First-tier Tribunal (Tax)

[2010] UKFTT 132 (TC)

TC00441

 

Appeal number LON/2006/8084

 

MONEY LAUNDERING – liability to register under money laundering regulations – liability to pay fees on registration – Appellant appoints agents to offer its money transfer service at agents’ premises – whether Appellant is carrying on a business of transmitting money in the UK – yes – whether Appellant liable to register in relation to such business – yes – whether Commissioners entitled to charge Appellant the registration fee when agents registered for other money transmission businesses operated from the same premises – yes – regs 10 and 14, Money Laundering Regulations 2003 – Article 1(B), EC Directive 91/308/EEC – appeal dismissed

 

 

FIRST-TIER TRIBUNAL

 

TAX

 

                         MONEYGRAM PAYMENT SYSTEMS, INC        Appellant

 

 

                                                                      - and -

 

 

                                 THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Money Laundering Regulations)                                                                  Respondents

 

 

TRIBUNAL: JUDGE EDWARD SADLER

                                                            MRS L M SALISBURY

                                                            MICHAEL TEMPLEMAN

                                                                       

Sitting in public in London on 7 – 11 December 2009 (final written submissions made on 11 February 2010)

 

David Cavender, counsel, instructed by Dorsey & Whitney (Europe) LLP, for the Appellant

 

Amanda Tipples, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

 

© CROWN COPYRIGHT 2010

DECISION

Introduction: the nature of the appeal and the tribunal’s jurisdiction

1.     This is an appeal by MoneyGram Payment Systems, Inc (“the Appellant”) against a review decision of The Commissioners for Her Majesty’s Revenue and Customs (“the Commissioners”) given in their letter to the Appellant dated 25 August 2006 confirming their earlier decision to impose on the Appellant a civil penalty of £30 for the failure of the Appellant to register, in relation to certain premises, a money transfer business (and to pay the relevant registration fee) under the terms of the Money Laundering Regulations 2003 (SI: 2003 No. 3075) (“the ML Regulations 2003”).

2.     The Commissioners have the responsibility, under the ML Regulations 2003, to maintain a register of persons liable to be registered for the purposes of the ML Regulations 2003, and to charge a fee to those who register.  Registration is effected by reference to the premises from which the person carries on the business which requires him to register.  A person who is liable to be registered, and who fails to register, is liable to a civil penalty which may be imposed by the Commissioners.

3.     The Appellant’s business is that of money transfer, and for the purposes of that business it has appointed agents in the United Kingdom.  Shortly stated, the Appellant’s case is that it is not carrying on its money transfer business in the United Kingdom (such money transfer business as is carried on in the United Kingdom as it relates to the money transfer service operated by the Appellant is carried on by its agents), and therefore it is outside the scope of the ML Regulations 2003 and is accordingly not liable to register.  The Commissioners’ case, again shortly stated, is that the Appellant is carrying on its money transfer business in the United Kingdom in particular through the agents it has appointed, and therefore is within the scope of the ML Regulations 2003 and must register accordingly.

4.     The parties require the matter to be determined by the tribunal.  To that end they have co-operated in an arrangement whereby the Appellant has chosen not to register the money transfer business carried on at three different premises of, respectively, each of three of its major agents.  The Commissioners have imposed on the Appellant a token penalty of £10 for each of the premises in question (£30 in total) pursuant to the powers it has in that regard under the ML Regulations 2003.  Under the procedures set out in the ML Regulations 2003 the Appellant has requested the Commissioners to review their decision to impose the penalty, and the Commissioners, having done so, have confirmed their original decision.

5.     In relation to the ML Regulations 2003 an appeal against such a review decision lies to the tribunal by reason of section 83 (1)(zz) of the Value Added Tax Act 1994, and the nature and scope of the tribunal’s jurisdiction is set out in regulation 22 (except where it is stated otherwise, in this decision any reference to a particular regulation is to that regulation in the ML Regulations 2003), which provides:

On an appeal from any decision by the Commissioners on a review under regulation 21, the tribunal have the power to

(a)        quash or vary any decision of the Commissioners, including the power to reduce any penalty to such amount (including nil) as they think proper; and

(b)        substitute their own decision for any decision quashed on appeal.

The tribunal therefore has a full supervisory jurisdiction (see the tribunal decision in James Paul (Car Sales) Ltd v HMRC  [2008] Decision No. 20833).  As mentioned at the end of this decision, the Appellant has reserved the right at a later stage to argue that in the circumstances of the present case the tribunal has an inherent jurisdiction, as a matter of European Community law, to exercise a wider administrative power extending to ordering the repayment of prior registration fees should the Appellant show that it is not, and has not previously been, liable to be registered.

6.     The case was argued before us at a five-day hearing, with Mr David Cavender appearing for the Appellant and Miss Amanda Tipples appearing for the Commissioners.  Over the course of several weeks following the hearing the parties submitted further, and extensive, argument in writing on the “territorial” scope of the ML Regulations 2003 by reference to the interpretation of the relevant Community Directive.

7.     The Appellant stated to the tribunal, and the Commissioners have throughout accepted this to be the case, that the Appellant takes seriously the issue of money laundering and the need to comply with any applicable anti-money laundering legislation in the course of carrying on its business – the Appellant is subject to the stringent money laundering regime of the United States of America in relation to its business, and the question it seeks to resolve is whether, additionally, it is subject to the United Kingdom regime in respect of transactions conducted by the agents it has appointed in the United Kingdom.

8.     Finally, by way of introduction, we should mention that although the immediate dispute between the parties relates to a penalty of £30 only, the wider question as to whether the Appellant is liable to register under the ML Regulations 2003 is of some more significant financial consequence: for the year 2006/07 the aggregate of the annual registration fees paid by the Appellant was in the order of £225,000.

The issues in dispute

9.     The parties agreed the issues in dispute between them.

10.  The appeal is concerned with whether the Commissioners are entitled to require that the Appellant pay a registration fee of £60 in respect of each of the premises of its agents and sub-agents from which the Appellant’s money transfer service is available.  Regulation 14 permits the Commissioners to charge a fee to a person carrying on a money service business, and such fee can be charged in respect of each of the premises at which the operator of a money service business carries on that business.

11.  As mentioned, the parties agreed a procedure in order to bring the matter before the tribunal whereby, in June 2006, the Appellant failed to register (and to pay the registration fee) in the case of the premises of three agency outlets through which its money transfer business is available to customers, namely:

(1)  An office of Post Office Limited at 54/56 Great Portland Street, London W1 7NE;

(2)  An office of Thomas Cook Retail Ltd at 49 London Wall, London EC2M 5QB; and

(3)  Shop premises of SK News at 92 Old Street, London EC1V 9AY (which offers the MoneyGram service through the N & N Cheque Encashment agency operated by Cheque Exchange Limited).

