First-tier Tribunal (Tax)

[2009] UKFTT 246 (TC)

TC00195

Appeal number MAN/06/8029

MONEY LAUNDERING –whether appellant a high value dealer and should have registered – amount of penalty - appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                            PETER JACKSON (JEWELLERS) LTD            Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                                                TRIBUNAL: ELSIE GILLILAND                Judge

                                                                        HOWARD MIDDLETON       Member

Sitting in public in Manchester on 22 July 2009

Peter Jackson Managing Director for the Appellant

Julian Winkley Advocate of the Solicitors Office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction

1.   The appeal heard by the tribunal was that of Peter Jackson (Jewellers) Ltd. (the    Appellant) against the imposition on it by the Commissioners on 23 March 2006 of a penalty of £1000 under Regulation 20 of the Money Laundering Regulations 2003 (SI 2003 No 3075 (the 2003 Regulations) upheld on a review on 26 May 2006 under Regulation 21.The Appellant operates a retail jewellery business with premises at the Mall Shopping Centre Blackburn Lancashire and several other locations. Peter Jackson the Managing Director of the Appellant presented the case for the Appellant and also gave evidence.

2.  The 2003 Regulations came into force on 1 March 2004 and apply in the instant     case. They have since been replaced by the Money Laundering Regulations 2007(SI 2007 No 2157) which inter alia impose stricter penalties. By Regulation 9(3) the Commissioners must maintain a register of “high value dealers” . A high value dealer is defined in Part 1of the 2003 Regulations as “a person who carries on the activity mentioned in paragraph2(n). This is there described as “the activity of dealing in goods of any description by way of business...whenever a transaction involves accepting a total cash payment of 15,000 euro or more”. By Regulation 10(1) a person acting as a high value dealer must first be registered by the Commissioners and by Regulation 10(2) apply to be registered in such manner as the Commissioners may direct and supply required information.

     Penalties

3.  Under Regulation 20 (1) of the 2003 Regulations the Commissioners are given   the power to impose a penalty of such amount as they consider appropriate, not exceeding £5000, “on a person to whom regulation 10 (requirement to be registered applies), where that person fails to comply with any requirement in ...regulation 10”. The Commissioners must not impose a penalty “where there are reasonable grounds for them to be satisfied that the person took all reasonable steps for securing that the requirement would be complied with”.( Regulation 20 (2)).

 Review procedure

4.     The review procedure is set out in Regulation 21. Notice requiring a review has to be given before the end of a 45 day period beginning with the date on which written notification of the contested decision was first given to the person requiring the review (Regulation 21(3). Regulation 21(6) then provides: “Where the Commissioners do not, within 45 days beginning with the date on which the review was required by a person, give notice to that person of their determination of the review, they are assumed for the purposes of these Regulations to have confirmed the decision”.

      Power of the tribunal

5.    The tribunal has an appellate jurisdiction within the 2003 Regulations on reviewed decisions and can quash or vary a decision of the Commissioners which includes the power to reduce a penalty to such amount (including nil) as it thinks proper and can substitute its own decision for any quashed one.

6.    The grounds set out in the Notice of appeal submitted by Peter Jackson as director on 12 June 2006 were: “Most of my objections to the fine are outlined in correspondence, copies of which accompany this form. I dispute that the HVD scheme was discussed in April and August 2004. We did not receive anything in writing until after this transaction had both taken place and been cancelled”.

 Transactions

7.    In the bundle before the tribunal was a copy letter from R. Steers for the Commissioners dated 16 January 2006 and addressed to the Appellant constituting a penalty warning and making it clear that registration was not dependant upon the acceptance of a large cash sum but “the willingness to accept such a payment if it is offered”. Subsequently Mr. Steers was in a position to disclose information set out in a letter addressed to Mr. Jackson dated 10 March 2006. This gave details of a sale of goods namely of a Jacob & Co. watch and a diamond bezel with a total value of £20,800 in August 2004 by the Appellant to a named customer. The Commissioners had also been informed that cash payments of £15,400 had been paid in instalments for the goods. In a letter in reply to Mr. Steers dated 18 March 2006 Mr. Jackson  gave details of the transaction namely that in August 2004 a £5000 deposit was paid on a £17,100 watch, in October 2004 a further deposit of £4400 was paid on the watch and in December 2004 a further deposit of £2300 was paid on the watch  and £3700 paid for a diamond bezel. He stated also that the transaction had been due to be completed sometime in Spring 2005 but had been cancelled. In response to questioning at the hearing Mr. Jackson gave more information. The transaction was cancelled because the customer had been arrested. There had been a court case, a police prosecution, and the watch had been confiscated by the court. The Appellant had been allowed to keep the money already received by it but no balance; in the alternative it could have had the watch back but without any retention of money. The customer had never held the watch as he had never paid the full price only deposits. The Appellant had paid the supplier on the usual trade terms for the watch which had been specially bought in. Mr. Jackson said that even having paid the supplier he did not consider the Appellant substantially out-of- pocket.

