Money Laundering – High Value Dealers
Money Laundering – High Value Dealers
Regulations aimed at preventing money laundering place procedural requirements on businesses that deal in goods and accept large cash payments. A business is defined as a High Value Dealer (HVD) where it deals in goods and accepts cash equivalent to €10,000 or more in any currency. If you have a business in this category in the Nottingham area, we at AHACCOUNTANTS can assist you with various matters relating to the regulations.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended) (the Regulations) apply to a number of different businesses, including accountants and auditors, tax advisers, and dealers in high-value goods. The Regulations contain detailed procedural anti-money laundering requirements for those affected.
HMRC has been given the responsibility for supervising High Value Dealers. Below, we outline the main requirements of the Regulations and the registration process.
Which Businesses Are Affected?
Businesses that meet the definition of a High Value Dealer (HVD) are affected by the Regulations.
A business is defined as an HVD if it deals in goods and accepts or makes cash payments equivalent to €10,000 or more in any currency, including when a customer deposits cash directly into the HVD’s bank account or when they pay cash to a third party for the benefit of the HVD. This applies whether the transaction is executed as a single transaction or in several linked instalments.
Businesses that only occasionally accept or make such transactions are included. However, businesses that do not accept large amounts of cash or deal in services are not affected. Generally, the businesses most affected will be those that deal in high-value or luxury goods, works of art, cars, jewellery, and yachts. However, the regime applies to anyone who accepts sufficiently large amounts of cash for goods, meaning any business could potentially be registrable.
If an HVD does not intend to accept high-value payments, it should have a written policy to this effect and ensure that employees and customers are aware of this policy.
Art Market Participants
An art market participant is a person who, by way of business, trades in or acts as an intermediary in the purchase or sale of art with a value exceeding €10,000. An art market participant is required to register with HMRC regardless of how such payments are made or accepted; that is, the requirement to register is not restricted to those who make or accept cash payments.
How Is My Business Affected?
If your business does deal in goods and accepts or makes large cash payments, then you are required to:
- Put anti-money laundering systems in place to identify and prevent money laundering and report any suspicious transactions.
- Register with HMRC.
- Pay an annual fee based on the number of premises through which you trade. There is also an application charge for new registrations.
- Report any changes throughout the registration year.
If you are unsure whether you will sell goods for this amount and do not register, you will be obliged to refuse any cash payments or refunds equivalent to €10,000 or more or insist upon payment by another means, such as cheque, credit, or debit card.
Background to the Requirements
Why Was This Regime Introduced?
The aim of the regime is to help protect society and combat money laundering and the criminal activity underlying it, including terrorism. As money launderers have resorted to more sophisticated ways of disguising the source of their funds, new legislation and regulation became necessary.
The primary legislation is predominantly contained within the Proceeds of Crime Act 2002 and the Terrorism Act 2000, as amended by the Terrorism Act 2006 and subsequently the Counter-Terrorism Act 2008. The 2017 Regulations (as amended) implement the EU Fourth and Fifth Money Laundering Directives, aiming to improve and tighten the regime to tackle money laundering and terrorist financing. Brexit has not affected the application of these regulations.
What Is Money Laundering?
Money laundering is the process by which criminally obtained money or other assets (criminal property) are exchanged for ‘clean’ money or other assets with no obvious link to their criminal origins.
Criminal Property: Criminal property represents the proceeds of criminal conduct, including any conduct that would constitute a criminal offence if committed in the UK. It includes drug trafficking, tax evasion, fraud, forgery, theft, and other criminal offences committed for profit.
It is essential to remember that money laundering includes the proceeds of any crime, not just the more traditionally associated crimes like drug trafficking and prostitution.
Under the legislation, there are three principal money laundering offences covering criminal activity and two related money laundering offences:
- Concealing, disguising, converting, transferring, or removing (from the United Kingdom) criminal property.
- Making arrangements which facilitate the acquisition, retention, use, or control of criminal property by or on behalf of another person.
- Acquiring, using, or possessing criminal property.
- Failure to disclose knowledge or suspicion or reasonable grounds for knowing or suspecting that another person is engaged in money laundering or terrorist financing.