The Commissioners have imposed a penalty of £10 in respect of the failure to register each of these premises.  The parties have agreed that these three instances will stand as a test case so that the decision of the tribunal in relation to each of those premises will determine the issue for all other premises from which the Appellant’s money transfer service is available under contracts with those respective agents and other agents.

12.  It is common ground between the parties that:-

(1)  the Appellant carries on a money service business as defined in the ML Regulations 2003, namely by transmitting money;

(2)  the Appellant is incorporated in the United States of America; and

(3)  in this case the Commissioners have exercised their powers to charge fees under regulation 14 by reference to the premises at which a person carries on a money service business.

13.  The parties identified the following as the issues to be decided by the tribunal on the appeal:

(1)  Does the Appellant carry on a money service business in the United Kingdom?

(2)  If the answer to issue (1) above is “No”, are the Commissioners entitled to charge the Appellant fees under the ML Regulations 2003?

(3)  If the answer to issue (1) above is “Yes”:

(a)   Does the Appellant carry on such a business at each branch of its agents or sub-agents from which members of the public can access the MoneyGram money transfer service; and

(b)  If so, are the Commissioners entitled to charge a fee to the Appellant where the owners of the premises are also paying a fee to the Commissioners under the ML Regulations 2003 in respect of other activities carried on by them at those premises that are a money service business?

14.  It is our decision that:

(1)  the Appellant carries on a money service business in the United Kingdom; 

(2)  the Appellant carries on that business at each branch of its agents or sub-agents from which members of the public can access the MoneyGram money transfer system; and

(3)  the Commissioners are entitled to charge a fee to the Appellant where the owners of the premises are also paying a fee to the Commissioners under the ML Regulations 2003 in respect of other activities carried on by them at those premises that are a money service business.

The Appellant’s appeal is therefore dismissed.

The Directive and the Money Laundering Regulations 2003

15.  The ML Regulations 2003 implement European Communities legislation, namely Council Directive 91/308/EC on prevention of the use of the financial system for the purpose of money laundering (Directive 91/308/EC has been amended by Council Directive 2001/97/EC, and in its amended form is referred to below as “the Directive”).

16.  Both parties, as appears below, made reference to the Directive as an aid to understanding the scheme implemented by the ML Regulations 2003 and the “territorial” scope to be implied into the ML Regulations.  Both parties accept that the Directive requires Member States to adopt measures so as to ensure the full application of the Directive, but that there is nothing in the Directive which constrains a Member State from implementing laws which go beyond the scope of the Directive provisions.

17.  The scheme of the Directive is to require Member States to ensure that certain obligations set out in the Directive are imposed within their jurisdiction on specified institutions, including “financial institutions”.  Those obligations include such matters as identification of customers transacting business; maintaining records of identification and of transactions undertaken; investigating suspicious transactions; reporting offences or suspected offences; and staff training in anti-money laundering procedures.

18.  Since it is an issue between the parties as to the scope of the Directive (namely, and in summary, whether it applies to an entity based in a country – in this case the United States of America – which is not a Member State where that entity has agents but not branches in a Member State – in this case the United Kingdom) it is helpful to set out here the definitions, so far as relevant, of those institutions on which the Directive obligations must be imposed by national legislation.  They are found in Article 1 of the Directive:

For the purposes of this Directive:

(A)            ‘Credit institution’ means a credit institution, as defined in Article 1(1) first subparagraph of Directive 2000/12/EC and includes branches within the meaning of Article 1(3) of that Directive and located in the Community, of credit institutions having their head offices inside or outside the Community;

(B)            ‘Financial institution’ means:

1.       an undertaking other than a credit institution whose principal activity is to carry out one or more of the operations included in numbers 2 to 12 and number 14 of the list set out in Annex I to Directive 2000/12/EC; these include the activities of currency exchange offices (bureaux de change) and of money transmission/remittance offices;

2.       ….

3.           ….

4.       ….

This definition of financial institution includes branches located in the Community of financial institutions, whose head offices are inside or outside the Community….

19.  It is common ground between the parties that the Appellant carries on activities of money transmission and therefore is, in principle at least (but subject to the “territorial” scope issue), within the definition of “financial institution” for the purposes of the Directive.

20.  It is necessary to set out in more detail relevant provisions of the ML Regulations 2003.  For the purposes relevant to this appeal, the ML Regulations came into force on 1 March 2004 (replacing earlier regulations).  They ceased to have effect on 15 December 2007, when they were superseded by later regulations.

21.  Regulation 9 imposes on the Commissioners the duty to maintain a register of operators:

9(1)      The Commissioners must maintain a register of operators.

(2)             The Commissioners must allocate to every registered operator a number, which is to be known as his registered number.

(3)             ….

(4)             The Commissioners may keep the registers in any form they think fit.

22.  Regulation 10 requires that any person who is an operator must be registered by the Commissioners in the register they maintain:

10(1)    A person who acts as an operator…must first be registered by the Commissioners.

(2)             An applicant for registration must –

(a)   make an application to be registered in such manner as the Commissioners may direct; and

(b)   furnish the following information to the Commissioners –

(i)      his name and (if different) the name of the business;

(ii)    his VAT registration number…;

(iii)  the nature of the business;

(iv)   the address of each of the premises at which he proposes to carry on the business;

(v)     any agency or franchise agreement relating to the business, and the names and addresses of all relevant principals, agents, franchisors or franchisees;

(vi)   the name of the nominated officer (if any);

(vii) ….

(5)        In this regulation, “the business” means money service business…which the applicant for registration carries on or proposes to carry on.

23.  The scheme for charging fees is set out in regulation 14:

14(1)    The Commissioners may charge a fee –

(a)   to an applicant for registration; and

(b)   to an operator… annually on the anniversary of his registration by them under these Regulations.

(2)      The Commissioners may charge under paragraph (1) such fees as they consider will enable them to meet any expenses incurred by them in carrying out any of their functions under these Regulations or for any incidental purpose.

(3)      Without prejudice to the generality of paragraph (2), a fee may be charged in respect of each of the premises at which the operator …or applicant for registration carries on (or proposes to carry on) money service business or relevant business falling within regulation 2(2)(n).

24.  The Commissioners’ power to impose a penalty is set out in regulation 20:

20(1)    The Commissioners may impose a penalty of such amount as they consider appropriate, not exceeding £5,000, on a person to whom regulation 10 (requirement to be registered) applies….

