In Michael Hunt v HMRC TC04183 the First Tier Tax Tribunal (FTT) considered what is meant by the term “fit and proper person” for the purposes of registration under the Money Laundering Regulations 2007.

Mr Hunt applied for registration as beneficial owner of a company which provided virtual office services. HMRC advised he failed the fit and proper test because he had been found guilty and imprisoned for 8 years for conspiracy to defraud. Although he passed his shares to his wife, he requested the decision be reviewed with subsequent appeal to the Tribunal.

The Tribunal noted that HMRC’s published guidance on the fit and proper test was not entirely satisfactory in its current form. It was noted that HMRC’s internal guidance (MLR25200) states that ‘If a person has been convicted of any offences listed under (a) below, he/she is not a fit and proper person under MLR2007 and the application must be refused’. The more comprehensive public guidance states that a person will fail the test if they fail to satisfy HMRC that they are fit and proper, such that HMRC should consider all relevant circumstances where a conviction is disclosed. HMRC assured the Tribunal that the internal guidance would be amended to ensure that convictions are not an automatic bar, and allow all relevant circumstances to be taken into account.

The hearing was adjourned and HMRC directed to consider additional material and carry out a further review of its decision. While acknowledging some positive factors, HMRC contended that Mr Hunt was not a fit and proper person. It appeared that he was dismissive of the offence and punishment, the crime was very serious involving some £55m lost corporation tax and £30m interest, and the virtual office services provided by the company offered anonymity for potential criminal activities.

The Tribunal considered that the conviction itself was insufficient for Mr Hunt to fail the fit and proper test, but lack of evidence as to his repentance, together with the nature of the company’s business, and the role and influence he would have, led the Tribunal to conclude that he was not a fit and proper person for the purposes of the regulations.

An interesting example of a situation where it is definitely advisable to read the relevant legislation. HMRC's manuals only provide their view about particular topics and as so often happens it is not until a case goes before the tribunal that the actual legislation is compared to their manuals. This is not to demean HMRC's output: we all have to summarise legislation however the point being made is that if you are in any kind of dispute it is advisable to read over the actual legislation.

The FTT also noted some factors that HMRC should consider in future in relation to the impact of rehabilitation:

  • Relevance of the conviction to the applicant’s duties
  • Nature of the business
  • Record since conviction
    • Employment history
    • Personal conduct
    • Length of time