[2010] UKFTT 132 (TC)

TC00441

Appeal number LON/2006/8084

MONEY LAUNDERING – liability to register under money laundering regulations – liability to pay fees on registration – Appellant appoints agents to offer its money transfer service at agents’ premises – whether Appellant is carrying on a business of transmitting money in the UK – yes – whether Appellant liable to register in relation to such business – yes – whether Commissioners entitled to charge Appellant the registration fee when agents registered for other money transmission businesses operated from the same premises – yes – regs 10 and 14, Money Laundering Regulations 2003 – Article 1(B), EC Directive 91/308/EEC – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

MONEYGRAM PAYMENT SYSTEMS, INCAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS (Money Laundering Regulations) Respondents

TRIBUNAL: JUDGE EDWARD SADLER

MRS L M SALISBURY

MICHAEL TEMPLEMAN

Sitting in public in London on 7 – 11 December 2009 (final written submissions made on 11 February 2010)

David Cavender, counsel, instructed by Dorsey & Whitney (Europe) LLP, for the Appellant

Amanda Tipples, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

1

DECISION

Introduction: the nature of the appeal and the tribunal’s jurisdiction

  1. This is an appeal by MoneyGram Payment Systems, Inc (“the Appellant”) against a review decision of The Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) given in their letter to the Appellant dated 25 August 2006 confirming their earlier decision to impose on the Appellant a civil penalty of £30 for the failure of the Appellant to register, in relation to certain premises, a money transfer business (and to pay the relevant registration fee) under the terms of the Money Laundering Regulations 2003 (SI: 2003 No. 3075) (“the ML Regulations 2003”).
  2. The Commissioners have the responsibility, under the ML Regulations 2003, to maintain a register of persons liable to be registered for the purposes of the ML Regulations 2003, and to charge a fee to those who register. Registration is effected by reference to the premises from which the person carries on the business which requires him to register. A person who is liable to be registered, and who fails to register, is liable to a civil penalty which may be imposed by the Commissioners.
  3. The Appellant’s business is that of money transfer, and for the purposes of that business it has appointed agents in the United Kingdom. Shortly stated, the Appellant’s case is that it is not carrying on its money transfer business in the United Kingdom (such money transfer business as is carried on in the United Kingdom as it relates to the money transfer service operated by the Appellant is carried on by its agents), and therefore it is outside the scope of the ML Regulations 2003 and is accordingly not liable to register. The Commissioners’ case, again shortly stated, is that the Appellant is carrying on its money transfer business in the United Kingdom in particular through the agents it has appointed, and therefore is within the scope of the ML Regulations 2003 and must register accordingly.
  4. The parties require the matter to be determined by the tribunal. To that end they have co-operated in an arrangement whereby the Appellant has chosen not to register the money transfer business carried on at three different premises of, respectively, each of three of its major agents. The Commissioners have imposed on the Appellant a token penalty of £10 for each of the premises in question (£30 in total) pursuant to the powers it has in that regard under the ML Regulations 2003. Under the procedures set out in the ML Regulations 2003 the Appellant has requested the Commissioners to review their decision to impose the penalty, and the Commissioners, having done so, have confirmed their original decision.
  5. In relation to the ML Regulations 2003 an appeal against such a review decision lies to the tribunal by reason of section 83 (1)(zz) of the Value Added Tax Act 1994, and the nature and scope of the tribunal’s jurisdiction is set out in regulation 22 (except where it is stated otherwise, in this decision any reference to a particular regulation is to that regulation in the ML Regulations 2003), which provides:

On an appeal from any decision by the Commissioners on a review under regulation 21, the tribunal have the power to

(a)quash or vary any decision of the Commissioners, including the power to reduce any penalty to such amount (including nil) as they think proper; and

(b)substitute their own decision for any decision quashed on appeal.