25.  Regulation 2 defines terms used in the ML Regulations 2003.  For the purposes of this appeal the following are the relevant definitions in regulation 2(1) and (2):

“operator” means a money service operator;

“money service operator” means a person who carries on money service business [other than certain categories of persons not relevant to this appeal];

“money service business” means any of the activities mentioned in paragraph (2)(d) (so far as not excluded by paragraph (3)) when carried on by way of business;

Regulation 2(2) defines “relevant business”, and within that definition are the activities mentioned in paragraph (2)(d):

The business of operating a bureau de change, transmitting money (or any representation of monetary value) by any means or cashing cheques which are made payable to customers;

Regulation 2(3) does not, in the present case, apply to exclude the Appellant’s business from being a “money service business”.

26.  The ML Regulations 2003 have no express provisions defining their territorial scope, but the operative provisions, which impose obligations on those persons who carry on “relevant business”, are couched in terms of persons carrying on such business in the United Kingdom.  Since both parties relied at some length upon the operative provisions in the ML Regulations 2003 it is necessary to set certain of them out in detail.

27.  Regulation 3 imposes a general requirement to comply with the anti-money laundering procedures set out in the ML Regulations 2003 and to train staff in those procedures.  Contravention is a criminal offence.  Thus:

3(1)      Every person must in the course of relevant business carried on by him in the United Kingdom –

(a)   comply with the requirements of regulations 4 (identification procedures), 6 (record-keeping procedures) and 7 (internal reporting procedures)

(b)   establish such other procedures of internal control and communication as may be appropriate for the purposes of forestalling and preventing money laundering; and

(c)    take appropriate measures so that relevant employees are –

(i)  made aware of the provisions of these Regulations, Part 7 of the Proceeds of Crime Act 2002 (money laundering) and sections 18 and 21A of the Terrorism Act 2000(a); and

(ii)    given training in how to recognise and deal with transactions which may be related to money laundering.

(2)              A person who contravenes this regulation is guilty of an offence and liable –

(a)   On conviction on indictment, to imprisonment for a term not exceeding 2 years, to a fine or to both;

(b)   On summary conviction, to a fine not exceeding the statutory minimum…

(5)        In proceedings against any person for an offence under this regulation, it is a defence for that person to show that he took all reasonable steps and exercised all due diligence to avoid committing the offence.

28.  Regulation 4 imposes an obligation on a person carrying on relevant business in the United Kingdom to have in operation identification procedures – the so-called “know your customer” procedures:

4(1)      In this regulation and in regulations 5 to 7 –

(a)   “A” means a person who carries on relevant business in the United Kingdom; and

(b)   “B” means an applicant for business.

(2)      This regulation applies if –

(a)   …;

(b)   in respect of any one-off transaction –

(i)  A knows or suspects that the transaction involves money laundering; or

(ii) Payment of 15,000 euro or more is to be made by or to B; or

(c)    in respect of two or more one-off transactions, it appears to A (whether at the outset or subsequently) that the transactions are linked and involve, in total, the payment of 15,000 euro or more by or to B.

(3)   A must maintain identification procedures which –

(a)   require that as soon as is reasonably practicable after contact is first made between A and B

(i)  B must produce satisfactory evidence of his identity; or

(ii) Such measures specified in the procedures must be taken in order to produce satisfactory evidence of B’s identity….

29.  Regulation 6 imposes upon “A” (that is, a person who carries on relevant business in the United Kingdom) an obligation to maintain procedures requiring the retention of specified records (including copies of evidence as to identity and details of all transaction carried out by “A” in the course of relevant business).

30.  Regulation 7 imposes upon “A” an obligation to maintain internal reporting procedures which require that anyone in “A’s” organisation who knows or suspects that a person is engaged in money laundering must report it to a person in “A’s” organisation (the “nominated officer”) appointed for the purpose, and that the nominated officer in turn must report it to the relevant authority (originally the National Criminal Intelligence Service (“NCIS”), now the Serious and Organised Crime Agency (“SOCA”)) if he considers that there are reasonable grounds for such knowledge or suspicion.

The evidence and the findings of fact

31.  By way of witness evidence we heard for the Appellant Mr Peter Gore, Vice President (Compliance) for MoneyGram International Limited, and the executive responsible for the implementation, management and oversight of the MoneyGram group compliance programme throughout Europe, Asia Pacific, the Indian sub-continent, the Middle East and Africa.  Mr Gore has held that position since 2004, and has worked in anti-money laundering roles in the money service and banking sectors since 2000.  Mr Gore gave his evidence in two witness statements, and was extensively cross-examined by Miss Tipples.  Mr Gore’s evidence related to the MoneyGram corporate structure; the Appellant’s money transfer business; the Appellant’s agents in the United Kingdom and the nature of the relationship with those agents and the conduct of business through those agents and their sub-agents; the extent to which the Appellant is able to comply with the requirements of the ML Regulations 2003 and the application of the ML Regulations 2003 to the Appellant’s agents; and the compliance of the Appellant with money laundering regulations imposed by the United States of America.  Certain matters (notably, the contracts between the Appellant and the three agents we are concerned with) occurred or were entered into before Mr Gore took up his position, so that he had no, or limited, knowledge of those matters or the circumstances in which they came about.

32.  For the Commissioners we heard evidence from six officers employed by the Commissioners: Mr Brian McCann, Mr Francis Tucker, Mr Richard Steers, Mr Andrew Jaroszkiewicz, Mr John Ernest Allott, and Mrs Arvinder Kaur Bhagrath.  Each of those witnesses gave evidence in a witness statement.

33.  The witness statement of the review officer, Mr Brian McCann was not objected to by the Appellant.  Mr McCann is an officer in the Commissioners’ National Excise Review and Appeals Team.  His evidence summarised the Appellant’s failure to register the three premises in question; the consequent imposition of the civil penalties; the Appellant’s request for a formal review of the decision to impose those penalties; the review process conducted by Mr McCann; and his decision to uphold the imposition of the penalties.

34.  Mr Tucker is the head of the Money Laundering Regulations Policy Team at the Commissioners, and he has been working in this field since 2001.  His evidence (on which he was cross-examined by Mr Cavender) related to the policy and operation of the ML Regulations 2003 with particular regard to the money service business industry in the United Kingdom; the system of charging fees for independent and agency businesses (including cases where businesses of both kinds are carried out in the same premises); the need for a principal to be registered for money service business carried out by its agent in order to ensure high-level monitoring of suspicious transactions; and the Commissioners’ system of inspection of businesses.

35.  Mr Steers is a Higher Officer in the Commissioners’ Money Laundering Central Intervention Team with responsibility for the Anti-Money Laundering Regulations Team.  His evidence (on which he was cross-examined by Mr Cavender) related to the registration process for a person carrying on a money service business; the form and maintenance of the register; the registration of the Appellant in the years to May 2006 and the fees paid on such registration; and the registrations of, respectively, the Post Office, Thomas Cook, and Cheque Exchange Limited.

