Money Laundering Regulations 2007 - guidance

11th September 2007

New draft guidance on registering with HMRC has been released

The Money Laundering Regulations 2007 are due to come into effect on 15th December 2007. They will give effect to the European Union Third Money Laundering Directive, which can be found here. They require action by persons known as “relevant persons” (see regulation 1(3)) These include trust and company service providers, which are defined as firms or sole practitioners who, by way of business,

“provide any of the following services to other persons—

(a) forming companies or other legal persons;
(b) acting, or arranging for another person to act—
- (i) as a director or secretary of a company;
- (ii) as a partner of a partnership; or
- (iii) in a similar position in relation to other legal persons;
(c) providing a registered office, business address, correspondence or administrative address or other related services for a company, partnership or any other legal person or arrangement;
(d) acting, or arranging for another person to act, as—
- (i) a trustee of an express trust or similar legal arrangement; or
- (ii) a nominee shareholder for a person other than a company whose securities are listed on a regulated market,

when providing such services.”

These persons must take measures for the purpose of preventing operations relating to money laundering and terrorist financing. These include “customer due diligence”, ongoing monitoring, record-keeping, training and risk assessment. Policies and procedures need to be adopted.

They require relevant persons (amongst other things) to identify the “beneficial owner” if that person is different from the “customer” (regulation 5(b)). Where there is a trust, the beneficial owner is defined as (regulation 6(3)):

“(a) any individual who is entitled to a specified interest in at least 25% of the capital of the
trust property;
(b) as respects any trust other than one which is set up or operates entirely for the benefit of
individuals falling within sub-paragraph (a), the class of persons in whose main interest
the trust is set up or operates;
(c) any individual who has control over the trust. “

From this it can be seen that trusts and trustees will be affected by the new regulations and they will need careful study by trustees. Trust service providers will not be entitled to act as such unless they are registered under the regulations (regulation 26(1)). Registration must be refused if the trust service provider or someone involved with it is not a fit and proper person (regulation 28).
For these purposes, a person is not a fit and proper person if he:

(a) has been convicted of—
- (i) an offence under the Terrorism Act 2000;
- (ii) an offence under paragraph 7(2) or (3) of Schedule 3 to the Anti-Terrorism, Crime
  and Security Act 2001;
- (iii) an offence under the Terrorism Act 2006;
- (iv) an offence under Part 7 (money laundering) of, or listed in Schedule 2 (lifestyle
  offences: England and Wales), 4 (lifestyle offences: Scotland) or 5 (lifestyle
  offences: Northern Ireland) to, the Proceeds of Crime Act 2002;
- (v) an offence under the Fraud Act 2006 or, in Scotland, the common law offence of
  fraud;
- (vi) an offence under section 72(1), (3) or (8) of the Value Added Tax Act 1994; or
- (vii) the common law offence of cheating the public revenue;

(b) has been adjudged bankrupt or sequestration of his estate has been awarded and (in either case) he has not been discharged;
c) is subject to a disqualification order under the Company Directors Disqualification Act 1986;
(d) is or has been subject to a confiscation order under the Proceeds of Crime Act 2002;
(e) has consistently failed to comply with the requirements of these Regulations, the Money
Laundering Regulations 2003 or the Money Laundering Regulations 2001;
(f) has consistently failed to comply with the requirements of regulation 2006/1781/EC of
the European Parliament and of the Council of 15th November 2006 on information on
the payer accompanying the transfer of funds;
(g) has effectively directed a business which falls within sub-paragraph (e) or (f);
(h) is otherwise not a fit and proper person with regard to the risk of money laundering or
terrorist financing.”

HMRC have released draft guidelines for Money Service Businesses, High Value Dealers, Accountancy Service Providers and Trust or Company Service Providers to find out whether they need to register, when and how to register, what fees they will need to pay and what the new fit and proper test is for Money Service Businesses and Trust or Company Service Providers. Find the regulations here. Find the guidance here.

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