HMRC AML visit costs £16k+ penalty for small firm

In Delta Tax Agents Ltd v HMRC [2022] TC8403, a small firm of tax agents received a high penalty for failing to demonstrate that they were undertaking Anti-Money Laundering compliance in accordance with the regulations. They were then unsuccessful in making a late appeal against the penalty.

The agents were registered with HMRC for Anti-Money Laundering (AML) purposes. During a compliance visit by HMRC, Mr Deacon, a director accepted that the firm:

• Did not have a formal risk assessment in writing for new clients.
• Had not updated their AML policy and procedure documents for the 2017 Regulations.

In its defence, Mr Deacon suggested that customer due diligence had not always been able to be carried out in the preceding year due to staffing issues and he accepted that there were a number of clients for whom no identity verification documents had been taken.

• A spreadsheet showed that of 297 clients (out of 405) five had incomplete customer due diligence. 
• When HMRC checked a sample, 14 out of 15 client files had no identity documentation or evidence of customer due diligence. The 15th file client had one verification document.
• Mr Deacon explained that the member of staff who had begun work two weeks earlier had been recruited to improve customer due diligence and he set out the more comprehensive measures that the Appellant intended to undertake in the future.

HMRC fined the company £16,891 for non-compliance with the Money Laundering Regulations. The penalty imposed was made up of £10,979.15 imposed under the 2007 Regulations and £5,911.85 imposed under the 2017 Regulations.

• Failure to demonstrate that appropriate due diligence had been carried out (Regulation 7(3) of the 2007 Regulations).
• Failure to identify and assess the risks of money laundering and terrorist financing and a failure to keep an up to date record of the steps taken in this regard (Regulation 18(1) and (4) of the 2017 Regulations).
• Failure to regularly review and update the policies and procedures it had in place (Regulation 19(1)(b) of the 2017 Regulations).
• Failure to apply customer due diligence and verify the identity of clients (Regulation 27(1)(a) of the 2017 Regulations).
• Failure to demonstrate that appropriate customer due diligence had been carried out (Regulation 28(16) of the 2017 Regulations).

Once the penalty was issued, HMRC offered the company a Review of its decision on 20 June 2018. The Appellant had 30 days to accept this offer but it did not reply until 9 January 2019, leaving HMRC to reject the application.

The company then made a Late Appeal against the penalty. Although its director had been ill during some of the period of lateness, there was another director who could have made decisions. It failed to provide evidence to the tribunal to explain the full reason for its lateness and the appeal was dismissed

Comment

AML compliance is an ongoing task for all firms and all tax agents. They need to undertake, at the very least, an annual review of their AML compliance and a firm-wide review of their AML policy, risk assessment processes and other controls. There is also no de-minimis in terms of reporting suspicious activity.

The Treasury has yet to formally approve draft updated AML guidance for the accountancy sector, issued by the Consultative Committee of Accountancy Bodies (CCAB) and which includes changes introduced from January 2020 by the EU's Fifth Anti-Money Laundering Directive (AML5) to the Money Laundering Regulations 2017 (MLR17).

Useful guides on this topic

Visit our AML Zone 
AML Zone contains checklists and guidance on the Anti-Money Laundering requirements that businesses need to follow.

How to appeal a tax penalty
Top tips covering the appeals process

Statutory Review
What happens in this type of review? Why is it so essential to request one?

Late appeals
When can you make a late tax appeal? What conditions must be met?

 External links

Delta Tax Agents Ltd v HMRC [2022] TC8403