Money Laundering – Latest HMRC Guidance Release

New guidance release from HM Revenue and Customs regarding money laundering regulations and how failure to comply can impact your business.  

All Estate Agents are legally required to register with HMRC under Money Laundering Regulations. Failure to do so could hurt your pocket and prevent you from a holding a management position in the future. It could even land you with a prison sentence and criminal record!

Anti-money laundering supervision: Civil measures

1. Introduction
2. HMRC’s approach to non-compliance
3. General Principles
4. Issuing penalties
5. Deciding on an application
6. Reviews and Appeals
7. Criminal investigation and prosecution

1. General Introduction

1.1 Almost all businesses supervised by HMRC for anti-money laundering purposes are subject either to fit and proper or approval requirements under the Regulations. These requirements are to ensure that businesses:

• beneficial owners
• officers
• managers
• nominated officers

are appropriate to undertake those roles.

Responsible persons must go through the relevant process before the business can register, and can remain registered, with HMRC.

1.2 HMRC stresses that neither of those requirements tests whether the business is professionally run or operated. Registration is a legal requirement to trade, it is not a recommendation or endorsement of the business.

1.3 HMRC advises registered businesses to carefully avoid using language in this context that might give the impression that registration was a form of endorsement or recommendation.

1.4 There is more detail about these requirements in the fit and proper guidance Introduction

1.5 This document sets out how HM Revenue and Customs (HMRC) will use its powers under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)Regulations 2017, referred to as “the Regulations”.

1.6 HMRC will use its powers in the same way under Schedule 7 of the Counter Terrorism Act 2008.

1.7 HMRC may treat any breach of the Regulations as a criminal matter.

HMRC’s role under the Regulations

1.8 HMRC is a supervisor under the Regulations. The Regulations require businesses to have written risk assessment, policies, controls and procedures in place to prevent others using them to launder money or finance terrorism. Businesses are also required to report suspicious transactions to the National Crime Agency (NCA).

1.9 HMRC must monitor the businesses for which we are responsible, and make sure they comply with the Regulations.

Our role includes:

• maintaining a register of the businesses we supervise
• providing education and guidance to help businesses understand their obligations
• carrying out compliance activity and other targeted interventions to ensure registered businesses comply with their obligations
• responding to non-compliance with appropriate measures

1.10 HMRC is subject to the Regulators Code. This means we will not impose an unnecessary regulatory burden, and will focus civil measures action on the areas of greatest risk. We recognise the compliance effort of the businesses we supervise. We will take action, and apply sanctions, to the minority that do not comply, dealing more severely with deliberate or persistent non-compliance.

2. HMRC’s approach to non-compliance

2.1 HMRC’s approach to promoting compliance is risk-based. It has three strands:

• Promote: to promote compliance by engaging with businesses and helping them to put in place appropriate controls to counter the threat that they may be used by criminals to launder money or fund terrorism.
• Prevent: to prevent non-compliance by making sure that businesses’ processes and interactions with customers help them stay on the right side of the law. We will challenge high-risk businesses and those with inappropriate controls to put things right.
• Respond: to respond to non-compliance by treating non-compliant businesses in a way that encourages sustained compliance in future.

HMRC will de-register criminally complicit businesses and illegitimate business models.

2.2 HMRC’s approach is designed to help businesses get things right the first time. It is flexible so we can respond to new and evolving threats. It promotes good compliance by designing systems and processes. All of this reduces the cost. It also allows us to focus on high-risk activity and keeping you informed of risks to your business.

2.3 Issuing penalties, sanctions and criminal actions are part of our response to non-compliance.

HMRC’s power under the Regulations

2.4 HMRC have certain civil powers under the Regulations to tackle non-compliance. This guidance covers the more common situations and is not a definitive list.

2.5 HMRC may use the following powers, or a combination of them, to encourage compliance and respond to non-compliance:

• inspect business premises
• issue a penalty
• refuse or remove fit and proper status from an individual
• refuse or remove an approval from an individual
• refuse, suspend or cancel a business’s registration
• issue a notice to request information or attendance at a meeting
• issue a public statement naming and censuring a business or person
• prohibit an individual from holding a managerial role
• seek a court order to enter premises or to restrain a person from committing a breach

2.6 Most breaches are treated as civil matters. However, HMRC may treat breaches as a criminal matter and investigate with a view to prosecution.

