increased scrutiny, enhanced due diligence, and ongoing monitoring. In the light of the call for countermeasures the UK is, in addition, considering what further action is required.

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