Update on the Money Laundering Regulations 2007
In the June newsletter, I reported that HM Revenue & Customs (HMRC) was to update its "MLR 9 – Guide to Registration" to reflect feedback from businesses in their discussions with HM Treasury about the interpretation of the Money Laundering Regulations 2007 (MLR) as they apply to Interims.
Interims potentially affected by the MLR are those who:
- Take on the role of director/company secretary at their clients and are therefore Trust & Company Service Providers (TCSPs)
- Provide accounting services and/or tax advice (Accounting Services Providers (ASPs)).
HMRC has now published its revised guidance (available to view/download from http://www.hmrc.gov.uk/mlr/mlr9.pdf) and you should therefore review this carefully to see whether or not you need to register under these new rules. Following this review, if you think you need to register, the revised timetable to avoid incurring civil penalties is:
TCSPs:
- If you were in business as a TCSP before 15 December 2008, you must apply to register with HMRC before 30 September 2008.
- If you are setting up in business as a new TCSP after 15 December 2008, you will need to have achieved registration before carrying on that business.
Despite the second bullet point, HMRC has however confirmed to us that, in considering whether to levy penalties for non-registration, it will be sympathetic to anyone who now needs to register and who started as a TCSP after 6 May and before 31 July (the dates between which there was no HMRC guidance in force)
ASPs:
- If you are in business as an ASP you must be registered with HMRC before 1 January 2009. To enable HMRC to be able to process your application on time you will need to complete and send your application form with the appropriate registration fees to it by the 30 September 2008.
- If you are setting up in business as a new ASP you must be registered with HMRC before the 1 January 2009.
If you need to register because you fall within the relevant rules for both TCSPs and ASPs, the TCSP timetable overrides the more generous ASP timetable.
If you have already registered on the basis of the previous guidance, you should already have received a letter from HMRC inviting you to consider whether you still need to keep your registration or not.
So what is the significance of the new guidance, and what does it say?
Firstly, it is important to stress that the MLR themselves are unchanged. The MLR however stipulate that a person who can demonstrate that they acted (or failed to act) in the way they did as a result of following official (HM Treasury approved) guidance has a defence in law to the civil and criminal penalties which can be imposed under the MLR – and HMRC's guidance is official guidance. If therefore you believe you would be a TCSP or ASP under the MLR definitions, but you decide that you don't need to register based on the HMRC guidance now issued, it would be as well to document that decision and the reason for it so that you can demonstrate reliance if needs be.
For TCSPs, the new rules are set out in Chapter 6 of "MLR 9 – Guide to Registration". The registration requirement has been relaxed so that, in simplistic terms, if you provide services to your client as a TCSP, you only need to register if:
- You act on a nominee basis, where the intention is that the identity of the true owner or director of the business remains secret from the outside world
-
The client operates in a high risk jurisdiction or a high risk sector and is not
- already supervised under the MLR or
- a public authority anywhere in the EU or
- a firm authorised by an EU public authority to act on their behalf where the only customers are also public authorities
-
You arrange for another person to act as a director. It is not uncommon, especially in turnaround situations, for Interims to take on board roles and appoint other Interims whom they have worked with in the past as fellow directors. It is worth giving some careful thought to the question of whether, in so doing, you fall within the MLR definition of 'arranging' for another person to act as a director or company secretary.
The term 'arranging' is explained in more detail in paragraph 6.1.2 of the Guidance (and amplified in paragraph 6.1.16), and is being given a narrow interpretation specifically to exclude recruitment agencies (whether permanent or Interim). However, the position of recruitment agencies is different to that of the Interim, because they do not normally take the final decision whether or not to appoint. Arguably the Interim is not in business as an 'arranger', and so this aspect of his/her activities could be deemed to be outside the scope of the MLR, but again, it needs careful consideration – see paragraph 3.4 of the Guidance.
If you would need to be registered as an individual but you operate through a personal services company (PSC), under paragraph 6.1.6 your PSC will need to register instead of you, provided that the PSC:
- Only supplies your services and
- You own or control at least 50% of the business and the sole business purpose of the company is to provide your services.
For ASPs, the new rules are set out in Chapter 7 of "MLR 9 – Guide to Registration". The rules are for all practical purposed unchanged from the previous Guidance, so if as an Interim you provide accountancy services (bookkeeping, preparation of accounts, budgets, forecasts, business plans etc) or tax compliance/advice to your clients, you are within the scope of the MLR.
The only substantive relaxation appears to be that you can avoid having to register if you fall within paragraph 7.1.7 of the Guidance because you subcontract your services exclusively to other ASPs and satisfy the required conditions. However, this is unlikely to be relevant in the context of virtually all Interim assignments.
For those of you who have got to the end of this article and heaved a sigh of relief because the MLR are unlikely to trouble you further, it is perhaps worth reminding you that money laundering is a crime, and you have the normal responsibilities of a private citizen in relation to the Proceeds of Crime Act 2002 if you come across it.
© IIM 2008
Tom Brass, Chairman of the Institute of Interim Management - http://www.ioim.org.uk/