Following the coming into force of the Money Laundering Regulations 2007 (the Regulations) in December 2007 there was concern as to the scope of "Trust or Company Service Provider". On one interpretation, this could have extended to all directors and non-executive directors (and directors providing such services through personal service companies). This would have meant that all directors would have had to apply to HMRC to register for supervision to ensure they complied with the Regulations and they would have had to put in place policies and procedures (as required under the Regulations) to deal with money laundering. Industry considered that this interpretation was incorrect and lobbied HMRC. The baton was picked up by business and through lobbying in which the firm was involved, helped to persuade Treasury and HMRC to reconsider the guidance being given to industry as to the extent of these provisions.
The Money Laundering Regulations 2007
Under the Regulations "Trust or Company Service Provider" included any firm or sole practitioner who by way of business provided any of the following services to third parties:-
a. forming companies or other legal persons;
b. acting, or arranging for another person to act –
- as a director or secretary of a company;
- as a partner of a partnership;
- 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
- a trustee of an express trust or similar legal arrangement; or
- a nominee shareholder for another person other than a company listed on a regulated market, when providing such services.
We considered that the EU Directive on which the Regulations was based was not intended to catch directors and non-executive directors acting alone (or through a PSC solely controlled by them) on a long term basis to a small number of companies. Rather the Directive was designed to apply to company formation agents and nominees who could provide a cloak of secrecy as to who was the real controller/owner.
Revised guidance by HMRC
On 31 July 2008 HMRC issued revised guidance (MLR9 Registration notice) which clarified the position. The guidance states that the following businesses are covered by the definition:-
- company formation agents;
- providers of registered offices, business addresses, accommodation or correspondence addresses for businesses (other than sole proprietors);
- any individual or firm providing nominee director, secretary or shareholder services or other similar services which are designed to ensure the confidentiality of the true ownership or control of a company or to act in these roles on behalf of another person or firm;
- any individual or firm providing their services as nominee shareholder (unless they are acting for a company whose securities are listed on a regulated market);
- any individual or firm arranging for another person to act as a director, company secretary, partner or professional trustee;
- any individual or firm offering professional trustee services unless they relate to certain low risk trusts;
- any firm providing their services as company director, company secretary or partner to another firm unless the client firm is a member of the same group as the firm providing the service or subject to the exceptions raised below;
- an individual providing services as a nominee director or company secretary;
- an individual providing their services as company director, company secretary or partner to a firm carrying out business either in a high risk jurisdiction or within a high risk sector (subject to certain exceptions).
What is now exempted?
Individuals acting as company directors, company secretaries or partners are exempted from the Regulations provided they are not providing their services to a firm carrying out business within a high risk jurisdiction or within a high risk sector. In addition where an individual provides their services through a personal service company (PSC) then the PSC will only be subject to the Regulations where the individual would also have been subject to the Regulations provided that:
- the PSC only supplies the services of that individual;
- the individual owns or controls at least 50% of the business;
- the sole business purpose of the company is to provide the services of that individual.
HMRC have also confirmed that a director/secretary will not be required to register where they are an employee of the company to which they are providing such services.
However, a person (or their PSC) will need to register with HMRC where a director, company secretary or partner is providing their services to a firm:-
- "carrying out business …within a high risk jurisdiction." These are jurisdictions which are noted by the Financial Action Taskforce (FATF) as having weak anti-money laundering systems and currently include Uzbekistan, Iran, Pakistan, Turkmenistan, São Tomé and Príncipe and the northern part of Cyprus. Therefore where a firm has direct operations in and dealings with one of these countries then a director, secretary or partner of that firm will need to register with HMRC. It is not clear whether a non executive director of a parent company would need to register with HMRC where a subsidiary is involved in a high risk jurisdiction. If the parent company's only investment is in that subsidiary, the money laundering risk is arguably linked to the jurisdiction in which the subsidiary operates. We are working with various bodies to see if clarity can be brought to this issue. We will provide an update as and when more information is available.
- "carrying out business in a high risk sector." This includes a firm carrying out frequent cash transactions of €15,000 or more, a company operating within the UK but incorporated outside the UK in a non equivalent jurisdiction; or a company with a holding interest in their capital held in the form of unregistered bearer shares. The Treasury have published on their website a list of equivalent countries.
In addition a person does not need to register with HMRC where they are providing services to a firm in a high risk jurisdiction or sector if the firm is itself supervised for compliance with the Regulations (ie if it is supervised by the FSA there would be no need to register with HMRC); or where the firm is a public authority or is a firm authorised by a public authority to act on their behalf where the only other customers are also public authorities.
If you are already registered or supervised for compliance with the Regulations, do you need to register any PSC through which you operate with HMRC?
This depends in which capacity you are registered or supervised. If the PSC is not supervised by the relevant professional body, the PSC will need to register with HMRC. In most cases it will be the individual who is supervised by the professional body under the Regulations and therefore the PSC would need to register with HMRC if it fell within the criteria listed above.
If you do need to register-what do you need to do now?
For those who were in business as a "trust or company service provider" before 15 December, HMRC have given individuals and firms until 30 September 2008 to register.
For those setting up in business as a new "trust or company service provider" HMRC have stated that they will need to be registered before carrying on that business.
In order to register, individuals and firms will need to send HMRC the completed MLR 100 registration form and appropriate fee. For those who control or own the business, and any nominated officers or money laundering reporting officers, they will also need to complete a fit and proper test, form MLR 101, and send together with a fee to HMRC. In addition those subject to the Regulations will need to put anti-money laundering systems in place so that they can identify and prevent money laundering and report any suspicious transactions.