Businesses Face HMRC Crackdown on Money Laundering

3 mins

HMRC Anti-Money Laundering Action Results in Record Fine for Money Services Business

Companies which are required to adhere to strict anti-money laundering (AML) regulations have been advised to check their procedures and improve where necessary after HMRC handed down its largest fine to date to a London money services business for failures in its anti-money laundering procedures. David Redfern, tax preparation specialist and Managing Director of DSR Tax Refunds Ltd, has issued guidance to companies in order to ensure that they do not fall foul of HMRC requirements.

HMRC yesterday announced that it was issuing a £7.8million fine against a foreign exchange and money transmitting business based in London due to its breaching of anti-money laundering regulations intended to prevent the laundering of financial proceeds from illegal activity. The failures in adhering to AML regulations occurred between July 2017 and September 2018. Redfern stated “What is particularly significant about this record fine is that it hasn’t been levied against the firm because of involvement in money laundering activities but rather, it has been handed down because its anti-money laundering procedures were seen to be weak and not up to the standard required of an MSB (money services business). The fine relates to failures in areas such as risk assessment, client due diligence and staff training – all of which can be addressed with a rigorous anti-money laundering policy. The size of the fine reflects the potential a money services business, such as a foreign exchange, has for involvement in money laundering activities on behalf of criminals”.

When handing down the fine, HMRC highlighted four areas in which AML regulations were not up to the standard required, these being customer due diligence, staff training, company procedures and risk assessments with associated record-keeping. Redfern said “Client due diligence is of the utmost importance for all businesses where money laundering could be an issue, not just for money service businesses but all businesses within the financial services, legal and property sales sectors. Companies must ensure that customers can prove they are who they claim to be, with the appropriate identity documentation, and firms must check that customers don’t have any additional risk factors which could make their involvement in money laundering more likely, such as being a politically exposed person (PEP) who might be susceptible to blackmail or bribery. It is vital that staff are trained in AML procedures including due diligence so that they are aware of the responsibilities on them to ensure all customers are suitably assessed and any concerns are flagged to the person designated as money laundering reporting officer. Training needs to be a continuous process, not just a one-off activity”.

In addition, HMRC highlighted failings with risk assessment, record keeping and AML policies and procedures. Redfern said “HMRC’s actions in this instance demonstrate the importance for any business within those key money-laundering areas to develop a strong AML policy, which includes a thorough risk assessment of all its activities and the potential areas and gaps in which individuals could use the business to launder the proceeds of criminal activity or fund terrorism. This includes having a reporting procedure for staff members who have raised suspicions and keeping thorough records on client due diligence and suspicious activity reporting. HMRC makes it quite clear that ignorance of the law is no defence against the law”.

In a statement, the Director of HMRC’s Fraud Investigation Service, Simon York, stated “A word to the wise for those firms who, either by ignorance or design, continue to flaunt the rules – this record fine shows we mean business, so get your house in order before we come knocking”. Redfern added “There is a wealth of guidance for affected businesses to ensure that they are compliant with AML regulations and this most recent crackdown, with such a hefty fine levied, shows the importance of understanding and following those regulations”.  

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