36.  Mr Jaroszkiewicz is a Higher Officer in the Commissioners’ Money Laundering Regulations Team with responsibility for supervision of anti-money laundering compliance by Cheque Exchange Limited.  His evidence (on which he was cross-examined by Mr Cavender) related to the compliance procedures of Cheque Exchange Limited as they concern its cheque encashment business for which they are registered under the ML Regulations 2003.

37.  Mr Allott is an officer in the Commissioners’ Money Laundering Regulations Team who since 2002 has been the control officer for the Post Office Limited and Thomas Cook Retail Limited.  His evidence (on which he was cross-examined by Mr Cavender) related to his supervision of the anti-money laundering procedures of those companies in respect of their bureau de change businesses for which they are registered under the ML Regulations 2003.

38.  Mrs Bhagrath is an officer of the Commissioners responsible for checking compliance by the Appellant with the ML Regulations 2003.  Her evidence (on which she was cross-examined by Mr Cavender) related to her dealings with Mr Gore and his predecessor in relation to the Appellant’s compliance with the ML Regulations 2003 in respect of its money transfer business conducted through the Post Office, Thomas Cook and Cheque Exchange Limited (in the latter case through its sub-agents).  Mrs Bhagrath also explained the Commissioners’ method of compliance supervision where a company such as the Post Office or Thomas Cook is registered itself under the ML Regulations 2003 for a business it carries on as principal (in the case of those companies, a bureau de change business) and also operates as agent for a business separately registered (as in the money transfer business of the Appellant).

39.  In addition to the witnesses, we had in evidence a lever arch file of exhibits to the witness statements filed and five further lever arch files of documents which included correspondence between the parties; the ML Regulations 2003 registration application and registration documents of the Appellant, the Post Office, Thomas Cook and Cheque Exchange Limited; the contracts entered into by the Appellant with each of the Post Office, Thomas Cook, and Cheque Exchange Limited for the provision of the Appellant’s money transfer business, and training manuals provided by the Appellant to those parties in relation to the conduct of its money transfer business; standard form documentation entered into by a customer using the Appellant’s money transfer service; anti-money laundering policies and training manuals issued by the Appellant; the Commissioners’ Notice MSB 1 (Money Service Businesses – Registration) dated May 2002; and correspondence and notes of meetings between the Appellant and, respectively, the Post Office, Thomas Cook and Cheque Exchange Limited in relation to anti-money laundering matters.

40.  We find the following facts from the evidence.

41.  In relation to the Appellant, its business, the history of its registration for money laundering purposes, and its supervision by the Commissioners:

(1)  The Appellant is a corporation incorporated in the State of Delaware in the United States of America.  It has no premises or staff in the United Kingdom.  It has a wholly-owned subsidiary, MoneyGram International Limited (“MIL”), incorporated and operating in the United Kingdom, but MIL does not carry on any part of the Appellant’s business – as described below, it has a service or support function only.

(2)  The Appellant carries on an international money service or money transfer business through a network of representatives operating in over 180 countries (“the MoneyGram service”).  In the United Kingdom there are currently more than 15,000 premises (all being premises of representatives) at which the MoneyGram service is available.

(3)  The Appellant has entered into arrangements with a number of representatives or agents to enable it to make the MoneyGram service available in the United Kingdom, and such service is made available in the United Kingdom exclusively through such arrangements.  Its major agents are the Post Office Limited (“the Post Office”), Thomas Cook Retail Limited (“Thomas Cook”) and Cheque Exchange Limited (“CEL”).  The Post Office and Thomas Cook provide the majority of the sites at which the Appellant’s services are offered in the United Kingdom.

(4)  The procedures of the business are described in more detail in paragraph 43 below, but in essence a person who wishes to transfer money to another person (in the same or another country) will visit the premises of a representative offering the MoneyGram service and there will pay cash or transfer funds to the Appellant, and the Appellant will make available to the other person a corresponding amount (in local currency, if in another country) for collection in the premises of a local representative.  For this service the person remitting funds will pay a fee to the Appellant.

(5)  For the calendar year 2006 in the United Kingdom the Appellant carried out 1,133,168 “send” transactions (to the total value of £269,569,764) and 121,433 “receive” transactions (to the total value of £39,632,100).  A “send” transaction is where the customer arranges the transfer of funds; a “receive” transaction is where the customer’s specified recipient of the funds collects those funds to complete the transfer process.

(6)  The Appellant’s relationship with its agents as to the provision of the Appellant’s money transfer service are governed by detailed contractual terms (see paragraphs 49 - 53 below) which specify how transactions are to be carried out, the documentation to be used, the records to be maintained, the training required for agents’ staff providing the money transfer service to the customer, compliance with legal requirements (including anti-money laundering requirements) and related matters.  The Appellant does not have control over individual staff members of agents, who are under the direct supervision of the agents who employ them.

(7)  Operators of money service businesses became liable to register in the United Kingdom under the money laundering regulations as from 1 June 2002.  The Appellant applied to be registered under the then applicable regulations on 31 May 2002 in respect of the premises of the agents through which its money transfer service was available and, on payment of the relevant fee, was registered on 2 July 2002.  The application (and registration) must be made by reference to the premises at which the money service business is carried on, and on that occasion the Appellant identified 3,220 such premises (all being premises of its agents).  The registration was renewed annually by the Appellant in respect of all premises of its agents until May 2006.  At the May 2006 renewal of registration, the Appellant notified the Commissioners that although there were at that time 3,751 premises at which its agents made available its money service business, it was registering only 3,748 such premises.  The three premises which it was not registering were identified as those referred to in paragraph 11 above.  Its failure to register them was an agreed action to bring the matter before the tribunal, as described.

(8)  In consequence of the Appellant’s failure to register as a money service operator in respect of the three premises in question (and, consequentially, the Appellant’s failure to pay a fee in respect of registration of those premises), the Commissioners (taking the view that such registration was required pursuant to the ML Regulations 2003) took the decision on 26 June 2006 to impose the agreed penalties (£10 for each act of non-compliance) under their powers in regulation 20(1).  On 12 July 2006 the Appellant requested the Commissioners to review their decision, and that review was conducted by Mr McCann.  On 25 August 2006 Mr McCann notified the Appellant that the outcome of his review was to uphold the decision to impose the penalties.

(9)  Compliance by the Appellant with the ML Regulation 2003 in relation to its money transfer business is supervised by a compliance officer of the Commissioners (since the Appellant’s registration of its business in 2002, Mrs Bhagrath).  That officer has visited the Appellant (that is, Mr Gore and his predecessor at MIL’s offices) on several occasions to make compliance checks and to deal with compliance matters in relation to the Appellant’s money transfer business conducted by its agents.  In addition, the officer has visited approximately one hundred premises of such agents to check that anti-money laundering procedures are complied with in their conduct of the Appellant’s money transfer business, notifying the Appellant of such visits and of any concerns or weaknesses in compliance matters noted on such visits.

