Just how effective are AML fines ...

... when levied by HMRC on the unregulated (rather than by PBs on agents)?

Didn't find your answer?

In the usual way with HMRC press releases, the announcement at https://www.gov.uk/government/news/hmrc-issues-32-million-in-money-laund... is (no doubt deliberately) a tad light on detail ... but:

* 240 supervised businesses were fined a total of £3.2 million by HMRC, between 1 July and 31 December 2022, for breaching anti-money laundering rules - of which one received a fine of £1.4 million (for multiple breaches: failing to carry out risk assessments, not having appropriate anti-money laundering controls, and failing to conduct proper due diligence checks)

... so the remaining 239 named businesses were fined an average of c. £7,500 each (all for a single breach: failing to apply for registration at the required time).

* In addition to the named businesses, another 179 companies received smaller fines totalling more than £200,000 for (undefined) rule breaches

... so the unnamed businesses were fined an average of c. £1,120 each

[Of possible interest is the substantial proportion of those fined that were involved in Property or IT services ... rather than Accounting or Tax services].

.

In the absence of more interesting (and salient) details it's hard to draw any useful conclusions ... but, despite the resources being consumed, it would appear that:

1. The *vast* majority of fines are being imposed for failing to comply with an aspect of the AML procedures - not for any involvement in money-laundering

2. The typical level of a fine from HMRC is insignificant in comparison to those levied by the PBs (plus all their extras & costs)

3. There is no evidence of correlation between these fined businesses and identification of any actual money-laundering activities

4. Nor is there any evidence of the reverse (discovery of money-laundering cases leading to the issuing of fines by HMRC to the involved business)

.

It's not that there isn't a serious need to prevent & deal with money-laundering, but the current focus and allocation of resources appears redolent of a police force that spends all its time issuing fines for minor contraventions of parking regs (as in wheels on the painted line of bay) ... whilst failing to tackle the increase in car theft.

What happened to effective & proportionate resources that are focused on the main priority (which shouldn't be form filling)?

Replies (21)

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By SXGuy
11th Jun 2023 08:38

It's easy money isn't it. Why spend months trying to find money laundering when you can go after people who didn't sign up to the regulations. Disgusting but that's the way of the world.

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Replying to SXGuy:
John Toon
By John Toon
12th Jun 2023 09:42

Really? That's a bit like saying why impound a car when the driver is found not to have a licence...

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Replying to johnt27:
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By Hugo Fair
12th Jun 2023 10:23

No, not 'really'!

SXGuy (on my reading) has used the conditional 'Why/When' (to reinforce the point of misaligned priorities); whereas your 'Why' appears to have no alternative condition (other than failing to penalise).

FWIW in my (admittedly limited and not personal) experience, the police don't usually impound the car when prosecuting for Driving Without a Licence.
Indeed there is a tendency to leave it to the magistrate to 'add' points to the non-existent Licence (held in abeyance until a Licence is acquired) - which is hardly an inducement to regularise the situation by taking a driving Test!

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Replying to Hugo Fair:
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By Tax Dragon
12th Jun 2023 11:31

So a better analogy in the car scenario comes from considering a service provider...

An insurer is required to check that the car is MOT'd and the driver licensed. Should an insurer that fails to check not get his wrists slapped?

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Replying to Tax Dragon:
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By Hugo Fair
12th Jun 2023 11:45

Better, but still no cigar!

The insurer's checks consume no effort (two automated on-line checks), so they are not putting disproportionate effort into this (important) verification ... meaning they can conserve their expensive resources for more complex cases of potential outright fraud (which is what I'd like to see being done by HMRC).

Of course the insurers arguably have it easier than HMRC in that there is a closer alignment between where they put their efforts and where they save money.
[And if they miss an application without valid MoT, for instance, it will come to light when insured has an accident and makes a claim - at which point insurer cancels insurance but without rebating premium : win - win!]

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Replying to Hugo Fair:
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By Tax Dragon
12th Jun 2023 12:57

So you acknowledge both that insurers have a financial incentive not to comply - yet comply - and that the service provider completing an AML checklist has a much meatier task than an insurer ticking a box.

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Replying to Tax Dragon:
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By Hugo Fair
12th Jun 2023 13:26

I've heard of but never tried a VR headset ... however maybe I don't need to as I'm beginning to feel that I've entered a different dimension from yours.

I didn't exactly say "that insurers have a financial incentive not to comply" ... more that there's not much of an incentive to prioritise that specific aspect of compliance - so they do the inexpensive bare-minimum and keep their resources for the meatier, core examples of major fraud.

And of course I agree "that the service provider completing an AML checklist has a much meatier task than an insurer ticking a box" - who wouldn't?
But what has that got to do with anything ... other than indirectly reinforcing my central point (that an already burdensome, albeit necessary, set of AML processes is being disproportionately 'policed' in preference to going after examples where that process hasn't worked i.e. major cases of egregious money-laundering).