3. General Principles

3.1 The majority of businesses comply with the Regulations. They expect HMRC to apply sanctions to those businesses that do not comply, whether carelessly or deliberately. They expect HMRC to ensure that non-compliance does not give those businesses a competitive advantage.

3.2 We encourage everyone to report non-compliance with the regulations if they become aware of it. Our contact details are set out in Appendix 1.

Appropriate penalties

3.3 The penalties we issue under the Regulations must be appropriate. In other words, they must be “effective, proportionate and dissuasive”. This means our penalties will:

• be fair, and take into account past behaviour
• be proportionate to the seriousness of the breach or offence
• remove any financial gain or competitive benefit of non-compliance
• be sufficient to act as a deterrent to non-compliance.

3.4 HMRC do not issue penalties in order to raise money.

3.5 We may issue a penalty or start a criminal investigation for a first or subsequent breaches.

We will decide in each case whether it will be a civil or criminal matter. If you continue not to comply HMRC may decide that a criminal investigation is a more appropriate response.

3.6 Our approach must be consistent, but it must also be sensitive to the circumstances and behaviours in each case.

3.7 A penalty administration charge will apply to penalties issued after 25 July 2018. The charge is for the costs of issuing penalties to businesses that do not comply with the Regulations. The amount will be advised when the penalty documentation is issued.

Who we can apply measures to

3.8 We may apply measures to:

• a business that is required to register
• a registered business
• an officer of the business
• the beneficial owners
• directors
• managers and nominated officers

Inspecting premises

3.9 HMRC officers can, on reasonable grounds, enter and inspect premises, observe the business activities, interview the business, require persons on the premises to provide information, inspect any information found there and make copies of documents. They may also inspect any cash found on the premises.

This is usually by appointment but in some situations, we may carry out an unannounced visit. We will identify ourselves when we arrive. Most businesses are happy to co-operate.

Our officers do not need a warrant to gain entry but they may apply to the Court for a warrant, if necessary.

Our power to enter premises also applies to businesses that should be registered but have failed to do so.

You can read more about this in the business inspections guidance.

4. Issuing penalties

Compliance penalties

4.1 HMRC may test your compliance with the Regulations by a visit to your premises, an office based or telephone intervention. We may use a combination of these types of intervention.

If we find that your business has breached any of the requirements at Appendix 2, and that we will treat it as a civil matter we will consider issuing a warning letter or penalty.
Warning letters

4.2 We will issue a warning letter to:

• tell you about the breaches we identified
• formally warn you that you have breached the regulations
• tell you the actions you need to take
• give you a time period to correct the breaches
• inform you we may follow up to check your compliance
• tell you what will happen if further breaches are found

4.3 HMRC are not required to send warning letters before we issue penalties or start criminal investigations. We will not issue a warning letter and will move straight to issuing a penalty if any of the following apply:

• the breaches are serious
• the breaches are throughout the business
• the breaches are deliberate
• you have been trading while unregistered
• you have not complied with a notice requiring information

4.4 We won’t normally issue a second warning letter for a second breach of the same regulation and may respond with other appropriate action. Although, exceptionally, we may issue a second warning letter if a business has made significant efforts to address the areas set out in the original warning letter and there are some minor administrative issues that still need to be addressed.

4.5 A written warning is not the end of the matter. We are likely to take follow-up action to test compliance.

4.6 We may view a second instance of the same breach as deliberate, i.e. where we have told you how to correct the failures but you have not done so. If we then decide to issue a penalty, we may apply a larger penalty.

Pre-penalty notice

4.7 When we have decided to issue a penalty, we may issue a pre-penalty notice in order to:

• inform a business that we intend to issue a penalty
• the reasons why we are doing so
• the breaches that have given rise to the penalty
• offer the business an opportunity to present any relevant information that has not been considered in the decision

4.8 A pre-penalty notice will contain a schedule explaining the breaches, the penalty amount and how it has been calculated.

