ECSH71500 – Regulation 66
Introduction
As a supervisor under The Money Laundering, Terrorist Financing and
Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) HMRC must, under regulation
46, effectively monitor the relevant persons
(businesses) it supervises for the purposes of securing compliance with MLR
2017. We do this by carrying out compliance activity under the HMRC compliance
strategy of ‘prevent, promote, respond’ and an essential component of this is
reviewing, and testing, business’s records at their premises, their representative's
premises if they are held there, or remotely if they are submitted to HMRC.
The vast
majority of our compliance activity is undertaken with the co-operation of the
business and most requests for documents or information will be provided
voluntarily and will not require any use of statutory information powers. In
some cases, we may require the use of statutory information powers to require documents
or information to be provided,
or to require someone to attend an office to meet with an officer and
answer questions.
This section explains:
When and why regulation 66 MLR 2017 powers
can be utilised.
What can be required of a business, connected person, payment service provider
or third person.
Who can be compelled to produce documents or provide information under regulation
66? And;
The legal criteria that must be met when using regulation 66.
What is regulation
66?
Regulation 66 is a legal power that provides HMRC, as a supervisory
authority, to require a person who is (or was at any time) a relevant person, a
payment service provider or a connected person to provide specified information
and produce specified documents, or information or documents of a specified
description.
Regulation 66 also provides HMRC, as a supervisory authority, with the
power to require such person to attend before an officer at a time and place
specified in the notice and answer questions.
Where we require a document to be produced,
but it appears that the document is in the possession of a third person, then
we may also exercise the power to require the production of the document from
that third person (see section below headed ‘third persons’). We can
only require information or documents which are reasonably required by HMRC in
connection with the exercise of its supervisory functions under the MLR 2017.
The regulation 66 notice
For regulation 66 to be lawfully exercised, the
notice must be given in writing. Officers should follow the SWI and use the
up-to-date template, both of which can be found in the EC-S Knowledge Library.
Regulation 66(5) requires that the Regulation 66 notice sets out the
reasons why the information is required to be provided or the documents
produced, unless the supervisory authority or (as the case may be) the officer
is not permitted to disclose this information.
The officer must clearly set out in the DEL, or paperwork, why the
information or documents are reasonably required. This will will provide the
rationale for the request, within the notice. An example may be:
“This information is required to ensure that you are complying with the
requirements of MLR 2017”.
An Officer is never permitted to disclose in the regulation 66 notice
that the reason for the request derives from intelligence received.
The notice should also specify:
A clear,
itemised list of the specific documents and/or information required (or their
specific description). It is important that this is
as precise as possible to enable the business to comply and to demonstrate that
you have made a reasonable request which will withstand legal challenge.
A deadline for their submission, that must be within a reasonable period
of time.
Where or how they should be delivered.
What form of documents/ information are acceptable. Any form we require,
including translations into English, must be reasonable.
Regulation 66 notices requesting attendance should specify:
The place and time the interview will take place, within a reasonable
period of time.
What documents/information we require them to bring to the interview with
them, and the reasons why these are reasonably required.
If we do expect them to bring documents/information, we can require the
format, as long as it is reasonable.
When can a regulation 66 notice be used?
The powers in regulation 66 may only be exercised in relation to
information or documents which are reasonably required by HMRC in connection
with the exercise of its supervisory functions under MLR 2017, and may only be
exercised by notice in writing to a person who is (or was at any time)a
business, connected person or payment service provider. Where we have the power
to require a document to be provided, but that document is in the possession of
a third person, we can require that third person to produce it, by giving
notice in writing.
In the large
majority of cases, the decision to issue a regulation 66 notice should be taken
after previous attempts to obtain the information voluntarily has failed.
The use of the
power may be necessary if the information is required for the officer to
conduct their compliance activity. There are other circumstances in which the
power may be used, for example where we suspect a business may be trading
whilst unregistered and we require information from them to determine the
position.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
The information or documents must be “reasonably required”
Regulation 66 can only be used in relation to information or documents
which are reasonably required by HMRC in connection with the exercise of its
supervisory functions. In order to show that the information or documents are
reasonably required, officers must keep a record of how they reached the
decision to issue a regulation 66 notice, which should include what is being
requested and, importantly, why it is being requested. In the event of
challenge, this rationale will be used to evidence a lawful exercise of
regulation 66.
The
impact of a regulation 66 notice on
the person can be significant and require
extra resources to be expended by the person and disrupt them from carrying out
their day-to-day business. This power should
only be used when it is necessary and proportionate.
For example,
copies of policies, controls, procedures and risk assessment should be readily
available, whereas the translation of contracts or bulk due diligence documents
might take several weeks.
We should not
be asking for documents which are not reasonably required and proportionate to
the supervisory function we are required to fulfil. It is particularly important that the requirements set out in the notice
are reasonable to avoid placing the business in an awkward predicament (either
struggling to meet an unreasonable demand, or being unable to comply, which
could bring associated consequences).