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David Winch
By David Winch
11th Jun 2023 10:44

The vast majority (in number, not value) of the penalties I have seen levied by HMRC in this connection are for being in business within the 'regulated sector' without having applied to be AML Compliance supervised by HMRC.
In terms of value there is one very large penalty on a money service business (£1,489,611 penalty on Xpress Money Services Limited) which skews all the averages. The largest penalty I have spotted for an accountancy firm is £26,077. Typically the penalties for accountants have been for less than £5,000. (Estate Agents seem to be suffering higher penalties than accountants.)
To be fair to HMRC, these are details of penalties levied by HMRC under the Money Laundering Regulations. The Money Laundering Regulations do not criminalise money laundering (that legislation is in the Proceeds of Crime Act 2002) so there is no way that these sort of penalties could be directed against instances of actual money laundering.
There certainly are individuals charged with money laundering who are dealt with by the courts, but I agree that there is not clear evidence (which I have seen) that links Suspicious Activity Reports by accountants to prosecutions for money laundering.
Similarly I have to say that I have (in the course of dealing with criminal prosecutions) come across activities of accountants which have, er, raised my eyebrows - but it does not appear that the prosecution have gone on to investigate those accountants or to make a complaint about them to their professional body or regulator.
David
P.S. The OP may be interested in the further details at
https://www.gov.uk/government/publications/businesses-not-complying-with...

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Replying to davidwinch:
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By Hugo Fair
11th Jun 2023 11:47

Thanks David for the insights (and link to details which I'll absorb in due course).

I was aware of the two distinct legislative regimes, but when you say "so there is no way that these sort of penalties could be directed against instances of actual money laundering" .. you are missing my (badly made) point.
What I was trying to note was my (no doubt naïve) surprise at not observing cases of actual money-laundering leading (I should have said indirectly) to new cases of
AML breaches.

If there is reasonable correlation between the two activities then the former creates a set of near 'free hits' for the latter; whereas if there is little correlation then that rather undermines the justification for AML policing, doesn't it?

FWIW I suspect that I was riled by HMRC's piece of PR puffery just BECAUSE it's put together so annoyingly badly - with non sequiturs galore & unsubstantiated claims. For example:

"HMRC’s work with other enforcement agencies and government departments to tackle economic crime and crack down on breaches is working to drive non-compliant firms out of business.
This means that the number of money service businesses has fallen by around a third from 1,508 in 2020 to 1,049 in 2023, and the number of money service business agents has reduced from 35,507 to 30,217 in the same period."

- there may (or may not) be any connection between HMRC's work and those 'results' but no evidence is offered up in support of the claim;
- and since when did putting money service business agents out of business (some of whom may well have been legitimate) constitute a WIN for AML?

Rant over, I'll await the arrival of cooling thunder and then reading the details you've kindly pointed me towards.

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Replying to davidwinch:
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By Hugo Fair
11th Jun 2023 12:01

Actually, having taken the suggested link, I've found it's the same page from which I extracted my summary 'findings' in the original post ...
... so not very illuminating, since:
a) in HMRC's words, there are "technical issues" with the HTML data;
b) they've not provided their usual option to download as CSV (to aid analysis).

They are not, shall we say, not making it easy to judge their claims!

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Replying to Hugo Fair:
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By Hugo Fair
11th Jun 2023 19:35

For those (if there are any) who are still interested ... I've now managed to convert the published HTML into a simple Excel spreadsheet (for 1 Jul to 31 Dec 2022) and, of the sectors which HMRC can supervise, the breakdown of those fined is:

* 133 x estate agency businesses = (avg fine of £6,939)
* 83 x accountants, tax advisers, etc = (avg fine of £4,743)
* 17 x art market participants = (avg fine of £8,112)
* 3 x high value dealers = (avg fine of £2,967)
* 2 x letting agency businesses = (avg fine of £9,050)
* 1 x trust and company service providers = (fine of £5,100)
* 1 x money service businesses = (fine of £1,489,611)!
whilst
* financial and credit businesses + independent legal professionals + casinos = all escaped untarnished.

Even then these high-level stats hide a multitude of 'interesting' aspects (such as some of the 'accountants, tax advisers' apparently being just payroll processors, and a few examples where two supposedly distinct businesses are operating out of the same premises).

And of course we're not made privy to the basis of how these businesses were selected/identified ... targeted sectors? or random reports/discoveries? or ...?

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Replying to davidwinch:
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By Justin Bryant
12th Jun 2023 09:20

"...but I agree that there is not clear evidence (which I have seen) that links Suspicious Activity Reports by accountants to prosecutions for money laundering."