4.9 We will issue the penalty notice if the business does not respond after 30 days. If the business responds by providing new information, we will consider the new information including whether to cancel or recalculate the penalty to a lower or higher amount. We will then issue a penalty notice as appropriate.

4.10 We don’t have to send a pre-penalty notice. In a straightforward or minor case, or where we have a concern in a high risk case, we may issue a penalty notice without first issuing a prepenalty notice.

Penalty notice

4.11 We will issue a penalty notice in order to notify a business that it is subject to a penalty. The penalty notice will explain:

• the amount we are penalising you
• our reasons for issuing the penalty
• how the penalty has been calculated
• the date by which the penalty must be paid and how to pay it
• the breaches that have given rise to the penalty
• the business of its rights to a review or appeal, and the deadlines for requesting one

Registration penalties

Trading while unregistered

4.12 A business must not trade in a regulated sector without registering with HMRC under the Regulations. Trading while not registered is a criminal offence and may result in a civil
penalty or a prosecution.

4.13 Where a business registers after beginning to trade actively, the penalty will be
proportionate to the length of time it has traded while unregistered.

4.14 HMRC works to identify businesses that are trading who should be registered but are not. If HMRC identifies that you have been trading without registering you may be issued with a penalty. HMRC will give you every opportunity to apply to register. If a business has, at any time, or continues to trade without registering we may decide to:

• issue a larger penalty for the failure to register
• issue a penalty if you are not complying with your other obligations at Appendix 2, e.g. to carry out customer due diligence
• penalise the person responsible and make them liable for its payment.

Any period of trading whilst unregistered may affect our view of your ability to comply with the Regulations and whether an application to register would be accepted. We may decide
that a more appropriate response is to treat it as a criminal matter.

Failing to update HMRC

4.15 You must notify HMRC of any material changes or inaccuracies in the information you have supplied as detailed in the registration guide within 30 days of the event. If you do not provide this, we may issue a penalty.

4.16 You must tell us about changes of your nominated officer or compliance officer within 14 days. If you do not, we may issue a penalty.

4.17 A penalty will apply each time you do not tell us of a material change or inaccuracy within 30 days of the change taking place or the error being discovered.

4.18 A number of distinct breaches, notified at the same time, will each be penalised.

4.19 For example, where there is a failure to notify HMRC to a change of a director, a penalty will apply to each event. If two directors were appointed, and three directors left the business, you would have breached the regulations five times.

A director is key to your ability to comply with the regulations and may be subject to a fit and proper test or approval by HMRC. We would therefore consider these to be material changes. Any change or inaccuracy that affects your ability to comply with the regulations, or HMRC’s ability to test your compliance with the regulations, may be material.
Failing to comply with an information notice

4.20 When HMRC, or a non UK authority, reasonably requires information we may issue a notice requiring a business or a person connected to it to:

• provide the information specified in the notice
• produce records specified in the notice
• attend for interview and answer questions

4.21 This may apply to an individual, a partner or officer, manager, employee or agent of a business or a connected person.

4.22 The Information notice will explain our reasons for asking for information and tell the business when and where the required information should be produced.

4.23 The consequences of not complying with an Information notice in a civil case may be:

• a fixed penalty
• cancellation of the business’s registration.

HMRC may decide that a more appropriate response is to treat it as a criminal matter.

When we will not issue penalties

Reasonable steps

4.24 HMRC won’t normally impose a penalty where we are satisfied you took all reasonable steps to ensure a requirement would be complied with. We will also consider whether you have followed any relevant guidance that was issued at the time the breach occurred and was issued by HMRC or another appropriate body and approved by HM Treasury.

Other circumstances

4.25 We may decide not to issue a penalty where a business:

• breaches the regulations due to unforeseeable and unavoidable circumstances, such as the sudden illness of a responsible person in a small business
• has a reasonable explanation for the breach and has voluntarily told us without undue delay
• is normally compliant and has made an untypical error
• is making significant improvements to correct areas of weakness it has identified and has voluntarily disclosed this to us.

4.26 In these circumstances, we may consider a written warning. We may issue a penalty if the business does not carry out the action set out in the warning letter by the given date.