We must allow a
reasonable period for the person to provide the requested information or
documents. For example, if we need a person to supply documents and they
had no previous awareness of the issue (such as a notice to a third person), or
we are intending to require information in different formats to the way it is
held (e.g. a translation), we should be able to show that our actions are
proportionate to the need, that we are aware of potential impacts and are
acting within the framework of HMRC’s Compliance Professional Standards.
If using a
regulation 66 notice to request attendance for the purpose of answering
questions, consideration should be given to when the person would normally be
available and how far it is reasonable to expect them to travel. Officers must act reasonably in determining a time and place for the
interview. In practice, the location may be the premises from which the person
conducts their business, the registered office address of the business or, if
appropriate, a HMRC office or even the office of another authority (e.g. The
National Crime Agency, Trading Standards or other law enforcement agency).
Who can issue a regulation 66 notice?
EC-S officers can issue regulation 66 notices.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Regulation 66 notices issued by HMRC are issued under regulation 66(1). They
are not issued under regulation 66(3). Regulation 66(3) is a provision which,
for example, allows trading standards officers to issue regulation 66 notices
on behalf of a supervisor, or for HMRC or the Financial Conduct Authority to
issue them on behalf of another supervisor.
Who can be compelled to produce documents or provide information under regulation
66?
HMRC has the power to require information or documents under regulation
66 from a ‘person’. A ‘person’ has a specific definition in this context (see
below), and for the power to be lawfully exercised, officers must ensure the
recipient of the notice falls within scope. In certain circumstances a
regulation 66 notice can be issued to a third person (see next section).
It is not necessary for the person to be a supervised business, payment
service provider or connected person at the time the power is exercised, and it
is sufficient that they were at any time.
A ‘person’ is a:
Relevant
person (business)
Payment service
provider (PSP)
Connected
person
Relevant persons are individuals or businesses who are conducting or have
conducted (MLR 2017) regulated activity by way of
a business.
Payment
Service Providers (PSP) are defined
in regulation
2 of The Payment Services Regulations 2017 and
can include:
Small payment institutions
Electronic money issuers
Money service businesses.
Connected persons
Whether a person is connected to a business or PSP (and thereby a
connected person) depends on the type of legal entity of the business or PSP.
Legal entity means the way that the business is legally formed. We mainly deal
with sole traders and limited companies but may come across other structures.
MLR 2017 Schedule 5 explains who qualifies as a ‘connected person’
in the cases of:
Corporate bodies
Partnerships
Unincorporated associations
Individuals
For body corporates a connected person is an officer or manager. The
definition of ‘officer’ in regulation 3 MLR 2017 does not apply to schedule 5.
Therefore, for the purposes of schedule 5, a person who is a beneficial owner is
likely to meet the definition of a manager, but virtue of having control,
authority, or responsibility for managing the business, or PSP.
Third persons
An example of a third person may be that an Art Market Participant (AMP)
uses an electronic identification provider to meet its due diligence
requirements, and in conducting a compliance intervention, you require a
document that appears to be in possession of the electronic identification
provider, who would in this scenario be a third person for the purpose of
regulation 66.
Where we require a document to be produced, but it appears that the
document is in the possession of a third person, then we may exercise the power
to require the production of the document by virtue of regulation 66(8).
We may only request that specified documents are produced by a third person
and do not have the power to require the provision of specified information or
information of a specified description, nor require attendance before an
officer for interview.
Although the power in regulation 66(8) extends to documents only, regulation
3 defines ‘documents’ as ‘anything in which information of any description is
recorded’. Where, in the example above, we are asking for bulk data such as
customer due diligence records, at first glance this may look like ‘information’,
as it would be held within software, but could also be defined as multiple documents,
as it would be comprised of records of ID documents and proof of address.
Regulation 76 allows us to issue penalties against any person
contravening a relevant requirement imposed on them. This means that we could
potentially issue a penalty against a third person for non-compliance with a regulation
66 notice as they, the third person, have breached a relevant requirement of MLR
2017.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Businesses who have ceased trading or are not currently trading and
connected persons who are no longer acting
It is important to remember that a person who, at any time, has been
conducting relevant activity, with or without being registered, is still
regarded as a ‘person’ and a regulation 66 notice can still be used. This would
include those who were previously registered and those who are or have been
conducting relevant activity while unregistered.
This also applies to connected persons who are no longer acting, e.g. a
director of a supervised business who has stepped down.
In order to issue a
regulation 66 notice, the business must be or must have been conducting
relevant activity. Where a money service business (MSB) or trust or company
service provider (TCSP) submits a new application for registration it cannot conduct
relevant activity until they have been determined to be fit and proper and
their application is approved. Therefore, where the MSB or TCSP waits for the
outcome of its application to register before it starts relevant activity, we
cannot issue a regulation 66 notice while the application is being processed.
What can be requested and how should it be supplied?
Regulation 66 MLR 2017 allows us to require that a person provides
information or produces documents that are specified or of a specified
description:
Documents:
A document is given a very
broad definition in regulation 3 of MLR 2017 as “anything in which information
of any description is recorded”. Whilst MLR 2017 does not elaborate any further
on the meaning of a document, exercising regulation 66 to compel the provision
of electronic documents such as records held on a computer or similar
electronic device or server is likely to be a lawful exercise of HMRC’s power.
