Money laundering is the process of making illegally-gained proceeds (i.e., “dirty money”) appear legal (i.e., “clean”). The first step in the process involves introducing cash into the financial system by some means, known in the jargon as “placement”.
Typically, this can involve making a purchase, or a deposit for the purchase of, a high value item from a business and paying in cash.
In 2017 the Government introduced the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations. This was a 4th update of legislation that was first introduced in 2003 in a bid to stamp out money laundering.
While the regulations deal with the criminal aspect of laundering money they have implications for reputable businesses that unwittingly might be targeted by criminals, among them High Value Dealers (other specified service providers are also detailed in the guidance).
A High Value Dealer (HVD) is defined as a firm or sole practitioner making, or accepting, cash payments of the equivalent of €10,000 or more.
Under the regulations HVDs must carry out a risk assessment on their business’ vulnerability to being used as a conduit for money laundering, review it regularly and keep records of both the transaction and the customer. They must also ensure they and all staff are trained to spot suspicious activity and they must carry out due diligence and risk assessments on clients to whom high value goods may be supplied. Again, all this must be documented.
HMRC (HM Revenue and Customs) oversee HVDs and its inspectors can turn up unannounced to check the records. If they do attend they will look most closely at cash receipts for goods and tend to make the assumption that the receipt is illegally laundered money unless the HVD can produce suitable checks on their clients.
HMRC has the power to impose fines for any infringements based on the failure to produce records and the penalties can be steep, up to 100% of the value of the sale. Since the regulations were brought into force HMRC has updated its guidance for HVDs, downloadable as a PDF
Are you a High Value Dealer?
Many SMEs may fall into the category of being HVDs without realising it.
Your company may be at higher risk if it has:
- customers carrying out large, one-off cash transactions;
- customers that are not local to the business;
- overseas customers especially from a high risk third country as defined by the EU.
I recently came across a family business of 30 years–plus standing with an impeccable record of honest and debt-free trading selling large second-hand capital items.
While it had very few transactions involving cash payments, three were identified as being above the €10,000 cut-off point. Despite the fact that these three were with long-standing and known customers, the HMRC inspector ruled that the transactions had breached regulations, by not producing documents proving the identity (copy of a driving licence or passport) and place of residence (utility bill) of the customers concerned. HMRC imposed a fine on the company of £20,000, saying this was a 50% reduction on the maximum. Understandably my client is contesting this as being excessive, but the matter hasn’t yet been resolved.
With such legislation, HMRC might be seeking to maximise its revenue, but whether justified or not, it costs a lot of time and money for an SME to contest such a harsh judgement, one that can so easily have been avoided.
While my client, after 12 years of my support, now has a strong balance sheet and if necessary can pay the fine, it is easy to see that the size of the fines may push some SMEs into insolvency.
It therefore makes sense to know whether your business comes under the definition of a HVD and to ensure it is protected and complies with the regulations.