(10)   The Commissioners agreed with the Appellant that, provided the Appellant remained legally responsible for providing anti-money laundering training as required by the ML Regulations 2003, in the case of its major agents (the Post Office and Thomas Cook) that training could be provided by the agents to their staff.  For that purpose the Appellant provides to such agents a guide to the Appellant’s anti-money laundering procedures and policies and a training manual as to such matters as they relate to the MoneyGram service.

(11)   The Appellant’s anti-money laundering procedures (which are incorporated into its general training manual for the operation of its money transfer business) impose specific requirements as to the transactions for which evidence of customer identity must be supplied and the type of identification required.  These matters are included as “prompts” in the MoneyGram computer system which agents use, through terminals in their premises, to provide the service to customers.

(12)   The Appellant, as a United States corporation, is registered with the United States Financial Crimes Enforcement Network, and pursuant to the United States anti-money laundering regulations, to which it is subject, is required to have in place anti-money laundering policies and procedures governing relationships with foreign agents so as to monitor risks and suspicious activity.

42.  In relation to MIL:

(1)  MIL does not carry on a money transfer business.  MIL’s business is to supply operational services to the Appellant in the United Kingdom, Europe, Africa and parts of Asia.  These services include marketing and promoting the MoneyGram service, identifying agents for the Appellant, providing training and support for agents once they are appointed, providing some technical support for agents, dealing with customers’ queries and complaints about money transfer transactions using the MoneyGram service and organising refunds where applicable.

(2)  In the course of its business MIL employs Mr Gore and one other person to ensure that the Appellant complies with applicable anti-money laundering regulations where the Appellant is carrying on its money transfer business in those regions, and, in relation to the United Kingdom at least, MIL deals with the Commissioners on behalf of the Appellant in relation to all matters of compliance and supervision.

(3)  In relation to the Appellant’s registration under the ML Regulations 2003 Mr Gore (and, before he joined MIL, his predecessor in the post) was the “nominated officer” of the Appellant appointed under regulation 7 to receive disclosures of known or suspicious activity in relation to money laundering and, if appropriate, to pass on such disclosures to the relevant authority.

(4)  MIL has computer software which enables it to maintain a full record of all money transfer transactions processed by the Appellant’s agents in the United Kingdom and to scan all such transactions. 

43.  The Appellant’s money transfer business, as it is offered to customers in the United Kingdom, is operated in the following way:

(1)  The Appellant provides to each of its agents in the United Kingdom a detailed operations manual (some forty pages in length) setting out the procedures they must follow to provide the MoneyGram service in the United Kingdom.

(2)  A customer wishing to transfer money must visit the premises of one of the Appellant’s agents (say, a Post Office branch where this facility is available).  He will complete in duplicate a pre-printed MoneyGram branded form (the “send form”) with his name and address as “sender”, the name of the person to whom the funds are to be transmitted (the “receiver”), the destination country and city where the receiver is to collect the funds, and the amount of funds to be transmitted.  For transfers of amounts up to £500 the sender may include on the send form a “test question” and its “answer”, the answer to be given by the receiver as identification on collection of the funds. 

(3)  The sender then signs the send form and hands over to the agent the funds to be transferred together with a fee for the service (in cash or by cheque – if by cheque, then made payable to the agent).

(4)  The send form has detailed terms and conditions governing the transaction, including procedures for refund if the receiver fails to collect the transmitted funds.  The send form comprises the money transmission contract made between the customer and the Appellant.  The agent is not a party to that contract.

(5)  Certain of the agents have a computer terminal connected to the MoneyGram process system.  An employee of such an agent first checks the send form for errors or omissions and then enters the information from the completed send form into the MoneyGram system through the terminal and the information is then transmitted to the Appellant’s central processing centre in the United States.  The agent must give a six digit agent number and also a four digit PIN number to access the Appellant’s central processing centre.

(6)  The Appellant’s automated processing system then checks the information it has received, and if it is complete, the transaction proceeds enabling the receiver to collect the transmitted funds.  There is limited verification by the Appellant of the information received into its system, but the sender’s details are checked against a “watch list” of persons held in the system (being persons named on certain lists compiled by United States’ authorities), and in the remote eventuality that the sender were to be on such list, the transaction would not proceed and the sender would be refunded the funds he had paid over for transmission.

(7)  If the transaction proceeds the central processing centre generates a unique reference number which is transmitted back to the agent’s terminal, and the agent’s employee enters that on the send form.  The issue of that reference number is confirmation to the sender and to the agent’s employee that the transaction will complete with the transmission of funds to the receiver.  That reference number must be quoted by the receiver on his collection of the funds.

(8)  Alternatively, where there is no dedicated computer terminal in the premises of the agent, the agent’s employee will, on completion of the send form, telephone the Appellant’s call centre in the United States, giving the details from the completed send form and also the agent’s number and PIN number.  Subject to checking against the “watch list”, the Appellant’s call centre clerk will confirm that the transaction will complete with the transmission of funds to the receiver and will give the agent’s employee a unique reference number for the send form.

(9)  An agent is given a “help line” telephone number to call the Appellant in the United States for assistance in making identity checks or if the customer has a problem when completing the send form.

(10)   The receiver is then able to collect the amount in the local currency from a representative of the Appellant in the specified destination city.  Funds transmitted are not physically transferred between an agent and the Appellant, but instead there is a net settlement process carried out periodically.

(11)   If the sender has any questions or complaints about the performance of his contract he can contact the customer service department at MIL.

(12)   The sender may request a refund of the funds transferred before they are collected by the receiver and cancel the contract by contacting MIL or the office of the agent at which he completed the send form.  Any such request is reviewed by the Appellant and a refund is at the Appellant’s discretion.

(13)   The send form includes a section for completion by the agent, which requires the employee processing the transaction to set out the form of identification supplied by the sender and the number appearing on that form of identification.

(14)   The Appellant, in its operating instructions to the agent, specifies when evidence of identification is required from a sender and what that evidence should be.  It is the responsibility of the agent’s employee processing the transaction to comply with those directions before a send form is entered into the system.  For amounts transferred up to £500, the Appellant requires no identification of the sender, and no identification of the receiver if a “test question” is used.  For amounts between £500 and £1,700, the Appellant requires both sender (at the time of completing the form) and receiver (on collection of the money) to produce to the agent’s employee one of a list of forms of identity (passport, driving licence, etc.).  For amounts over £1,700 (the maximum amount which can be sent is £6,000), the Appellant requires one of the specified forms of identity from both sender and receiver and in addition the sender must provide details of his occupation and date of birth (and his social security number if he is a United States citizen).  If none of the listed forms of identification can be produced, the agent’s employee is required to call the Appellant’s “help line” for advice: the Appellant may then refuse to accept the transaction or direct the agent’s employee to seek alternative evidence of identity acceptable to the Appellant.

