Managing Editor

AccountingWEB

Have you found this content useful? Use the button above to save it to your profile.

Accountancy firm stung with £16,891 AML penalty

An accountancy firm must pay a penalty of almost £17,000 for anti-money laundering non-compliance after taking over six months to make a late appeal to the tax tribunal.

4th Apr 2022

21 comments

Richard Hattersley

Managing Editor

AccountingWEB

Have you found this content useful? Use the button above to save it to your profile.

Delta Tax Agents Ltd was refused permission by the tax tribunal to appeal an anti-money laundering (AML) penalty after the accountancy firm failed to explain the reasons for taking six and a half months to file its appeal.

HMRC imposed a £16,891 penalty on the firm after identifying three breaches of the 2007 money laundering regulations and four breaches of the 2017 regulations. The Bradford-based firm was given 30 days to provide any more information, but the director of the firm took 227 days to make a formal appeal to the tax tribunal.

David Deacon, one of the firm’s directors along with his wife, appealed against HMRC’s decision to refuse a right of appeal after the window elapsed because “further information came to light”. But he didn’t explain what the new evidence was or provide any new documents.

Judge Jane Bailey denied Delta Tax Agent’s appeal after concluding that the firm had not “adequately explained or justified any part of its six and a half month delay in filing an appeal”.

The non-compliance

The firm was first pulled up on its AML non-compliance during an HMRC inspection in January 2018. HMRC officers found the firm did not have a formal risk assessment in writing for new clients and that their policy and procedure documents had not been updated to take into account the 2017 regulations.

Deacon blamed staffing issues for failing to carry out customer due diligence and accepted that the firm didn’t have copy identity verification documents for a number of clients.

A spreadsheet provided by Deacon showed that 297 clients out of 405 had incomplete customer due diligence. When the inspectors reviewed a sample, 14 out of the 15 clients had no identity documentation or evidence of customer due diligence and only the 15th client had one verification document.

Attempt to rectify the situation

Deacon accepted that the firm was behind in its documentation, but in a letter to the HMRC officer in May 2018, he argued that the small company has made “great attempts to rectify the situation” since its last review in 2016, such as the “significant cost and associated risk” of recruiting of new further staff members.

He added, “To suggest that risk assessments have not taken place with client relationships is erroneous as great measures are and always have been in place. Perhaps the only weakness in this area by the company has been the lack of documentary evidence to demonstrate this. Staff training is carried out on a weekly basis and always covers client risk assessments and due diligence.”

At the end of May 2018, the HMRC officer invited the director to send any documents that supported his comments.

But Deacon fired back in an email on the same day, contending that the “work carried out by Delta Tax Agents Ltd is extremely low risk” and the “company does not engage with high risk businesses involved with large cash transactions”.

In another email, he informed the officer that the firm was in the process of engaging a specialist company to update the firm’s policies and procedures.

HMRC initially imposed a £20,000 penalty against the firm, which was capped at 10% of the firm’s gross profit. But after complaining that the penalty was excessive and would have a detrimental effect on the company, Deacon admitted that he had overstated the firm’s gross profit and recalculated the number. The tax authority wrote back to confirm a penalty of £16,981 had been imposed.

A reasonable excuse?

After being given 30 days in June 2018 to ask for a review or appeal the decision, Deacon didn’t correspond with the HMRC officer until January 2019 when he again raised concern about the penalty figure and the information published on the government gateway website.

Deacon requested a review a month later after “further information came to light”, but he didn’t expand on what information had emerged. The next correspondence came in March 2019 when Deacon lodged an appeal to the tribunal against both penalties.

In an accompanying ‘statement of case’ document, Deacon explained that due to a chronic disability he was extremely ill and this affected his “ability to deal with this matter within 30 days”.

He also claimed that he was unaware of his rights to request a review “as this was not made aware to me” and argued that he was seeking professional advice.

Judge’s decision

The judge acknowledged that Deacon was “bedridden” but pointed out that he was well enough to correspond with HMRC up to the date of penalty notice and never said he needed more time due to health.

The judge noted that Mrs Deacon, the firm’s other director, could have stepped in and filed an appeal on behalf of the firm.

Deacon also failed to convince the judge that new evidence had come to light, since no new documents had been disclosed and he didn’t raise any new points to the tribunal.

The judge also disagreed with Deacon’s claim that the firm wasn’t notified of the right to seek a review or appeal, as the letter from HMRC in June 2018 contradicts his assertion.

