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Money laundering must be taken seriously even by the smallest practice, says Tony Margaritelli

In the recent case of N Bevan Ltd v HMRC, the penultimate paragraph of the First Tier Tribunal’s conclusion was: “This is a sorry outcome for NBL and one that could easily have been avoided had it not, for no good reason, ignored HMRC’s warnings about the adequacy of its policies and procedures and what it might do to address them.”
So what was it that caused NBL to be charged a £3,750 penalty by HMRC in the first place, and what was the “sorry outcome” referred to by the FTT?
To sum up the case, NBL is a small accountancy practice that has about 75 clients run by a former chartered accountant and registered auditor who had been practising for around 40 years (the company was formed in 1995). It had three main clients, two firms of solicitors and a car dealer. As NBL was no longer a member of the ICAEW and therefore not supervised by them for money laundering purposes NBL was registered with HMRC as its default supervisor.
At the initial visit it was apparent that NBL provided a registered office service and had 10 clients using this service, which of course resulted in NBL having to register as a Trust and Company Service Provider as well as an Accountancy Service Provider, which NBL agreed to and made the necessary changes to their registration.
NBL’s client verification processes involved taking identification details and an address from the client at an initial meeting and then registering them with HMRC via the online tax agent system, checking the details held on the HMRC system against those they held. However, they couldn’t provide details for these checks as they had not kept records, but they assumed that HMRC would be able to check how many times they had logged in.
So, basically, they kept no records and assumed that HMRC’s online agent processes act as a form of verification of a client’s identity, all sufficient to discharge a practice’s responsibilities.
Needless to say, the tribunal concluded that as “our findings of fact demonstrate, NBL has been unable, as it is required to do by Regulation 7 (3) (b), to demonstrate that the extent of the customer due diligence measures it has taken are appropriate. It is unable to do so because it is unable to demonstrate what, if any, processes it has undertaken to identify customers, or what ongoing monitoring it has undertaken.” Further they stated that “in so far as NBL seeks to keep the relevant records through recording information on the HMRC online tax agent system, in our view such a procedure does not comply with Regulation 19. The online system cannot record all the information necessary, such as evidence of the client’s identity obtained pursuant to Regulation 7 or the ongoing monitoring required by Regulation 8. Therefore we find that NBL’s approach to record-keeping is not a satisfactory alternative to the guidance.”
In all honesty there are no surprises here, but what was interesting about this case over and above the shocking disregard for the law was the fact that the penalty levied by HMRC of 10% of the gross profit of the practice was mitigated down by 50% by HMRC on the grounds that the failure(s) were not deliberate. However, the tribunal was not so forgiving and on hearing this case believed that HMRC were somewhat lenient. As a result the 50% mitigation was reduced to 20%.
This case is a salutary lesson for all accountants, large or small, that money laundering is not to be taken lightly and that the possible consequences can be financially tough. Simply holding out that you “do the work” without any sensible records as to just what that work involved will leave you wide open to possible significant penalties, and rightly so.
The money laundering regulations have been in place since 2007, and I’m astonished that there are still some accountants out there who are just paying lip service to the rules without actually doing the necessary work to ensure these rules are followed. This ruling should shake a few from their torpor.