The tribunal therefore has a full supervisory jurisdiction (see the tribunal decision in James Paul (Car Sales) Ltd v HMRC [2008] Decision No. 20833). As mentioned at the end of this decision, the Appellant has reserved the right at a later stage to argue that in the circumstances of the present case the tribunal has an inherent jurisdiction, as a matter of European Community law, to exercise a wider administrative power extending to ordering the repayment of prior registration fees should the Appellant show that it is not, and has not previously been, liable to be registered.

  1. The case was argued before us at a five-day hearing, with Mr David Cavender appearing for the Appellant and Miss Amanda Tipples appearing for the Commissioners. Over the course of several weeks following the hearing the parties submitted further, and extensive, argument in writing on the “territorial” scope of the ML Regulations 2003 by reference to the interpretation of the relevant Community Directive.
  2. The Appellant stated to the tribunal, and the Commissioners have throughout accepted this to be the case, that the Appellant takes seriously the issue of money laundering and the need to comply with any applicable anti-money laundering legislation in the course of carrying on its business – the Appellant is subject to the stringent money laundering regime of the United States of America in relation to its business, and the question it seeks to resolve is whether, additionally, it is subject to the United Kingdom regime in respect of transactions conducted by the agents it has appointed in the United Kingdom.
  3. Finally, by way of introduction, we should mention that although the immediate dispute between the parties relates to a penalty of £30 only, the wider question as to whether the Appellant is liable to register under the ML Regulations 2003 is of some more significant financial consequence: for the year 2006/07 the aggregate of the annual registration fees paid by the Appellant was in the order of £225,000.

The issues in dispute

  1. The parties agreed the issues in dispute between them.
  2. The appeal is concerned with whether the Commissioners are entitled to require that the Appellant pay a registration fee of £60 in respect of each of the premises of its agents and sub-agents from which the Appellant’s money transfer service is available. Regulation 14 permits the Commissioners to charge a fee to a person carrying on a money service business, and such fee can be charged in respect of each of the premises at which the operator of a money service business carries on that business.
  3. As mentioned, the parties agreed a procedure in order to bring the matter before the tribunal whereby, in June 2006, the Appellant failed to register (and to pay the registration fee) in the case of the premises of three agency outlets through which its money transfer business is available to customers, namely:

(1)An office of Post Office Limited at 54/56 Great Portland Street, LondonW1 7NE;

(2)An office of Thomas Cook Retail Ltd at 49 London Wall, London EC2M 5QB; and

(3)Shop premises of SK News at 92 Old Street, LondonEC1V 9AY (which offers the MoneyGram service through the N & N Cheque Encashment agency operated by Cheque Exchange Limited).

The Commissioners have imposed a penalty of £10 in respect of the failure to register each of these premises. The parties have agreed that these three instances will stand as a test case so that the decision of the tribunal in relation to each of those premises will determine the issue for all other premises from which the Appellant’s money transfer service is available under contracts with those respective agents and other agents.

  1. It is common ground between the parties that:-

(1)the Appellant carries on a money service business as defined in the ML Regulations 2003, namely by transmitting money;

(2)the Appellant is incorporated in the United States of America; and

(3)in this case the Commissioners have exercised their powers to charge fees under regulation 14 by reference to the premises at which a person carries on a money service business.

  1. The parties identified the following as the issues to be decided by the tribunal on the appeal:

(1)Does the Appellant carry on a money service business in the United Kingdom?

(2)If the answer to issue (1) above is “No”, are the Commissioners entitled to charge the Appellant fees under the ML Regulations 2003?

(3)If the answer to issue (1) above is “Yes”:

(a)Does the Appellant carry on such a business at each branch of its agents or sub-agents from which members of the public can access the MoneyGram money transfer service; and

(b)If so, are the Commissioners entitled to charge a fee to the Appellant where the owners of the premises are also paying a fee to the Commissioners under the ML Regulations 2003 in respect of other activities carried on by them at those premises that are a money service business?

