HMRC Interventions: An Ounce of Prevention, is Worth a Pound of Cure

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By Rena Neville – Lead AML Consultants, FCS Compliance Art Division

HMRC Interventions: An Ounce of Prevention, is Worth a Pound of Cure

Queries are on the rise from Art Market Practitioners (AMPs) to the FCS Compliance Art Division hotline regarding how to respond to Intervention notices received from HMRC. As part of HMRC’s supervisory authority, it is entitled to conduct Interventions, or audits, of its regulated sectors’ compliance with the UK’s Money Laundering Regulations. As one of the newer sectors under HMRC’s wing, HMRC only began conducting Interventions of AMPs in late 2021.

To date, one of the most common errors uncovered is the failure of an AMP to even register with HMRC via their website as a regulated entity. There is no excuse for failing to register, as the registration deadline has long passed, back in June 2021, and the UK Money Laundering Regulations came into effect in January 2020. The penalty for failing to register is not insignificant: HMRC imposes a fine of £5,000 for every three months that an AMP should have registered, but was not. The fine quickly mounts up: an AMP who was obliged to register by June 2021, but who did not, could be facing a fine of up to £30,000 as of January 2023

However, one may avoid the worst-case scenario given that HMRC has the discretion to reduce the fine. For example, HMRC may choose to reduce the amount by 50% if the AMP voluntarily notifies HMRC that they failed to register. HMRC also has the discretion to reduce a fine by 25% if it is paid promptly, i.e. within 28 days. Although it may be hard to start the registration process and thereby alert HMRC of the lack of registration and likely trigger a fine, HMRC’s discretion to reduce the fine makes voluntary disclosure the best course of action.

But HMRC’s enforcement powers are not limited to fines; their authority extends to: issuing censures, suspending registrations and business operations; as well as in more extreme cases referring matters for criminal investigation and prosecution. As if the threat of fines, penalties and criminal prosecution were not enough, HMRC has a duty to publish details of businesses that do not comply with the regulations. This list, sometimes referred to as the “Name and Shame” list, includes details about the AMP and the violation, such as the name, registered address, the regulation breached and the amount of the penalty. The Name and Shame List also includes those businesses whose registrations are suspended or cancelled. All expectations are that there will be an increasing number of AMPs on the HMRC list as the number of Interventions conducted continues to grow.

The second most frequent failing uncovered in an Intervention is poor implementation by the AMP of the UK Money Laundering Regulations. Poor implementation comes in many forms, such as: not having an annual, up to date, written Risk Assessment or Policy; not conducting appropriate Customer Due Diligence or simply not fully understanding AML obligations.

Indeed, the stated purpose of an Intervention is for HMRC to “test and challenge” whether the AMP understands the risks of their business, as well as their AML compliance obligations. To assist HMRC in gaining insight on the level of understanding, HMRC may ask AMPs questions about the practical application of the AMP’s AML Policy. The questions range from the most basic, such as who is the Nominated Officer and where is the AML Policy manual stored, to more complex questions. The more complex questions HMRC may ask might be: when, how and to whom the staff should report suspicious transactions, how an AMP applies customer due diligence, and how beneficial owners are identified etc. The questions may be asked in person or remotely, with or without notice.

Another common aspect of an Intervention is for HMRC to ask the AMP to send copies of key documents such as the original and annually updated written risk assessment; the written AML policy, controls and procedures; the training content and attendance records, as well as sample(s) of client files.

In light of HMRC’s broad supervisory and enforcement powers, the saying “an ounce of prevention is worth a pound of cure” certainly applies. Fortunately, help is available. Given FCS Compliance’s vast experience both in law enforcement and specifically with HMRC Interventions, we invite you to contact us either to help prepare you for an Intervention or in response to an HMRC inquiry. We are happy to help.

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