In dismissing the firm’s appeal, the judge said the firm had “taken seven times the time permitted by the 2017 Regulations to file its appeal” and they had not “adequately explained or justified any part of its six and a half month delay in filing an appeal”.

The firm must now pick up the AML penalty of £10,979.15 imposed under the 2007 Regulations, and £5,911.85 imposed under the 2017 Regulations.

Tags:

Replies (21)

Please login or register to join the discussion.

By memyself-eye

04th Apr 2022 17:07

while the accountancy profession is hammered by fines, I wonder how many oligarchs (and their acolytes) have suffered any penalties.....
Sledgehammer to crack (not even) a nut, as usual.

Thanks (11)

Replying to memyself-eye:

By Rgab1947

05th Apr 2022 10:00

None I would suggest.

Then the banks. Massive laundering going on their and only when its so large (£/$ billions) that they cant ignore it do the authorities do anything.

I too have small clients whom I know very well who sell services locally to firms I also know but still have to spend a whole day documenting per AML.

Thanks (1)

Replying to Rgab1947:

By BryanS1958

05th Apr 2022 11:04

A whole day seems a bit excessive. Normally 10-15 minutes per client is sufficient, although frankly it is 10-15 minutes wasted. Just jumping through hoops for bureauprats.

Thanks (0)

Replying to BryanS1958:

By Rgab1947

05th Apr 2022 11:19

Try doing it on the AMLCC software. I even have to tell them my local IT support guy is not selling to the USA. Or a PEP or whatever. Maybe I am slow in ticking boxes and writing up the Know Your Client stuff. And a lot of procrastination. Tick a box, sighn, tick anothe box, go and watch the news for a bit, make coffee, tick another box.

Thanks (0)

By Paul Crowley

04th Apr 2022 18:35

HMRC tick box culture
Agree memy

Thanks (5)

By atleastisoundknowledgable...

04th Apr 2022 21:38

TBF on Deakin, how many of us can say our AML/DD is perfect? 90% of my clients had e-verifications the last week in November when the ACCA AML questionnaire deadline came about. Not actually sure if we’ve done any since, I’d better look at that tomorrow.

Small firms are chronically short staffed, especially in this current market. This is the first thing that’s let slip b

Thanks (3)

By Winnie Wiggleroom

05th Apr 2022 07:21

The guy broke the rules by not keeping proper records, obviously we do not know the full details and it sounds like this is a bit more than just the odd ID check missing, however I have a lot of sympathy for a small practice that most likely deals with small traders mostly in the local area in the same way they have done for many years having to jump through hoops and document all the details of the huge risk to the economy of taking on the local builder as a client!

But I guess the point is that you must have your processes in place. It is not good enough to say that you made a risk assessment you have to write it down - even if every single client has the same thing written about them - low risk!

Thanks (1)

By Michael Beaver

05th Apr 2022 09:27

I admit this kind of thing is scary. We have AML procedures in place and tools for ID verification, but when you are relying on your staff to keep to the procedures it's impossible to be sure that they are. Even an annual random sample won't pick up any that slip through the cracks.

What if you have a review and get a very unlucky sample?

Thanks (2)

By ireallyshouldknowthisbut

05th Apr 2022 09:55

come off it, this chap had 2/3rd of his ID missing by his own admission, and HMRC put this at 14 and half out of 15

That is more than the odd one or two

Moreover "blaming the staff" is quite frankly pathetic and it sounds like he came up with a load of bluster and no evidence for this basic failing. it comes across as "this rubbish should not apply to me (and quite frankly I might agree with him there) as opposed to "we stuffed up and this is what we have done to fix it" which I imagine would have ended quite differently. Being belligerent in the face of getting your knuckles rapped is never a good look. Head down, sorry sir, wont happen again is the way to play it.

Thanks (3)

By johnjenkins

05th Apr 2022 10:08

If this is the sort of thing that is now going to happen in AML, just think of what is going to happen in MTD. It really is little wonder Accountants of a certain age are retiring.
When HMRC are perfect then, yes, hit us with fines, but until then ...................

Thanks (6)

By Ammie

05th Apr 2022 10:14

Perhaps the resources dedicated to AML are better redirected to more enquires, investigations and visits, sampled on risk, because the authorities, with the help of digital advancements, have more than enough information to be able to concentrate their efforts this way.

Piling endless compliance on micro practitioners with the threat of a big stick is not particularly fruitful and has limited effect, demonstrated by the additional tightening of the MLR legislation over the years and which will become more so as we go forward.