(15)   Responsibility for checking the proof of identity proffered by the sender or receiver rests with the agent’s employee, who can refuse to proceed with a transaction if he is not satisfied with such proof.

(16)   A copy of the completed send form is retained by the agent, as required by the Appellant, for at least one year.  The Appellant retains for five years on its computer system details of the transaction as appearing from the send form.

(17)   On a weekly basis the Appellant (through MIL), using sophisticated computer software, reviews all transactions to see whether a sender or receiver may have been involved in transactions where there is a suspicion of money laundering – for example, where a sender has, using different agents, made a series of transfers of funds just below the £500 threshold at which proof of identity is required.  Any such suspicious “linked transactions” are reviewed by the Appellant’s nominated officer who will decide whether or not to report the suspicion to the relevant authority (now SOCA)).

44.  The Appellant issues to all its agents in the United Kingdom a set of anti-money laundering policies for their specific purposes entitled “A guide to the prevention of money laundering”.  It runs to fifteen pages, and includes the following features:

(1)  It’s purpose is to provide a guide to the agent’s obligations under United Kingdom money laundering laws in connection with the MoneyGram service, so as to ensure that the agent understands the importance of the money laundering regulations, knows how to recognise suspicious transactions and knows what to do should a suspicious transaction arise.  It explains the procedures which the agent, as an agent of the Appellant, is required to follow.

(2)  Those procedures are expressed to be designed to achieve the detection and reporting of suspicious customers and transactions, and to enable the agent and the Appellant to provide an audit trail to the authorities should a customer be investigated.

(3)  The minimum requirements which the agent must introduce by way of procedures are specified, in relation to internal controls, customer identification, record keeping, recognition and reporting of suspicious transactions and education and training.

(4)  There is a summary of money laundering offences and of the role of NCIS/SOCA.

(5)  Included as an Appendix is a pro forma “Internal Unusual Transaction Report” to be faxed to the Appellant’s nominated officer, which is to be completed with details of the agent and its employee making the report, information as to the customer, and details as to the transaction which has given rise to the suspicion.

(6)  A further Appendix sets out the Appellant’s own identification and information requirements (the different proofs of identity required for different thresholds of sums sent and received: see paragraph 43(14) above).

45.  The Appellant provides to its agents an “Agent Training Manual” which sets out in detail (it runs to 103 pages) the nature of the MoneyGram service and the way it is to be operated by agents.  The manual includes a section on anti-money laundering procedures.  In the case of major agents, such as the Post Office, that manual, or a “customised” version of it, is incorporated into the agent’s own manual of operating procedures which covers the range of counter services provided by that agent.

46.  In relation to the Post Office, its registration and the arrangements between the Appellant and the Post Office with respect to anti-money laundering procedures and compliance:

(1)  The Post Office is registered as an operator under the ML Regulations 2003 in respect of over 14,000 premises as an operator of a business of operating a bureau de change.  The Commissioners were not able to state whether, during the period material to this appeal, the Post Office was also registered in respect of the Appellant’s money transfer business.  When the Post Office first applied for registration in May 2002 it indicated in the pro forma application form for registration that it was applying for registration for bureau de change, money transmission and cheque cashing businesses (that is, all the business categories for which registration is possible), but the detail of the registration application (setting out all its premises and the businesses carried out at each of its premises) was supplied electronically and the information is no longer available, nor did we have in evidence any Commissioners’ internal records which may have clarified the position (see below as to Thomas Cook).  The Post Office does not carry on its own money transfer business.

(2)  Compliance by the Post Office with the ML Regulations 2003 in relation to its bureau de change business is supervised by a control officer of the Commissioners (since May 2002, Mr Allott).  That officer does not supervise the Post Office in relation to its provision of the Appellant’s money transfer business (that is the responsibility of another officer, Mrs Bhagrath).  In making his compliance tests that officer should, in accordance with the Commissioners’ supervision arrangements, use only transaction data relating to the bureau de change business of the Post Office, but in practice he may have regard to other transactions, including those of the Appellant’s money transfer business.

(3)  The Post Office is responsible for conducting its own staff guidance, training and monitoring in relation to money laundering matters (identifying customers, reporting suspicious activity, etc.).  Such guidance and training is for the most part generic to all the services provided by the Post Office which are subject to money laundering regulation.  The Appellant does not provide any training to Post Office employees on anti-money laundering procedures.  The Appellant does, however, impose certain specific compliance requirements upon the Post Office: see paragraphs 43(11) and 44 above, and the Appellant provides to the Post Office an anti-money laundering guidance manual setting out the procedures it requires to be implemented in respect of the Appellant’s money transfer business.

(4)  The Post Office’s guidance manual makes specific reference to the Appellant’s MoneyGram service and the special requirements imposed by the Appellant in relation to its anti-money laundering procedures:  “Post Office branches that undertake money transfer services on behalf of MoneyGram will already be aware that they need to verify identification for any transaction of £500 or more.  MoneyGram is also bound by the Money Laundering Regulations as a Money Service Business and imposes this limit as part of its own controls to prevent money laundering.  The £500 limit must be adhered to when carrying out transactions on behalf of MoneyGram.  If the customer cannot provide suitable identification, the transaction must be refused.”

(5)  For its internal use by its staff the Post Office has a standard money laundering suspicious activity report form for use in making suspicious transaction reports to the Post Office’s nominated officer in relation to any service provided at a Post Office (i.e. whether in relation to its own bureau de change business or the Appellant’s money transfer business).  In March 2003 the Post Office and the Appellant agreed, with the approval of the Commissioners, a procedure for suspicious transaction reports in relation to the MoneyGram services transacted by Post Office personnel.  That procedure required the Post Office’s nominated officer to assess whether to report the matter to NCIS/SOCA, in which case a copy of the report would be sent to the Appellant’s nominated officer.  In cases where the Post Office’s nominated officer decided not to make such a report, he would nevertheless send details of the transaction and the grounds for suspicion to the Appellant’s nominated officer.  In both situations the Appellant’s nominated officer was then required to review the information supplied to monitor it to see if the suspicious transaction was linked to transactions carried out through other agents in the Appellant’s network.  If there were suspicions as to linked transactions, the Appellant’s nominated officer was required to make a report to that effect to NCIS/SOCA.

(6)  In March 2004 (following an earlier audit of compliance procedures) the Commissioners wrote to the Post Office identifying certain failings in those procedures and in the quality of staff training in anti-money laundering matters.  A remedial plan was agreed between the Post Office and the Commissioners in May 2004.  The procedures and training in question extended to the activities of the Post Office staff carrying out the Post Office’s bureau de change business and the Appellant’s money transfer business (although the deficiencies in relation to the latter were identified at a later stage).  The Appellant was not made aware of this until it received an enforcement letter in July 2004, after the remedial plan had been agreed.