I've seen comments on forums like this from ex-NCA staff and the like saying they are simply too overwhelmed with the volume of such reports to look at them all and so most simply go totally ignored, which is entirely unsurprising.

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Replying to Justin Bryant:
David Winch
By David Winch
12th Jun 2023 09:52

Yes Justin, as I'm sure you know, the NCA currently receive about 900,000 SARs per annum (of which only about 5,000 are from accountants). All the SARs go on a database to which HMRC, police, etc have access. To that extent they are not ignored. However in terms of the available resources to follow these up - those are very limited.
For HMRC, criminal prosecutions are very resource intensive and they have other - much less expensive - options such as civil tax penalties or account freezing orders.
For the police, they also have to think in terms of other priorities, such as violent crime, sex crime, child abuse, etc, etc.

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Replying to davidwinch:
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By Arcadia
14th Jun 2023 10:43

A job for AI to get its teeth into then?

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By ireallyshouldknowthisbut
12th Jun 2023 09:01

Interesting posts Hugo.

I guess they are "effective" to the extent they ensure firms are more likely to follow the AML regs if they know big fines are being handed out, and £4-5k for a small accountant is big cash if you are a part time concern or just starting out. Whilst I assume most small accountants in practice are well into 6 figures profits, lots of people on here have posted they barely make £30-40k.

The regs themselves of course do very little to prevent crime.

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By Tax Dragon
12th Jun 2023 10:31

Hugo Fair wrote:

What happened to effective & proportionate resources that are focused on the main priority (which shouldn't be form filling)?

Not sure of your point, so I'll come at this from two directions...

This is a forum of accountants. (Well, accountants make up a larger proportion of posters here than they do of the population at large... and most people that comment on multiple threads probably have some connection with accountancy.) If not filling in forms, what would you have us do?

Or if you want to remove form filling from the criminal justice system, you need to propose a viable alternative. I would suggest you start that mission elsewhere than money-laundering... of all crimes, this is the one where unearthing the paper trail is likely to provide the strongest evidence.

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Replying to Tax Dragon:
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By Hugo Fair
12th Jun 2023 11:02

Hoist by my own petard (a phrase which I've only just discovered is yet another invention of Mr Shakespeare)!

I refuse to keep relying on the hot weather as an excuse for sloppy English, but what I *meant* to portray was:
... the imbalance of 'effective & proportionate resources' by those *policing* AML compliance - which currently seems excessively focussed on the degree of compliance within the admin, rather than finding or preventing actual money-laundering.
[I agree with your point about 'unearthing the paper trail is likely to provide the strongest evidence' .. but the useful parts of that paper trail are unlikely to be made up of records from the AML 'clearance' process].

The cases that keep being published (in the Articles section of this site) of agents being heavily fined by their PB (in particular ICAEW) are even more illustrative of my concern than the activities of just HMRC as outlined above.

To be clear - I'm not calling for removal of form filling from the criminal justice system (or even just for AML regulation) ... just suggesting that the proportion of effort being put into policing the easy bit (lack or incompleteness of forms) is neither generating much of a payback, nor demonstrably assisting with the core objectives.

Maybe not very original (of me or of HMRC) but I was drawing attention to yet another area where they put ease/cheapness at the heart of their operations than acting like I'd hope a govt function would (with strategic focus, a sense of priority and integrity).

Ah well, back to the sunshine ... :=)

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By Tax Dragon
12th Jun 2023 10:40

PS - a good checklist will prompt its user to think. Trouble follows users completing without thought. Too many AML checklist users don't think. "None of my clients launders money" is surely what most accountants think... but two observations (conclude whatever you want to conclude):

1. That's statistically unlikely.
2. "Disengage and SAR" is, I posit, among the top ten replies in this forum.

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Replying to Tax Dragon:
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By Hugo Fair
12th Jun 2023 11:09

Overlapped with my reply above ... but I agree 100% that (as always) the problem is at heart a human one ('users completing without thought').

I took part in an interesting discussion 10 years or so ago with Treasury/HMRC bods on that topic ... at what point do validation checks become *the* problem (because people are happy to stop thinking and just enter anything that allows them to move on to next step in the process) vs at what point does insufficient validation lead to their back-end systems being overwhelmed with crud?

On t'other hand, as per my earlier response, I'm not calling for removal of the forms .. more of a refocussing of investigative efforts by the 'police'.

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By taxdigital
12th Jun 2023 13:48

If HMRC were to really go after (ignoring resource issues) all the clients of those registered with them for AML, as they did in the following post, then HMRC will have this unique opportunity to cross check the clients' tax records that they hold, with all the information they would be picking up through the AML check.
https://www.accountingweb.co.uk/any-answers/economic-crime-supervisioon

With PBs doing it, HMRC don't have direct access to client records.

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David Winch
By David Winch
13th Jun 2023 08:54
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