HM Revenue and Customs (HMRC) is one of the 25 Anti-Money Laundering (AML) supervisors in the UK. HMRC fulfills its supervision responsibility through Anti-Money Laundering Inspection (AMLS) teams. HMRC inspects more than 30,000 businesses from 9 different sectors within the scope of its regulations. These nine sectors are as follows:
- Money Service Businesses (MSBs)
- Accountancy Service Providers (ASPs)
- Trust or Company Service Providers (TCSPs)
- Estate Agency Businesses (EABs)
- Letting Agency Businesses (LABs)
- Art Market Participants (AMPs)
- High-Value Dealers (HVDs)
- Bill Payment Service Providers
- IT and Digital Payment Service Providers
In the 2019-2022 Economic Crime Plan, HMRC has committed to providing an advanced risk-based approach to its audit by March 2021 and undertaking an annual self-assessment of money laundering enforcement. The purpose of HMRC is to ensure that the department is in compliance with the relevant money laundering regulations and meets the standards set by the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) Sourcebook (January 2018). Although HMRC's performance is currently in line with the recommendations in this book, it is possible to improve performance and provide better risk-based control over HMRC.
Risk-Based Approach
By Regulation 17 of the money laundering regulation in the United Kingdom, auditors are required to carry out a risk assessment covering international and local risks related to money laundering and terrorist financing in the sectors they supervise. This assessment should be informed by specific documents, including the National Risk Assessment and the European Commission's Transnational Report on Money Laundering. The supervisor should keep in writing an up-to-date record of the steps it takes to make its assessment.
Supervisors should have a written risk profile for every business in their industry and update them regularly in response to developments. Besides, it requires the supervisor to use its risk profiles to decide the frequency and intensity of on-site and off-site inspections.
According to the OPBAS Sourcebook, Professional Body Supervisors should implement:
- Ensuring that measures to reduce money laundering are proportionate to risks
- Taking a risk-based approach, focusing efforts and resources on the highest risks
- Regularly reviews the risks to the industry
- Supporting its members in complying with a risk-based approach
Sector Risk Assessments
HMRC has assessed the risks presented by each of its audited industries, and these assessments are considered a good basis. By April 2021, HMRC will have completed more comprehensive and consistent written risk assessments for all its sectors. These documents further elaborate on HMRC's assessment of risks in the industry, including various reports such as the National Risk Assessment and the EU Transnational Risk Assessment and industry intelligence and staff experience. They clearly state how risk is assessed based on probabilities, such as product, customer, or geographic risk factors, and the potential impact of risk due to the size of the business and/or links with other businesses. Interventions are made for both large and small enterprises according to the risk.
Risk assessments also identify the preferred strategy for addressing these risks, including Incentive, Prevent, and Respond campaigns in accordance with HMRC's compliance strategy. HMRC has a process to ensure that these reviews are reviewed as soon as possible, if not at least quarterly, and kept up to date.
Money Laundering Regulations Sanctions and HMRC
Since its review in 2018, HMRC has decided it needed to take a more robust approach to supervision. Following this approach, HMRC sought to increase the value of financial penalties where necessary and to take greater advantage of a wide range of sanctions, including:
- censuring statements
- temporary or permanent management prohibition
- suspension or cancellation of registration
- Criminal prosecution for violations of the money laundering regulations
Financial penalties
Between 2015 and 2016, HMRC issued 1,153 audit fines, with an average of £ 500. The vast majority (1,140) of them were registration fines. From 2019 to 2020, the number of fines decreased to 31, but the number of fines increased significantly to an average of £ 290,000.
The average value of fines hides a significant inequality between sectors. From 2019 to 2020, the MSB and EAB sectors received more significant penalties, including a £ 7.8 million MSB penalty and a £ 1 million EAB penalty. During this period,
Temporary or permanent management prohibition
HMRC was previously clear that this sanction should not be taken lightly, given that it would deprive someone of their livelihood in a regulated industry. This may explain why this sanction has not seen significant use historically, although the number of governing bans is now increasing.
Reprimand statements
HMRC has not yet issued a censorship statement regarding the violation of the money laundering regulations.
Criminal proceedings
HMRC's AMLS team where criminal prosecution cases come when required.
Intervention Outcomes
It imposed financial penalties on nine sectors that it was liable for as a result of HMRC audits. The total fines imposed between 2015-2016 under these penalties are £ 558,436.00. Total fines given between 2016 and 2017 are £ 1,182,179.16. Total fines given between 2017-2018 are £ 2,258,656.00. The total fines given between 2018-2019 are £ 1,226,436.87. Total fines for the years 2019-2020 are £ 9,066,033.00. You can examine the image below to understand how these fines are spread on a sector basis. Besides, as you can see in the image, there is no penalty data for Art Market Participants before 2019 because Art Market Participants have started to report from 2019-2020.
We have provided a summary of HMRC's annual review of the Anti-Money Laundering Audit above, but this assessment is much more comprehensive. For detailed information, please check here. Apart from that, HMRC mentioned in the assessment report that it would make the audits more comprehensive and the importance of risk assessment. The purpose of all these inspections and regulations is to prevent and reduce financial crimes such as money laundering in the UK. For this reason, nine sectors specified as liable by HMRC must comply with these regulations and pass inspections. It is challenging to facilitate these inspections and easily comply with regulations, of course not for businesses that prefer Sanction Scanner.
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