  1. It is our decision that:

(1)the Appellant carries on a money service business in the United Kingdom;

(2)the Appellant carries on that business at each branch of its agents or sub-agents from which members of the public can access the MoneyGram money transfer system; and

(3)the Commissioners are entitled to charge a fee to the Appellant where the owners of the premises are also paying a fee to the Commissioners under the ML Regulations 2003 in respect of other activities carried on by them at those premises that are a money service business.

The Appellant’s appeal is therefore dismissed.

The Directive and the Money Laundering Regulations 2003

  1. The ML Regulations 2003 implement European Communities legislation, namely Council Directive 91/308/EC on prevention of the use of the financial system for the purpose of money laundering (Directive 91/308/EC has been amended by Council Directive 2001/97/EC, and in its amended form is referred to below as “the Directive”).
  2. Both parties, as appears below, made reference to the Directive as an aid to understanding the scheme implemented by the ML Regulations 2003 and the “territorial” scope to be implied into the ML Regulations. Both parties accept that the Directive requires Member States to adopt measures so as to ensure the full application of the Directive, but that there is nothing in the Directive which constrains a Member State from implementing laws which go beyond the scope of the Directive provisions.
  3. The scheme of the Directive is to require Member States to ensure that certain obligations set out in the Directive are imposed within their jurisdiction on specified institutions, including “financial institutions”. Those obligations include such matters as identification of customers transacting business; maintaining records of identification and of transactions undertaken; investigating suspicious transactions; reporting offences or suspected offences; and staff training in anti-money laundering procedures.
  4. Since it is an issue between the parties as to the scope of the Directive (namely, and in summary, whether it applies to an entity based in a country – in this case the United States of America – which is not a Member State where that entity has agents but not branches in a Member State – in this case the United Kingdom) it is helpful to set out here the definitions, so far as relevant, of those institutions on which the Directive obligations must be imposed by national legislation. They are found in Article 1 of the Directive:

For the purposes of this Directive:

(A)‘Credit institution’ means a credit institution, as defined in Article 1(1) first subparagraph of Directive 2000/12/EC and includes branches within the meaning of Article 1(3) of that Directive and located in the Community, of credit institutions having their head offices inside or outside the Community;

(B)‘Financial institution’ means:

  1. an undertaking other than a credit institution whose principal activity is to carry out one or more of the operations included in numbers 2 to 12 and number 14 of the list set out in Annex I to Directive 2000/12/EC; these include the activities of currency exchange offices (bureaux de change) and of money transmission/remittance offices;
  2. ….
  3. ….
  4. ….

This definition of financial institution includes branches located in the Community of financial institutions, whose head offices are inside or outside the Community….

  1. It is common ground between the parties that the Appellant carries on activities of money transmission and therefore is, in principle at least (but subject to the “territorial” scope issue), within the definition of “financial institution” for the purposes of the Directive.
  2. It is necessary to set out in more detail relevant provisions of the ML Regulations 2003. For the purposes relevant to this appeal, the ML Regulations came into force on 1 March 2004 (replacing earlier regulations). They ceased to have effect on 15 December 2007, when they were superseded by later regulations.
  3. Regulation 9 imposes on the Commissioners the duty to maintain a register of operators:

9(1)The Commissioners must maintain a register of operators.

(2)The Commissioners must allocate to every registered operator a number, which is to be known as his registered number.

(3)….

(4)The Commissioners may keep the registers in any form they think fit.

  1. Regulation 10 requires that any person who is an operator must be registered by the Commissioners in the register they maintain:

10(1)A person who acts as an operator…must first be registered by the Commissioners.

(2)An applicant for registration must –

(a)make an application to be registered in such manner as the Commissioners may direct; and

(b)furnish the following information to the Commissioners –

(i)his name and (if different) the name of the business;

(ii)his VAT registration number…;

(iii)the nature of the business;

(iv)the address of each of the premises at which he proposes to carry on the business;

(v)any agency or franchise agreement relating to the business, and the names and addresses of all relevant principals, agents, franchisors or franchisees;

(vi)the name of the nominated officer (if any);

(vii)….