Certainly, extreme cases of non compliance need to be dealt with but from a different perspective than it is. Eg if a visit reveals material failures.

How much more unpaid civil service work can we do?

Thanks (4)

By tedbuck

05th Apr 2022 10:30

It all comes back to the same starting point

1 Government wastes too much money on crackpot projects and too many civil servants and inefficient bodies like the civil service and NHS.
2 Where do we get the money from? Can't raise taxes because we said we wouldn't. I know let's get it from fines! GDPR, AML and anything else we can think of - I know what about inventing a new type of quarterly MTD for SA - that has got to be easy money and we'll get it from the little people who can't afford it and won't understand but don't know enough to complain.
3. We can change the name of the state to 'Putinland' then the plebs will get the message - Pay - up or else!

NB This is not a political statement merely a statement of fact.

Thanks (4)

By Tom 7000

05th Apr 2022 10:48

You were told on the first visit what to do...
You ignored your instructions...

What did you think would happen....

You can apply that to most things in life....

Thanks (3)

Replying to Tom 7000:

By justsotax

05th Apr 2022 11:21

if only....

If you are higher enough up the chain....you will escape any of these issues....rules are for the little people......

Thanks (2)

By North East Accountant

05th Apr 2022 12:43

Wish we could charge HMRC £17K for every letter they took over 6 months to answer.......I'd be retired abroad by now.

Thanks (9)

Replying to North East Accountant:

By lh3f9764bg1g

05th Apr 2022 14:44

We wrote to HMRC in February April 2021 about a client's refund which was due for 2019/20. No response. In December 2021 we submitted the 2020/21 Tax Return. In January 2022 client received both repayments. In March 2022 we received a letter from HMRC replying to our letter of April 2021 basically saying . . . . . what are you talking about - this person has received any repayments that are due! Yes, yes . . . . . but . . . . . gah . . . . . I can't be bothered even responding to that.

Thanks (1)

By Ian McTernan CTA

05th Apr 2022 13:23

How much actual money laundering was detected here? Zero.

This is just another example of what the AML provisions do in practice: generate enormous fines, take up huge amounts of time and resources, whilst actually catching real ML not at all.

I wish someone would thoroughly review all this incessant red tape and move all the wasted resources to actually trying to catch the actual ML people!

Thanks (6)

Replying to Ian McTernan CTA:

By BryanS1958

05th Apr 2022 14:38

Sadly a review would be far too sensible an idea and therefore will not happen.

I'm afraid bureauprats have to justify their existence and need penalty income to pay for their costs. The incessant checking for no purpose MUST continue, otherwise someone might actually have time to look at whether the checks have any benefit!

Thanks (0)

By GHarr497688

05th Apr 2022 14:02

I take so much time up doing risk assessments and know your client for a little window cleaner who lives in a small modest house - wife works in a full time job. I feel I am just wasting my time on these small clients. I then was so annoyed when MTD ASA came along and so many Accountants hadn't even bothered to register let alone comply. HMRC then rushed through application so that MTD would work rather than fail with it becoming Law. I was even more dismayed when HMRC didn't renew my AML licence by failing to renew last year online leaving me (through no fault of my own) risking not being registered . After my Local MP got involved HMRC quickly renewed with an apology to me. I now see this article and I wonder what the purpose of the fine is. Surely many other AML registered business entities might not be fully complying. I would think instead of naming and shaming firms HMRC might : look into it own processes , what are the benefits of AML , are the compliance rules too strict , how many are not complying , educating rather than punishing individuals and apply some common sense rather than one rule fits all. If someone want to Launder Money they are unlikely to use an AML registered business but are more likely to get a gifted amateur to open a business tax account on their behalf and use the new MTD rules to do their own accounts laundering as much as they wish.

Thanks (4)

By Slim

05th Apr 2022 14:05

I don’t see why we should have a greater burden than banks, a nice streamlined process like they have would help.

Thanks (1)

Replying to Slim:

By tedbuck

25th Apr 2022 10:32

This was the process NatWest had, I guess - wrap up your money in black bin bags and we'll accept it - no questions asked!!!!!

Other banks I have dealt with are so heads in their backsides that just trying to open a bank account is like breaking into Fort Knox.

Still I suppose that if you can't have a bank account then cash is king and the safe under the bed isn't subject to tax because it isn't digital is it? Now there's a thought going forwards - bet HMRC haven't thought of that one.

Thanks (0)