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Tax adviser escapes money laundering regulation penalty

1st Apr 2019
Money laundering metal wheel concept

A tax adviser who let his MLR registration lapse escaped a £1,000 penalty as a tribunal found the AML regulations were poorly drafted and could not be applied.

A tax adviser took such umbrage at HMRC’s call for him to enhance his due diligence that he deliberately did not “renew” his registration with HMRC as his supervisory authority. This prompted HMRC to cancel his registration.

The first tier tribunal (FTT) heard an appeal from Northern Ireland-based tax adviser Desmond Martin of Coppergate International, a business which provides tax advice for expatriates mainly in the USA. Martin entered HMRC’s register for tax advisers not supervised by any of the professional bodies in December 2008.

At the tribunal, Martin appealed against an HMRC money laundering penalty after he refused to “spend extortionate amounts of money and time for a pointless activity” -- and won his case.

However, the decision was not based on whether HMRC was right to say Martin had failed to comply with the requirements, but on the fact that the money laundering regulation didn’t apply to the deregistered tax adviser after 2009.

The facts

The case dates back to 2014 when an HMRC anti-money laundering supervision team member told Martin that he must tighten up his due diligence on some clients. However, Martin protested against HMRC’s enhanced due diligence hand-slap and failed to pay the annual MLR fee.

After nearly a year of back and forth, HMRC’s money laundering operation cancelled Martin’s registration in June 2015 and warned that he must not carry on any MLR activity without being registered. And if he did, the team noted that he might be liable to a civil penalty.

By June 2017, on the basis of regulation 42 MLR, HMRC issued a penalty decision notice of £1,000 for trading as an “accountancy service provider” without being registered with HMRC.

Martin asked HMRC to reconsider the penalty because he said he was not aware that he needed to maintain his registration while in dispute about the due diligence requirements. 

He reiterated that he could not comply with their due diligence requirements, asking the tribunal to indicate why he would “need to spend serious amounts of time and money following rules that, although unnecessary in many cases, will achieve nothing in my situation except allow some HMRC officer the satisfaction of knowing that some small business owner is spending a lot of time, or paying someone else to spend a lot of time, doing stuff that doesn’t help his business or the economy or in any way assist with the detection of money laundering”.

Tribunal’s decision

The FTT tribunal had to decide whether the penalty against Martin for carrying on business without being registered was legitimately imposed and in the context of regulation 42, whether Martin’s conduct amounted to a contravention of regulation 33 MLR. 

The case hinged on the “requirement to be registered” text from regulation 33 which says a “tax adviser not otherwise supervised may not carry on that business for a period of more than six months beginning on 1 April 2008 unless he is included in the register”.

The “for a period of more than six months beginning on 1 April 2008” text proved vital in the tribunal’s decision.

If that line of text had been omitted, the tribunal judge would have deemed Martin as deregistered and breaking regulation 33 by carrying on his tax adviser business unsupervised after his registration was cancelled.

Reading the regulations, rather than the HMRC guidance, the tribunal judge found that the MLR penalty could only be applied if the tax adviser was carrying on business on 1 April 2008 and was still carrying it on without being registered on 1 October 2008.

Therefore, the highlighted section would only punish “those businesses which, being in existence at the date the register was established, do not take advantage of a “period of grace” of six months from that date to make an application for registration”.

“The regulation then does undoubtedly allow a period of grace for businesses existing at the date of the start of the relevant register, and where businesses fail to take the benefit of that period, allows for penalties and prosecution for contravention, but it seemed to us that that was all it does."

The tribunal, however, concluded that it does not on their provisional reading apply to any business which was compulsorily deregistered (as Martin was by HMRC) but which continued to carry on the business.


Though the tribunal recognised that Martin is not liable to a penalty for trading while unregistered, it emphasised that it is still within HMRC's powers to monitor his activities and impose penalties for MLR contraventions such as due diligence failures it finds in the future. “Being unregistered does not cause a person to cease to be a ‘relevant person’”

Ending on a conciliatory note, the tribunal judge concluded that Martin would be advised to co-operate with HMRC, re-register and pay the outstanding fees.

Replies (3)

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By memyself-eye
02nd Apr 2019 09:23

Bravo - another taxpayer win!
"A pointless activity".....Quite.

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By johnjenkins
02nd Apr 2019 11:19

Well, no doubt, HMRC will change the rules to suite or will it take a parliamentary amendment?

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David Winch
By David Winch
02nd Apr 2019 11:41

The decision rests on the wording of the Money Laundering Regulations 2007 dealing with their commencement. No similar wording appears in the current version (the 2017 version) of the regulations. So the point will not arise any more.

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