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Type 3 penalties can be charged on a business or an individual in the following circumstances:

1)聽 Failure to notify HMRC of material changes or amending inaccuracies to information provided at registration or subsequently

Where a business provides information to HMRC under regulation 57(1) of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), before or after it is registered, it is required to update HMRC with any material changes to that information within the required timeframe.

Similarly, if the information provided contains inaccuracies, the business is required to correct those inaccuracies when it becomes, or is made, aware of the inaccuracies within the required timeframe.

The information that businesses may have failed to notify HMRC, or which may contain inaccuracies, can be categorised under two headings:

• Failure to notify material changes and/or inaccuracies to information provided.

• Failure to notify change of beneficial owners, officers or managers (BOOMs) and/or inaccuracies.

This excludes changes to any compliance officers and/or nominated officers, which is explained further at point 2 below.

If a business has knowingly provided false or misleading information, other sanctions should be considered.

Regulation 57(4) MLR 2017 specifies that where the business has provided information under regulation 57(1) MLR 2017, whether before or after it is registered, it is required to notify HMRC of any material changes or correct any inaccuracy it has become aware of, in the information provided, within 30 days from:

• The date of the change.

• The discovery of the inaccuracy, or

• Within such later time as may be agreed with HMRC.

Failure to notify material changes and/or the correction of inaccuracies will result in a 拢2,500 penalty per breach. If a business fails to do so within the timeframe but subsequently provides an unprompted disclosure in relation to failure to notify the material changes and/or corrects any inaccuracies, a 50%聽reduction will be applied to the type 3 penalty.

Example

A business does not inform HMRC of two additional premises and is therefore charged 拢5,000 (2 breaches x 拢2,500). The two premises were identified during a HMRC intervention and so this was not an unprompted disclosure. The 50%聽reduction does not apply.

2) 聽Changes to compliance officer and nominated officer

Regulation 21 MLR 2017 requires that the business must appoint an individual as a nominated officer and, where appropriate, a compliance officer. Within 14 days of that appointment, HMRC must be notified of the identity of the individual and any subsequent appointment to either of those positions. Failure to notify HMRC of the identity of the officer, or subsequent appointment of an officer, within this timeframe will result in a 拢5,000 penalty per breach. If a business fails to do so within the timeframe, but subsequently provides an unprompted disclosure in relation to failure to notify the appointment/change of nominated officer and/or compliance officer, a聽50%听penalty reduction will be applied.

3)聽 Where a business and/or individual fails to comply with requirements under regulation 26聽MLR 2017

Regulation 26(1) MLR 2017 prohibits a person from being a beneficial owner, officer or manager of a firm, or a sole practitioner unless that person has been approved by HMRC. Under regulation 26(9)聽MLR 2017聽a person is not approved, or any approval given to that person is not valid, if:

• That person has an unspent conviction, listed within schedule 3 of the MLR 2017, and

• That person is subsequently convicted of an offence within schedule 3 MLR 2017.

Regulation 26(4)聽MLR 2017 requires that a business must take reasonable care to ensure that no-one is appointed, or continues to act, as an officer or manager of the business unless that person has been approved and that the approval has not ceased to be valid or that person has applied for approval and the application is still to be determined.

Businesses must have adequate controls in place to ensure that they do not breach regulation 26(4) MLR 2017. There is a risk if a BOOM was to act without approval or continue to act if the approval ceased to be valid. Therefore, it is reasonable that the business has controls in place to ensure this does not happen.

The business must ensure they keep a record of the controls they have in place (within their policies, controls and procedures) and action they have taken under those controls.

The level of controls that are deemed to be reasonable is split between initial application, addition of a BOOM and controls to ensure that the approval of the BOOM has not ceased to be valid.

Initial registration

For a new application to register with HMRC, all聽BOOMs聽must be approved before we will register the business.

BOOMs聽can start in their role as soon as their approval application has been submitted, however, a聽BOOM聽must stop work in that role immediately if they fail the approval check.