47.  In relation to Thomas Cook, its registration and the arrangements between the Appellant and Thomas Cook with respect to anti-money laundering procedures and compliance:

(1)  Thomas Cook is registered as an operator under the ML Regulations 2003 in respect of 791 premises.  When Thomas Cook first applied for registration in May 2002 it indicated in the pro forma application form for registration that it was applying for registration for bureau de change and money transmission businesses, but the detail of the registration application (setting out all its premises and the businesses carried out at each of its premises) was supplied to the Commissioners electronically and the information is no longer available.  The Commissioners’ internal records (“record of MSB traders particulars”) derived from the electronic information supplied by Thomas Cook as part of its registration application show that Thomas Cook is registered for its bureau de change business, but there is no record of it having been registered for a money transmission business (whether as an operator in respect of the Appellant’s money transfer business for which it acts as agent or in respect of a business of its own).  Our conclusion is that, during the period material to this appeal, Thomas Cook was registered only for its bureau de change business: the Commissioners’ records seem to us more reliable evidence of the actual registration than the manuscript application form where in any event the substantive detail was submitted electronically.

(2)  In broad terms Thomas Cook’s position as to compliance, supervision by the Commissioners, direction as to compliance by the Appellant, internal training and procedures, and suspicious activity reports is similar to that of the Post Office.  Mr Allnott is the Commissioners’ control officer for Thomas Cook as for the Post Office.  The only material difference is in relation to the filing of suspicious activity reports with NCIS/SOCA:  it was agreed in January 2004 at a meeting attended by representatives of Thomas Cook, the Appellant and the Commissioners, that the Thomas Cook nominated officer would review all reports made by counter clerks in relation to MoneyGram service transactions and would decide which matters to report to NCIS/SOCA, at that point sending copies of any such reports to the Appellant.  For reasons of commercial confidentiality and cost, reports to the Thomas Cook nominated officer that did not result in disclosure to NCIS/SOCA would not be copied to the Appellant.

48.  In relation to CEL, its registration and the arrangements between the Appellant and CEL with respect to anti-money laundering procedures and compliance:

(1)  CEL is identified by the Appellant as a “super agent”, that is to say, the Appellant contracts with CEL on the basis that CEL will appoint sub-agents (usually small independent retail traders) who will provide the Appellant’s MoneyGram service in their outlets.  The Appellant requires CEL to notify it of the identity and location of each sub-agent, but the Appellant does not contract or have direct contact with the sub-agent.

(2)  CEL (which trades under the name “N & N Business Centre”) carries on for its own account (through its network of sub-agents) a business of cashing third party cheques which are made payable to its customers.  CEL is registered as an operator under the ML Regulations 2003 in respect of 297 premises as an operator of a cheque encashment business.  CEL is not registered as an operator in respect of the Appellant’s money transfer business for which it acts as super agent.  None of CEL’s sub-agents which provides the MoneyGram service is registered as an operator in respect of the Appellant’s money transfer business.

(3)  As with the Post Office and Thomas Cook, compliance by CEL with the ML Regulations 2003 in respect of its own business (the cheque encashment business) is supervised by a control officer of the Commissioners (in this case Mr Jaroszkiewicz).

(4)  CEL has a nominated officer for the purposes of the ML Regulations 2003 who deals with CEL’s anti-money laundering procedures in relation to CEL’s cheque encashment business.  Initially the procedure was for suspicious activity reports relating to the MoneyGram service to be sent from the sub-agent through CEL to the Appellant’s nominated officer who then decided whether to report them to NCIS/SOCA.  That process was found to be too slow, and in November 2005 the Appellant and CEL agreed that thereafter CEL’s nominated officer would send reports directly to NCIS/SOCA with copies to the Appellant’s nominated officer and would also send to him weekly reports of suspicious activity reports not disclosed to the authorities.

(5)  CEL requires its sub-agents to implement the Appellant’s anti-money laundering procedures (for example, the requirement that a customer provides identity evidence if the amount to be transferred exceeds a specified figure) and trains its sub-agents in such procedures, drawing on the Appellant’s anti-money laundering training manual and guide for the purpose.

49.  The relationship between the Appellant and each of the Post Office, Thomas Cook and CEL, and the terms on which each of those agents provides the Appellant’s money transfer service, are set out in the contracts which each agent has with the Appellant.

50.  The first contract between the Appellant and the Post Office is dated 7 August 2002, and its key provisions are summarised as follows:

(1)  By Clause 2.1 the Appellant appoints the Post Office as its agent to perform the MoneyGram standard money transfer service by offering that service at specified branches of the Post Office.  That service is to be provided by the Post Office on the terms specified in the contract and as specified in the “Operating Instructions” (being the detailed instructions relating to the MoneyGram service as issued by the Post Office to its employees as developed jointly with and agreed to by the Appellant).  The parties agree to develop criteria to be used to determine the profitability or viability of the service in branches so as to review the branches at which the service is offered.

(2)  By Clause 3.1 the Post Office agrees to offer the MoneyGram service at the agreed Post Office branches.

(3)  By Clause 4 the Appellant specifies how the Post Office is to accept funds to be transferred (in cash or by cheque or bank drafts and in sterling), and the Post Office is required to remit to the Appellant all funds for transfer and the fees paid for the service by the customer.

(4)  By Clause 5 the Post Office is required to keep records of all money transfers for a period of at least a year, and to provide copies to the Appellant when requested.

(5)  By Clause 6 the Appellant agrees to provide training and telephone helpline support for Post Office employees in relation to the MoneyGram service.

(6)  By Clause 7 the Appellant agrees to provide the Post Office with all the forms and other materials necessary for operating the MoneyGram service.  The Post Office can use no other forms or materials without consent.

(7)  By Clause 8 and Schedule 5 the Appellant agrees at its cost to provide the Post Office with access to the Appellant’s automated system and to provide and install computer terminals and related hardware and software required for such access.  The Appellant also provides training for use of the system and a technical support helpline service.  The Post Office agrees not to tamper with or alter the system.

(8)  Clauses 9 and 10 relate to the settlement of accounts between the parties as to funds transferred, the payment of commissions and foreign exchange differences.

(9)  By Clauses 11 and 12 the parties agree to maintain confidentiality in respect of commercially sensitive matters relating to the MoneyGram service and the Post Office’s business.  Each party retains full ownership rights in the respective intellectual property rights they hold.

(10)   By Clause 13 and Schedule 4 the Appellant agrees at its cost to a specified maximum sum to advertise and promote the availability of the MoneyGram service at Post Office branches.  The Post Office requires the Appellant’s approval to any advertising it may undertake using the MoneyGram name or logo.