4.27 Any warnings we issue are without prejudice to any criminal investigation that may be considered.
Liability of an officer to a penalty

4.28 HMRC may issue a penalty directly to an officer if they are knowingly concerned in a breach.
HMRC may take the view that more than one officer is responsible for a breach and may impose penalties on any or all of them.

4.29 The penalty will be appropriate to the severity of the breach.

4.30 An officer is a director, secretary, chief executive, member of the management body, a person who controls a corporate body, a partner, manager, secretary or similar officer in a partnership, an officer or member of the governing body of an unincorporated association or a sole proprietor or any person saying they act as the above.

Not paying a penalty

4.31 If you do not pay a penalty that we issue under the Regulations, HMRC may seek recovery using bailiffs or through the courts as a debt. You may also be charged bailiff fees and for the court’s time.

4.32 If you still do not pay we may:

• set off any future payments you make against the penalty debt
• reconsider your fit and proper status
• refuse, suspend or cancel your registration.

5. Deciding an application

Refusing to register your business

5.1 When you apply to register you will be asked to provide information. We may ask for extra information in some cases. We will write to you, explain what information is needed, why it is needed and notify you that it should be provided within 21 days. We will pause your application at this point.

5.2 Your application will be refused if we do not receive the information requested within the specified time period.

5.3 We may refuse an application in any of the following circumstances:

• the registration conditions have not been met
• information provided is false or misleading
• we have not been informed of material changes and inaccuracies to information in the application within 30 days of the event
• a person who needs to be tested is not a fit and proper person with regard to the risk of money laundering or has a conviction for a relevant criminal offence
• a person that needs to have approval from HMRC has not been approved because of a conviction for a relevant criminal offence
• information we have requested has not been provided
• you do not have a written risk assessment or policies in place
• we have reason to believe you, or an officer or manager in your business, are not able to carry out the obligations under the Regulations
• fees have not been paid
• a penalty has not been paid
• a money service business (who is a money transmitter) is not on the Financial Conduct Authority’s register of payment service providers

A business will not be able to undertake the relevant activity if we refuse an application to register the business for that activity.

Suspending or canceling a registration

5.4 We may suspend or cancel an existing registration for the same reasons that we refuse to register a business.

In addition, we may suspend or cancel a registration when:

• a business does not respond to a request for information by notice to our satisfaction
• your standing with a regulator means that you are prohibited from trading
• you do not pay to renew your registration
• you are no longer a fit and proper person or have been convicted of a relevant offence

A business will not be able to undertake the relevant activity if HMRC cancels its registration for that activity.

5.5 If we suspend the registration we will tell you how long it is suspended for and what you need to do to have your registration re-instated. You will not be able to undertake relevant activity during the period of your businesses suspension.

Fit and proper and approved status

Fit and proper

5.6 HMRC may refuse or withdraw the fit and proper status from a person in the money service business and trust and company service providers sectors if the person has a criminal conviction for a relevant offence or is not fit and proper with regard to the risk of money laundering and terrorist financing.

5.7 We must refuse the registration of a business where a responsible person holding a relevant position is not fit and proper. We will allow you to put forward another person if a nominated officer fails the test. If we later find that a responsible person is not fit and proper we may suspend or cancel the registration.
HMRC approval

5.8 HMRC will not approve a person as a sole practitioner, manager, officer or beneficial owner in the accountancy service provider, estate agency business and high value dealer sectors who has an unspent criminal conviction for a relevant offence.

Civil penalties may apply if:

• a business does not take reasonable care to ensure the persons above has been approved by HMRC
• a business does not inform HMRC of a conviction for a relevant offence within 30 days of becoming aware of it
• an individual does not inform HMRC of a conviction for a relevant offence within 30 days of the day they were convicted

5.9 If you act in that capacity with a conviction for a relevant offence. HMRC may:

• refuse, suspend or cancel the registration of the business
• apply to the High Court seeking on order to sell the beneficial owner’s holding in the business.

5.10 You are guilty of a criminal offence if you act as a manager or officer or are knowingly a beneficial owner with a conviction for a relevant offence. You can be issued an unlimited fine and imprisoned for up to three months.