The act of applying and including all BOOMs in the initial registration is mandatory and meets the requirement of regulation 26(4)(b). The business must have controls to ensure that a聽BOOM stops work immediately if they fail the approval check in order to meet the requirement of regulation 26(4)(a).

Addition of a new BOOM

For initial appointment of a BOOM after registration, the business must amend their registration through their Government Gateway account, apply and pay for the new BOOM to be approved. When a BOOM leaves the business, they must also amend their registration through their Government Gateway account.

If the business is adding a new聽BOOM, that person must not take up that role until the business has applied for them to be approved.

BOOM聽must stop work in that role immediately if they fail the approval check.

This applies in all situations where a new BOOM is added, including, but not limited to:

• A new BOOM is recruited.
• An employee is promoted to BOOM level.
• The business merges, is acquired, sold or taken over.
• The business changes role responsibilities for employees.

The business must therefore have adequate controls in place to ensure that the above process is followed.

In order to minimise the impact of a BOOM having to immediately cease work if they fail the approval check, it is recommended as best practice that businesses should screen BOOMs as part of their recruitment, promotion or restructuring processes (suggested by DBS check and during the application/promotion process/interview, or when the business is aware of any structural changes that may lead to new BOOMs 鈥� such as mergers or acquisitions) to ensure that they have not been convicted of a relevant offence. This minimises the impact on businesses having to replace BOOMs immediately if they fail the approvals, as Schedule 3 convictions would be apparent before the need to apply for approval. However, this is recommended as best practice and is not mandatory.

Controls to check for approvals that have ceased to be valid:

Whereas the first two scenarios are relatively straightforward, as it is the business鈥� responsibility to apply for the approval of a BOOM on their government gateway account, reasonable care in regard to checking for approvals that have ceased to be valid is more complicated.

EC-S holds that it is reasonable to expect businesses conduct checks on their BOOMs to ensure that their approvals are still valid.

It would be reasonable for a business to conduct annual checks to ensure that a BOOM has not been convicted of a relevant offence, causing the approval to cease to be valid. This is recommended to be done via DBS check as best practice, but the business should have as a minimum, an annual declaration process, to include all offences under Schedule 3 MLR 2017, including overseas convictions.

Any convictions of relevant offences must be notified to the business.

Due to the risk of having a BOOM in place that no longer has a valid approval, it is unreasonable for a business to not have regular (annual as a minimum) screening processes in place. The extent of other the measures will depend on the businesses own assessment of risk, but as a minimum, must have an annual declaration process.

If a聽BOOM聽is convicted of a relevant offence:

• The business must tell us within 30 days of the date the business became aware of the conviction.
• The聽BOOM聽must tell us within 30 days of the date of conviction.
• The approval becomes invalid from the date of conviction.

Decision makers (DMs) must consider issuing a type 3 penalty in every instance where a breach of regulation 26(4) MLR 2017 is identified. DMs must also consider whether any other sanction (cancellation, suspension etc) is appropriate in the circumstances.

Summary

HMRC may issue type 3 penalties in the following scenarios:

• Against a business for not taking reasonable care and appointing or allowing a person to act as a BOOM of the business without approval, and/or

• Against a business for failing to inform HMRC about a BOOM鈥檚 schedule 3 MLR 2017 conviction within 30 days of the date that the business became aware of the conviction.

• Against a BOOM for failing to inform HMRC about a schedule 3 MLR 2017 conviction within 30 days of conviction.

These breaches, under regulation 26(10), will result in:聽

• For the business - a 拢10,000 penalty per breach.聽Due to the severity of the breach, there is no reduction available for an unprompted disclosure.

• For the BOOM - a 拢2,500 penalty per breach.

Once the decision to issue a penalty has been made, there should be a review of whether the amount is considered appropriate, which takes into account all relevant factors within regulation 83 MLR 2017 鈥� known as the appropriateness review.

Prompt payment

If the penalty is paid within 30 days of the date of the penalty notice, an early payment reduction is applied. The early payment reduction is 25% of the penalty amount. The penalty administration charge is not subject to the early payment reduction.