8.    On considering the evidence before us we accept and find that the transactions relating to the watch and the diamond bezel were two separate transactions not a single transaction. We find also that on the money values at the time the receipt by the Appellant of the total cash deposits for the watch involved the acceptance of” a total cash payment of 15,000 euro or more” as set out in Regulation 2 (2) (n) and thus the Appellant was a “high value dealer” as defined in the 2003 Regulations. Payment by staged deposits even if individually under the limit is not relevant since the Regulation clearly refers to the total cash payment. Further Regulation 10(1) makes it clear that a person acting as a high value dealer must first be registered by the Commissioners and thus have in place the required procedures and operate within a regime established to combat money laundering and the criminality associated with it. On the cancellation of a transaction the return of a cash deposit could well be by way of cheque and whilst particular circumstances arose in the instant case the risk is apparent.

Delays

9.    Mr. Jackson queried the validity of the review decision on the basis that it was out of time as the Commissioners had not given notice of their determination within 45 days of the date on which he asked for the review which he said the Commissioners had confirmed was 10 April 2006. The review letter was dated 26 May 2006 but he said that it had not been posted until 30 May 2006 and was received by him on 31 May 2006. Mr. Winkley was unable to assist on these dates. Our own calculation of the 45 day period had it commenced on 10 April 2006 is that  it would have terminated on 24 May 2006 but any delay is already covered in Regulation 21(6) by which outside the period the initial decision is deemed confirmed. Accordingly in the case before us  the review decision is valid though subject to appeal to the tribunal.

10. Mr. Jackson stated also that although the matter started in 2004 it was only now coming before the tribunal which he considered a long delay. It is our understanding that the instant case was held pending the decision in the tribunal case of James Paul (Car Sales) Ltd. v The Commissioners for Her Majesty’s Revenue and Customs. This decision was issued on 17 October 2008 and the parties and the tribunal have had copies. Having read the decision we are satisfied that it was appropriate for this to be available before the listing of the appeal before us.

Information             

11. Mr. Jackson’s principal submission on the actions of the Appellant was that the first formal correspondence which he received from Customs was that of 8 November 2005 which contained a registration pack explaining the new laws and what had to be done. This however was subsequent to the dates of the transactions queried. It was his contention that after the receipt of this November documentation he ensured that the Appellant complied with the Regulations.

12.  In his evidence Mr. Jackson stated that he believed that in early 2005 the policy was introduced by the Appellant that cash payments of over £9,000 would not be accepted. He did not recall previous to that any directions to employees as to what they should do if there were large cash transactions and in effect the Appellant did not get them.

13.  He denied that prior to the November date he had received or seen any information on the new Regulations. He explained that any VAT notes would have been seen by the bookkeeper. He himself had no recollection of notices sent with VAT returns in 2004. He said that he could neither prove nor deny the position. Whilst he could not recall a subsequent telephone call he made he acknowledged that he had made reference to it in a letter dated 27 January 2006. Nor could he recall a telephone conversation made on behalf of the Appellant to NAS.

14.  Mr.Jackson was referred in cross-examination by the Commissioners’ advocate to a copy document in the bundle before the tribunal. This was the result of a telephone survey conducted on 26 August 2004 being a High Value Dealer Compliance Management Study. An officer of the Commissioners had spoken to David Anderson of the Appellant and ticked his responses to a number of standard questions about the Regulations. Mr. Anderson was aware of them. Mr. Jackson pointed out that Mr. Anderson was no longer with the Appellant though he acknowledged that he had been with the company for some 10 years as general manager and later a director. Mr. Jackson denied that he had had any discussion with Mr. Anderson. When asked specifically if he accepted that there was a telephone survey with a senior member of the Appellant his response was that he could not say yes or no.

15. In the review letter of 26 May 2006 Charles Dunn the review officer outlined what he considered was the quite comprehensive publicity for the introduction of High Value Dealers with seminars articles in the press and mail shots in 2003 2004 and 2005. Every effort he said was made to ensure that traders were made aware of the regime before it came into force. There was no direct evidence from the Commissioners at the hearing but we accept that there was a general sweep of publicity and contact with traders through VAT paperwork. It is difficult to accept that Mr. Jackson was unaware from these sources of the changes in hand. When asked also about his trade association he denied being aware of any information from it. It is to be noted that at the time of the telephone survey Mr. Anderson had objected to the fact that registration involved payment of a fee. However unaware the Appellant may have been of the new regime the requirement to register is nevertheless an absolute one for which ignorance of the law is not a defence.

16. Under the provisions of Regulation 20(2) of the 2003 Regulations the Commissioners must not impose a penalty “where there are reasonable grounds for them to be satisfied that the person took all reasonable steps for securing that the requirement would be met”. We find that there were no such grounds in the case of the Appellant.

Conclusion

17. We uphold the decision of the Commissioners and accordingly we dismiss the appeal.  We are satisfied that the amount of the penalty should remain at £1000.

Costs

18. The Commissioners did not ask for costs and we make no direction on costs.

TRIBUNAL JUDGE

RELEASE DATE: 25 September 2009