- Revealing that a disclosure of suspicion of money laundering has been made or that an investigation into money laundering offences is being carried out, where this is likely to prejudice an investigation (known as ‘tipping off’).
HVDs must be aware of how these actions could affect their business, as proceeds of crime may be spent (or laundered) within their business.
The Importance of the Regime
The law imposes severe penalties on anyone involved in money laundering. The Regulations require HVDs to adopt anti-money laundering procedures to protect themselves against abuse by money launderers and the risk of prosecution.
The Registration Process
HVDs register with HMRC using their online service. If you already have a Government Gateway account, you can use this User ID and password to sign in; otherwise, you can register for an account as part of this process.
HMRC will review your application, which can take up to 45 days. Remember that you cannot accept or make any cash payments over €10,000 until you are registered. You will receive an email when a decision has been made on your application, but you must sign into your account to see that decision.
Registration is required where a business:
- Accepts or makes payments equivalent to €10,000 or more in cash for a single transaction or linked instalments.
- Takes a policy decision to carry out such transactions.
Every legal entity through which an HVD business is run must be registered. An initial fee of £300 is payable for registration for each premise listed on the application. Annual renewals of £300 per premise apply. The 2017 Regulations require approval tests of ‘key personnel’ to check for relevant criminal convictions. This non-refundable charge is £40 per person.
Businesses that fail to register could be liable for a civil penalty if they carry out a HVD transaction.
What Anti-Money Laundering Policies and Procedures Are Required?
Your business should establish, review, and maintain policies and procedures relating to:
- Customer due diligence
- Risk assessment and management
- Monitoring and managing compliance
- Reporting
- Record keeping
- Internal control
- Internal communication of these policies and procedures.
Customer Due Diligence (CDD): HVDs must establish the identity of any customer who makes or is refunded a total cash payment equivalent to €10,000 or more for a single transaction or linked transactions. Establishing identity requires you to obtain evidence of their name, address, and date of birth.
Risk Assessment: HVDs must carry out a risk assessment to identify and assess the risks of money laundering and terrorist financing to which the business is subject. You must document this assessment and any underlying information used to make it.
Appoint an Individual as the Officer Responsible for Compliance: The Regulations require a member of the board or senior management to be the officer responsible for compliance with the Regulations. HMRC must be informed of the identity of this individual upon appointment and any subsequent changes.
Appoint a Money Laundering Nominated Officer (MLNO): This role should be performed by a suitably senior person, who can also be the officer responsible for compliance with the Regulations. The MLNO’s main roles should include:
- Establishing necessary procedures to implement the requirements of the Regulations.
- Receiving and reviewing reports of possible money laundering from others in the business.
- Deciding whether to report to the National Crime Agency (NCA).
Establish an Independent Audit Function to Assess Compliance: HVDs should ensure their policies are appropriate and being properly implemented, making necessary changes as required. Larger organisations may establish an independent audit function, while smaller businesses might conduct an annual internal or external check of their procedures.
Screen Relevant Employees: When hiring new staff involved in compliance with the Regulations, HVDs must screen them to ensure they have the appropriate knowledge and skills for the job and to assess their conduct and integrity.
NCA: The NCA is the government body to which all suspicions of money laundering should be reported via their website.
In cases where an internal report of suspected money laundering is received by the MLNO, specific NCA procedures must be followed before the transaction can proceed.
Training Your Staff
All customer-facing staff must be trained to be aware of:
- The law regarding money laundering offences and terrorist financing.
- How to recognise and deal with suspicious transactions.
Training should be regular to maintain staff knowledge and competence in applying CDD procedures.
Managing the Risk
HVDs should:
- Have a system in place to record all transactions of €10,000 or more on their accounting system and make them identifiable.
- Have policies and procedures concerning the acceptance of these large transactions.
Record Keeping
Records that must be kept include:
- A copy of, or references to, the evidence of the customer’s identity obtained under CDD procedures.
- Supporting records concerning the source of funds received.
- Copies of all reports made to the NCA and the outcome of those reports.
- Evidence of staff training.
What Happens If I Don’t Comply?
HVDs must maintain appropriate records to demonstrate compliance with the Regulations. Failure to comply can result in:
- Civil penalties, including fines.
- Criminal prosecution.
- Losing your registration to operate as an HVD