(5)In this regulation, “the business” means money service business…which the applicant for registration carries on or proposes to carry on.

  1. The scheme for charging fees is set out in regulation 14:

14(1)The Commissioners may charge a fee –

(a)to an applicant for registration; and

(b)to an operator… annually on the anniversary of his registration by them under these Regulations.

(2)The Commissioners may charge under paragraph (1) such fees as they consider will enable them to meet any expenses incurred by them in carrying out any of their functions under these Regulations or for any incidental purpose.

(3)Without prejudice to the generality of paragraph (2), a fee may be charged in respect of each of the premises at which the operator …or applicant for registration carries on (or proposes to carry on) money service business or relevant business falling within regulation 2(2)(n).

  1. The Commissioners’ power to impose a penalty is set out in regulation 20:

20(1)The Commissioners may impose a penalty of such amount as they consider appropriate, not exceeding £5,000, on a person to whom regulation 10 (requirement to be registered) applies….

  1. Regulation 2 defines terms used in the ML Regulations 2003. For the purposes of this appeal the following are the relevant definitions in regulation 2(1) and (2):

“operator” means a money service operator;

“money service operator” means a person who carries on money service business [other than certain categories of persons not relevant to this appeal];

“money service business” means any of the activities mentioned in paragraph (2)(d) (so far as not excluded by paragraph (3)) when carried on by way of business;

Regulation 2(2) defines “relevant business”, and within that definition are the activities mentioned in paragraph (2)(d):

The business of operating a bureau de change, transmitting money (or any representation of monetary value) by any means or cashing cheques which are made payable to customers;

Regulation 2(3) does not, in the present case, apply to exclude the Appellant’s business from being a “money service business”.

  1. The ML Regulations 2003 have no express provisions defining their territorial scope, but the operative provisions, which impose obligations on those persons who carry on “relevant business”, are couched in terms of persons carrying on such business in the United Kingdom. Since both parties relied at some length upon the operative provisions in the ML Regulations 2003 it is necessary to set certain of them out in detail.
  2. Regulation 3 imposes a general requirement to comply with the anti-money laundering procedures set out in the ML Regulations 2003 and to train staff in those procedures. Contravention is a criminal offence. Thus:

3(1)Every person must in the course of relevant business carried on by him in the United Kingdom –

(a)comply with the requirements of regulations 4 (identification procedures), 6 (record-keeping procedures) and 7 (internal reporting procedures)

(b)establish such other procedures of internal control and communication as may be appropriate for the purposes of forestalling and preventing money laundering; and

(c)take appropriate measures so that relevant employees are –

(i)made aware of the provisions of these Regulations, Part 7 of the Proceeds of Crime Act 2002 (money laundering) and sections 18 and 21A of the Terrorism Act 2000(a); and

(ii)given training in how to recognise and deal with transactions which may be related to money laundering.

(2)A person who contravenes this regulation is guilty of an offence and liable –

(a)On conviction on indictment, to imprisonment for a term not exceeding 2 years, to a fine or to both;

(b)On summary conviction, to a fine not exceeding the statutory minimum…

(5)In proceedings against any person for an offence under this regulation, it is a defence for that person to show that he took all reasonable steps and exercised all due diligence to avoid committing the offence.

  1. Regulation 4 imposes an obligation on a person carrying on relevant business in the United Kingdom to have in operation identification procedures – the so-called “know your customer” procedures:

4(1)In this regulation and in regulations 5 to 7 –

(a)“A” means a person who carries on relevant business in the United Kingdom; and

(b)“B” means an applicant for business.

(2)This regulation applies if –

(a)…;

(b)in respect of any one-off transaction –