The role of HMRC

HM Revenue and Customs (HMRC) is a ‘supervisory body’ for a number of businesses caught by the Regulations. This means that HMRC must ensure that those it registers for the purposes of the Regulations are compliant with their requirements and that they have appropriate anti-money laundering controls in place.

HMRC is the supervisory authority for those who are high value dealers (HVDs) and is also the supervisory authority for:

• money service businesses (MSBs) that are not supervised by the Financial Services Authority (FSA)
• trust or company service providers (TCSPs) who are not supervised by the FSA or one of the professional bodies stipulated in the Regulations
• accountancy service providers (ASPs) who are not supervised by one of the professional bodies stipulated in the Regulations.

Specific HMRC guidance has been produced for those affected by the new Regulations which:

• outlines the legislation on anti-money laundering (AML) and combating terrorist financing (CTF)
• explains the requirements of the Regulations and how these should be applied in practice
• provides industry specific good practice guidance on AML/CTF procedures
• assists businesses in designing and putting in place the systems and controls necessary to lower the risk of their business being used by criminals to launder money or finance terrorism.

Am I affected?

If you are a high value dealer, a bureau de change, a money transmission business, a cheque encashment business, a trust or company service provider or an accountancy service provider and you are not otherwise supervised for the purposes of the Regulations then you need to be aware of HMRC’s requirements.

How will my business be affected?

You are required to establish and maintain appropriate and risk-sensitive policies and procedures as set out under ‘the implications of being a relevant person’ overleaf.

These policies and procedures must include policies and procedures that:

• identify and scrutinise complex or unusually large transactions, unusual patterns of transactions which have no apparent economic or visible lawful purpose and any other activity which could be considered to be related to money laundering or terrorist financing
• specify the additional measures that will be taken to prevent the use of products and transactions that favour anonymity for money laundering or terrorist financing
• determine whether a customer is a ‘politically exposed person’
• nominate an individual in the organisation to receive suspicious activity reports (an MLRO)
• ensure employees report suspicious activity to the MLRO
• ensure the MLRO considers such internal reports in the light of available information and determines whether they give rise to knowledge or suspicion or reasonable grounds for knowledge or suspicion of money laundering or terrorist financing.

Financial institutions, which include bureaux de change, money transmitters and cheque cashers must additionally:

• establish and maintain systems which enable a full and rapid response to enquiries from law enforcement agencies
• communicate the policies and procedures to branches and subsidiary undertakings which are located outside the UK.

Senior managers are responsible for the design and operation of these policies and procedures and a policy statement should be prepared. The HMRC document MLR 8 ‘Preventing money laundering and terrorist financing’ provides sector specific guidance in the application of the Regulations. For example an appendix provides specific guidance for money transmission businesses and highlights the particular money laundering risks that are faced when transferring funds between the UK and overseas customers.

Registering with HMRC

New businesses must apply for registration before they can carry on their business, or in the case of HVDs, before they are prepared to accept relevant cash payments.

Those businesses that were registered under the previous Regulations must re-register with HMRC. MSBs should have applied to re-register before 1 February 2008. HVDs will be asked to complete the new MLR100 registration form at the time of their annual renewal. Existing TCSPs have until 1 April 2008 to apply to be registered and at the time of going to print it appeared that ASPs should complete an application to register before 1 July 2008. The registration fee for the year commencing June 2007 is £95 per premises.

A new ‘fit and proper’ test (form MLR101) has also been introduced for those who operate MSBs or TCSPs.

Finally, there are some limited exemptions from registration.

The importance of compliance

Failing to comply with the Regulations themselves is a criminal offence, which can result in a prison sentence. HMRC also has the power to impose civil penalties on businesses that fail to comply with certain requirements of the Regulations.

If you would like to discuss how the new Regulations could affect you and your organisation in more detail please contact us.