Obvious examples are information recorded on:
CDs
Memory sticks
Computer hard drives.
CCTV footage
Mobile phones
Tablets
Computers
Producing a document would include
allowing officers to inspect it and to take extracts. Simply letting you have a
brief look at it is not sufficient to comply with the notice. You are entitled
to examine the document and take extracts from it.
Information:
MLR 2017 does not define ‘specified information’
or ‘information of a specified description’ for the purpose of regulation 66
and there is no judicial authority on the term in the context of MLR 2017.
Given its
ordinary and literal meaning, information means “knowledge” or “facts”. A court
is therefore likely to apply a broad meaning to the word ‘information’.However, such
information must be reasonably required and be specified in the notice.
SARs:
Regulation 66 includes a specific power (since 1 September 2022) allowing
HMRC to require that copies of suspicious activity disclosures made to the NCA
are provided.
Specified or Specified Description: In all cases we must be specific and precise
when setting out what is required to be submitted.In some cases, we
will know exactly what document we require, e.g. copies of enhanced due
diligence documents relating to specific transactions, this would be a
‘specified’ document’. In some cases, we would be looking for something more generic,
e.g. ‘records of AML training for all relevant staff for a specific period’,
this would be a ‘specified description’.
Attend a meeting to answer questions: In some cases, it may be appropriate to require
a person to attend a meeting with an officer. This may be at the business’s
premises, at an HMRC office, or the office of another authority (e.g. NCA, trading
standards or police). The regulation 66 notice should specify the time, date
and place and explain the rationale for requiring attendance.
Once the regulation 66 notice has been provided, the person must act and
respond in the way specified in the regulation 66 notice by attending an
interview or providing the information or documents that an officer has
requested, by the date and time specified.
In respect of information recorded on a computer
or other storage device, regulation 66(6)(a) allows HMRC to require the person
to produce the information in a visible and legible form.
By virtue of regulation 66(6)(b), we may also require information to be
provided in such a form as we may reasonably require. For example, we may
require certified translations of any documents or information not originally
in English if this is reasonably required. We would expect information and
documents to be submitted through use of the email or Dropbox protocol.
What to do if a business says a document does not exist or they don’t have
it?
It is reasonable for us to expect a business to be
in possession of information and documents that are required under MLR 2017 for
example, a regulation 18 risk assessment. As such we can issue a regulation 66 notice
on the basis that we expect the business to have the documents we specify. However,
there may be circumstances where we request a document, and the business tells
us that the document requested either does not exist or is not in their
possession (nor the possession of any connected person or third person). In
such cases, we can no longer rely on regulation 66 powers and the officer needs
to consider what other powers can be used.
For example:
You issue a regulation 66 notice to require a
copy of documents including the regulation 18 risk assessment. Subsequently the
business says that it has not documented the risk assessment yet but is in the
process of doing so. While failure to comply with a regulation 66 notice would
normally result in a type 4 penalty for failing to provide the ‘document’, in
this case you could not do so, as the document does not exist. However, you may
consider a type 1 penalty for a breach of regulation 18 is appropriate for
failure to comply with a relevant requirement and/or prohibition or suspension.
Lien
Regulation 66 (7)MLR 2017 specifies that the production of a document does not affect any lien
which a person has on the document.
A lien is usually
used in debt recovery to stop a person from being able to sell their goods or
property until the debt is settled. The purpose of regulation 66(7) is to
explain that the production of a
document by a business (or any other person) under regulation 66 does not
affect any lien which a person has on the document.
Non-compliance
If the business states that the documents requested attract legal
professional privilege (LPP) and therefore will not produce or provide what has
been requested, you should refer to the guidance at ECSH110250.
Where a business or individual does not comply the regulation 66 notice,
and does provide what has been required within the period specified, or only
provides part of it, or if they fail to attend before an officer to answer questions
when required, and they have given an acceptable reason for this an officer
should consider extending the deadline or re-arrange the interview. The
compliance history, and level of cooperation shown by the person are essential
elements in deciding whether any extension is granted, and whether any reasons
given are acceptable.
Failure to comply with a regulation 66 notice, in whole or part, may
lead to type 4 penalties being imposed under regulation 76 MLR
2017. Type 4 penalties consist of an
initial penalty, followed by a daily penalty up to 30 days and a final penalty.
The continued failure to comply with the regulation 66 notice may lead to
further sanctions being considered such as suspension or cancellation of the
registration. The failure to comply with
a regulation 66 notice is a criminal offence for the purposes of regulation 86
MLR 2017.
Depending on the behaviours, compliance history, and any intelligence
held, failure to comply with a regulation 66 notice could alternatively, or in
conjunction with a penalty, lead to:
Use of powers of entry without a warrant under regulation 69 to inspect
documents, information and cash and take copies or extracts of information and
documents. See ECSH73000.
Entry with a warrant under regulation 70 which will allow an officer to
search for, and seize, or take copies and/or extracts of documents and/or
information and to inspect cash. See ECSH73500.
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