In Jackson Grundy Limited v HMRC [2016] TC04981 the First-tier Tribunal (FTT) reduced an estate agent’s record breaking penalty for money laundering failures by £164K. The Office of Fair Trading
The Money Laundering Regulations do not set out exactly how penalties are to be calculated. This is left to the supervising body, with the requirement that penalties have to be ‘effective, proportionate and dissuasive’.
The penalty in this case was imposed by the Office of Fair Trading (OFT) who were responsible for money laundering compliance of estate agents at the time. When the OFT was abolished in 2014 HMRC took over this responsibility, including any continuing penalty disputes.
- The taxpayer is an estate agent with 10 offices in different Northamptonshire villages.
- During a compliance visit the OFT found several money laundering failings:
- It was common for the office managers to know potential vendors already, in which case no formal ID was requested.
- Where a vendor wasn’t known to the office manager ID would be requested, but no copies were kept.
- The taxpayer had a money laundering policy, but it was out of date.
- Following their compliance visit the OFT levied a large penalty, equal to 45% of the taxpayer’s after tax profits.
- At the time of the visit the taxpayer was struggling with very difficult trading conditions, which led to reorganisation of the business and a large number of redundancies.
The FTT found that the penalty was not proportionate taking into account the taxpayer’s behaviour and the consequences for them of such a large penalty:
- The taxpayer’s failings were more trivial then substantive: they largely related to record keeping and documentation.
- Although the taxpayer’s conduct did not follow the Regulations, it was most unlikely this would have resulted in any money laundering being missed.
- The penalty represented nearly half of the company’s net profits, and these were largely used to make up the remuneration of the directors.
- The OFT did not take into account the problems facing the business, or the potential loss of trade due to negative publicity (the penalty was highly publicised as it was by far the highest penalty ever imposed on an estate agent).
- The level of penalty calculated under HMRC’s guidelines would have been much lower than that imposed by the OFT.
Applying HMRC’s guidelines the FTT recalculated the penalty, and concluded it should be reduced from £169,652 to £5,000.
The FTT was very sympathetic to the taxpayer saying that, in their opinion, he had suffered ‘considerable injustice’ and the fact that the penalty was 17 times higher than any previous penalty for an estate agent was ‘outrageous’.
Links
Our subscriber guides:
Money Laundering Checks: know your client
Money Laundering Regulations: Accountants' Registration
Case reference: Jackson Grundy Limited v HMRC [2016] TC04981
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