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Low risk adviser ordered to comply with money laundering regulation

10th Jun 2019
Editor AccountingWEB
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Regulations book

The upper tribunal has ruled that an online tax relief business was rightly defined as a ‘tax adviser’ and as a consequence must comply with the money laundering regulations 2007. But is enhanced due diligence really required given its low risk?

You’d think that if you offered tax advice you’d be considered a tax adviser, but an online business offering tax rebates appealed to the upper tribunal (UT/2017/0044) that the first-tier tribunal (FTT) was wrong to come to this conclusion.

Online Tax Rebate Ltd has a business model where it provides tax rebates on unclaimed tax reliefs such as the expenses incurred in washing and laundering uniforms. The company argued that the service it offers is little different to that of tax calculation websites such as moneysavingexpert.com and it provides generic information that is readily available in HMRC’s manuals.

The business felt that the FTT didn’t apply proportionality of a “risk based approach” when it deemed the company within the scope of the money laundering regulations.

Andrew Young, counsel for Online Tax Rebate, pointed out that the money laundering directive was enacted because of a concern within the EU of “massive flows of dirty money”.

The tribunal agreed that the EU directive emphasises “the importance and proportionality of a ‘risk-based approach’ such that simplified due diligence is appropriate in cases of low risk”.

Tribunal dismisses appeal

However the upper tribunal dismissed all of the company’s grounds for appeal, and therefore, the business still has to pay the £2,500 low-risk money laundering penalty imposed at the FTT.

The upper tribunal said that the company was not “simply agreeing to act as a recipient of a cheque from HMRC and charging for that service… it was prepared to tell those employees (i) how much relief they might obtain and (ii) how they should claim it provided that the employees in return agreed to pay the Company a fee if the process resulted in HMRC making a refund”.

The upper tribunal said this service was more that “mere marketing”. The company also believed – but “wrongly” as the UT pointed out – that HMRC was their customer.

In the FTT, it also appeared as though Online Tax Rebate was claiming that it was entitled to rely on due diligence undertaken by HMRC or the Royal Mail. The company has seemingly backtracked and said that this was not part of their case. It wanted to convey that by relying on information from HMRC and the Royal Mail, it was effectively checking identity.

This, of course, didn’t hold much ground with the upper tribunal.

Wrong argument?

Although the upper tribunal rejected all appeals, it did feel that options still remained open for Online Tax Rebate.

“Given the acknowledged very low risk of money laundering or terrorism finance in the Company’s business model, the requirement for enhanced customer due diligence is a little surprising,” it said.

The upper tribunal left this option on a point that wasn’t even argued before them or the FTT: whether there was an “element of duration” in the relationship between the taxpayer and the appellant. 

The upper tribunal was not convinced that the company had a “business relationship” with its customers that had the requisite “element of duration”.

“It seems to us at least possible that the company’s relationship with its customers was essentially transactional: to achieve a particular one-off result including the adjustment of a tax code coupled with a possible repayment of tax,” considered the upper tribunal.  

“The fact that such a result could not be achieved instantaneously does not seem to us to compel the conclusion that the relationship had an ‘element of duration’, since few, if any, transactions can be effected instantaneously.”

The upper tribunal support for this interpretation in the regulation where the trigger for performing customer due diligence measures for an “occasional transaction” is €15,000 or more.

“On that interpretation, the company never established a ‘business relationship’ with its customers and, because the tax reclaims in issue would in virtually all cases have involved considerably less than €15,000, the company was not carrying out an ‘occasional transaction’ either and so had no obligation to perform due diligence.”

It was a point picked up by AccountingWEB reader Justin Bryant who called this missed opportunity “very embarrassing for the appellant’s counsel”.

But as money laundering expert and director of Bartfields Forensic Accountants David Winch told AccountingWEB “Maybe that’s [a discussion] for another day”.

For Winch the case was pretty clear that the appellant was acting as a tax adviser but “as the upper tribunal noted in a postscript, the 2017 money laundering regulations are differently worded – so this decision is perhaps of historic interest only”. 

Replies (2)

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By AnnAccountant
12th Jun 2019 08:51

So their defence is that they did not actually provide the services that they were marketing? Instead, the claims made to their customers were "mere marketing".

I'd be inclined to prosecute them for this dishonesty that they have admitted to.

Are there any ethics left? Everyone seems to be just going round, telling whatever lies they like and getting away with it - even when they admit to them in front of a judge.

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Replying to AnnAccountant:
By Justin Bryant
13th Jun 2019 15:11

Blimey, calm down will you. After all, this isn't an anti-loan charge story (hanging is too good for them I'm sure is your latest view there). Possibly like Boris even you have broken the law at least a few times by exceeding the 70 mph (or other) speed limit or whatever.

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