HM Revenue & Customs Imposes Record Fine on Money Service Business for AML Failures

On September 4, Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom announced that it had imposed a record fine of £7.8 million on a West London money service business (MSB), Touma Foreign Exchange Ltd, for ignoring anti-money laundering (AML) regulations.

HMRC stated that it had fined the MSB “for a wide range of serious failures under the Money Laundering Regulations.”  In particular, between June 2017 and September 2018, Touma Foreign Exchange breached rules on (a) risk assessments and associated record-keeping, (b) policies, controls, and procedures; (3) fundamental customer due diligence measures, and (4) adequate staff training.  It also announced that on May 20, an individual who had acted as an officer for the MSB, Hassanien Touma had been banned from any management role at a business governed by AML regulations, because he had failed to pass a vetting test to ensure that he was “fit and proper to carry out the role.”

HMRC further reported that it had announced the fine after a separate HMRC, London Metropolitan Police (MPS), and Financial Conduct Authority (FSA() month-long “crackdown” in July, “on MSBs at risk of being used for money laundering to fund organised crime, such as drug trafficking, violent crime and terrorism.”  The “crackdown” included the following actions:

• Search Warrants and Arrests: MPS and HMRC officers executed warrants at 12 addresses in West London and seized evidence of money laundering, and MPS officers arrested two men in central London and seized £100,000 cash reportedly intended for an MSB.
• Prosecution and Confiscation of Property: After an investigation by HMRC, a London man was given a suspended jail sentence for trading as an MSB without being registered for AML supervision. The judge in that case ruled that the man’s London home “was bought using the proceeds of crime because he was illegally trading as an MSB without being registered with HMRC, and would be subject to confiscation proceedings.”
• Business Education: During July and August, authorities hand-delivered “[s]pecially designed leaflets” to all 9,000 MSBs across London to highlight the money laundering risks and need to properly manage these risks. In addition, HMRC and MPS officers visited 40 MSBs in the Queensway area of London and “reminded them of their obligations under the Money Laundering Regulations.”
• Civil Actions: HMRC officers visited 5 MSBs assessed to be at a higher risk of being used for money laundering and is taking civil action against four of those MSBs “for failing to take adequate measures to protect themselves from criminal abuse.”

Note: United Kingdom law enforcement have recognized that the 9,000 MSBs in London collectively pose a significant challenge for AML compliance.  MPS Commissioner Cressida Dick has stated that drug gangs are using MSBs as the conduit to export ““crate-loads of dirty cash out of the country.” The MPS separately noted that much of the £2 billion moved out of the United Kingdom each month is linked to criminality,” and that police cash seizures often lead back to MSBs.  Law enforcement and regulatory agencies such as the FSA, however, will need to sustain this pressure on MSBs if they are to have a substantial effect on those trends.