You can read more about this in the fit and proper and approval guidance:
https://www.gov.uk/government/publications/money-laundering-supervision-fit-and-proper-test-and-approval

Prohibiting a person from managing

5.11 We may issue a temporary or permanent prohibition against a person holding an office or a decision making or management position if they were involved in, or allowed a breach to happen. This ban will prohibit them from acting in a management capacity involving activity that is covered by the Regulations.

HMRC may penalise the business or the individual if they do not comply with the prohibition.
Publishing statements

5.12 Under Regulation 85 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs), implemented in June 2017, HMRC has a duty to publish details of penalties, naming your business or an individual after it issues a penalty notice. These details will be published on the GOV.UK website for at least 5 years and can include:

• your name or the name of the business and the registered address
• the nature of the breach(es) and their value
• the status of any appeal against the issuing of the penalty.

5.13 HMRC will publish these details anonymously in situations where it considers that publishing the details of you, or your business, would be disproportionate. It will not publish at all if publishing could affect the stability of the financial markets, or if it considers the penalty to be of a minor nature. Only penalties that apply to the 2017 regulations will be considered and information will remain on GOV.UK for a period of 5 years.

5.14 Those issued with a pre-penalty letter have 30 days on which to represent themselves against publication.

5.15 Publishing decisions will be made on a case-by-case basis and you will be notified of HMRC’s decision to publish relating to your specific penalty – in full, anonymously or not at all.

6. Reviews and Appeals

6.1 HMRC will notify you when a decision is made and tell you whether you have a right of appeal.

6.2 A business will have 30 days to challenge our decision to:

• issue a penalty
• refuse, suspend or cancel a business’s registration.
• publish a statement
• prohibit a person from managing

6.3 We offer an opportunity to have the decision reviewed by an independent HMRC team who were not involved in making the original decision. A review decision is usually made within 45 days. Where we have refused to register a business or canceled a registration, the business cannot continue to trade during that time.

6.4 If you have a review and don’t agree with our decision, you can appeal to the First Tier (Tax) Tribunal of HM Courts and Tribunal Service within 30 days of the review.

6.5 You may also appeal directly to the First Tier (Tax) Tribunal of HM Courts and Tribunal Service within 30 days of the decision without requesting a review.

7. Criminal investigation and prosecution

Working with Law Enforcement Agencies

7.1 We treat most breaches as civil matters. However, HMRC may treat any breach as a criminal matter and investigate with a view to prosecution. We also work with other Law Enforcement Agency partners to support money laundering regulation prosecutions they bring.

Consequence of criminal prosecution

7.2 Criminal prosecution may result in a fine or up to two years imprisonment, or both.

We can also prosecute:

• an officer of a business, such as a director
• a partner in a partnership.
• if an offence is committed with the consent or the connivance of any officer or attributable to any neglect on the part of an officer.

7.3 Non-compliance with the Regulations may also lead to offences under the:

• Proceeds of Crime Act 2002
• Terrorism Act 2000

For example failing to make a report about suspicious activity, and tipping off any person that you’ve made, or intend to make, such a report. This applies to businesses in the regulated sector.

The Terrorism Act sets out the primary offences relating to terrorist funding. Regulated businesses must report a belief or suspicion of offences related to terrorist financing, such as:

• fund-raising for the purposes of terrorism
• using or possessing money for the purposes of terrorism
• involvement in funding arrangements
• money laundering – facilitating the retention or control of money, which is destined for, or is the proceeds of, terrorism

A conviction can result in a prison sentence of up to 5 years, a fine or both.

7.4 A conviction for money laundering under Proceeds of Crime Act section 327 to 329 can result in a prison sentence of up to 14 years, a fine or both.

Instances of non-compliance should be reported to HMRC at:
Customs hotline: 0800 595 000 or
E-mail: customs@hotline.hmrc.gsi.gov.uk

General enquiries about HMRC’s supervision of businesses under the regulations should be addressed to:
E-mail: mlrcit@hmrc.gsi.gov.uk
Address: HMRC Anti Money Laundering Supervision
7th Floor NW
Alexander House
21, Victoria Avenue
Southend on Sea
SS99 1AG

Source: Gov.org