(11)   Clause 14 relates to data protection requirements and Clause 15 contains warranties and indemnities given by the respective parties.

(12)   Clause 16 provides for the procedures by which transactions are to be verified, requiring the Post Office to provide an identification and PIN number to the Appellant’s processing centre each time a transaction (whether send or receive) takes place.  The Appellant will refuse to authorise a transaction if these numbers are not provided.  The Post Office agrees to act on the Appellant’s directions to prevent fraudulent transactions and is liable for any transactions it initiates which do not comply with the agreed verification procedures, or if it disburses funds to someone other than the proper receiver.

(13)   Clauses 18 and 19 deal with termination, with a term of five years for the agreement and an earlier right of termination in the event of default or where the continuation of the agreement is likely to cause either party to breach any law.

(14)   By clause 21.6 both parties agree to comply with all applicable laws, including those relating to the prevention of money laundering.  The Appellant has the right to issue written policies and procedures “as they relate to compliance with US Government cash reporting requirement, the detection and prevention of money laundering or similar international initiatives”.  The Post Office agrees to comply with such policies and procedures to the extent that they are applicable.

51.  On 28 March 2006 the Appellant and the Post Office entered into a new contract replacing the 7 August 2002 contract.  The terms whereby the Appellant and the Post Office agree that the Post Office will make available the MoneyGram service under the replacement contract are in all material respects the same as those under the earlier contract, although the Post Office is not specifically identified as the Appellant’s agent in operating the service.

52.  The contract between the Appellant and Thomas Cook is dated April 2003, with the signature page bearing an “effective date” of 16 May 2003.  It is in different form from the contract with the Post Office, but its scope and effect is broadly the same.  The terms of the contract which are material for this appeal (and which differ from corresponding provisions in the Post Office contract) are as follows:

(1)  By Clause 1(a) the Appellant authorises Thomas Cook as agent on behalf of the Appellant to provide the MoneyGram money transfer send and receive service at specified branches of Thomas Cook “in strict accordance with applicable laws, rules, regulations and the terms and conditions of this Agreement”.

(2)  By Clause 3, Thomas Cook agrees to provide the MoneyGram service “to customers only in accordance with MoneyGram’s written procedures as contained in the user manual attached”.  There is extensive provision dealing with any subsequent changes which the Appellant intends to make to the agreed manual.

(3)  Clause 6 deals with compliance with law: both parties agree to comply with all laws applicable to their respective businesses, including laws relating to the prevention of money laundering.  Thomas Cook warrants that the provision of the MoneyGram service complies with United Kingdom applicable laws.  The Appellant agrees to issue to Thomas Cook “written policies and procedures as they relate to compliance with the US Bank Secrecy Act, the US Internal Revenue Service’s cash reporting requirements, privacy laws of the US and other countries…or other applicable laws, including, but not limited to, those relating to the detection and prevention of money laundering.  Thomas Cook shall comply in all material respects with these policies and procedures following receipt, and such policies and procedures are incorporated into and made a part of this Agreement on receipt.”

(4)  By Clause 7 the Appellant appoints Thomas Cook as its trustee and guardian in respect of transfer monies and fees which Thomas Cook receives in the course of providing the MoneyGram transfer service, Thomas Cook holding such sums in trust for the benefit of the Appellant.

53.  The contract between the Appellant and CEL is dated 13 January 2004.  In scope it is similar to the contracts with the Post Office and with Thomas Cook, but with additional provisions relating to CEL’s system of operating through sub-agencies.  The material terms are as follows:

(1)  By Clause 1 the Appellant authorises CEL to provide its MoneyGram service at agreed locations in strict accordance with applicable laws and the terms of the Agreement.  By Clause 3 CEL agrees to provide that service only in accordance with the Appellant’s written policies, procedures and user guides.

(2)  By Clause 6 both parties agree to comply with all laws applicable to their respective businesses including, expressly, laws relating to the prevention of money laundering.

(3)  In the termination provisions in Clause 14 either party may terminate the Agreement if there is reason to believe that the other party may be violating any laws applicable to its business, including laws relating to money laundering.

(4)  By Clause 29 CEL is permitted to provide the MoneyGram service by sub-agents, and an Addendum to the Agreement deals with that.  By that Addendum the Appellant must approve all sub-agents and the locations in which they will provide the service (and there are provisions as to locations so as to ensure that no sub-agent offers the service in competition with the Post Office or Thomas Cook).

(5)  When CEL appoints a sub-agent it must enter into an agreement with that sub-agent in prescribed terms, essentially requiring the sub-agent to provide the MoneyGram service in compliance with the Appellant’s policies and user manuals, and obliging CEL to provide training in the provision of the service. 

(6)  CEL is required to guarantee to the Appellant due performance by all sub-agents of their obligations, and the Appellant requires that in the agreement between CEL and a sub-agent the Appellant is acknowledged as a third-party beneficiary of such agreement, with a right to step in and enforce the terms of such agreement.

(7)  The Appellant agrees to provide directly to any sub-agent the necessary software for it to access the Appellant’s system.

54.  The contractual arrangements with the Post Office, Thomas Cook, and CEL do not extend to the following matters:

(1)  The Appellant has no right of access to any premises of its agents beyond a right ancillary to its contractual right to inspect retained send forms.

(2)  No employee of the Appellant or contractor engaged by the Appellant works or is entitled to work at the premises of any agent.

(3)  The Appellant has no control over the staffing of agents’ premises or over the monitoring or disciplining of individual staff who do not comply with anti-money laundering laws and procedures.

55.  In relation to the Commissioners’ policy and supervision of businesses for which the Commissioners are responsible under the money laundering legislation and their administration of the registration process:

(1)  In accordance with the ML Regulations 2003 the Commissioners maintain a register of operators, being persons who carry on a money service business such as bureau de change, cheque encashment and money transmission.  Every business on the register lists the addresses of premises through which the operator operates a money service business, irrespective of whether the premises are a branch or an agent of the registered business.  A fee is payable each year by the registered operator to the Commissioners in respect of each premises of that operator listed in the register.  All expenditure of the Commissioners on money laundering supervision is accounted for against such fee income, and each year the amount of the fee is calculated so as to ensure so far as possible that fee income for the year will match such expenditure for the year.

(2)  Where an agent carries on a money service business for a principal, the principal will be registered as the operator of the money service business in question and the premises listed as those at which the operator carries on that money service business will be the premises of the agent.  The principal will pay the fee levied in respect of its business operated in those premises.  If the agent carries on (as principal and for its own account) at the same premises a separate money service business it will separately be registered as the operator of such money service business and those premises will be listed as the premises at which that operator carries on that business.  The agent will pay the fee levied in respect of its business operated in those premises, so that, in a case such as this, two fees are payable in respect of the same premises, but in respect of different money service businesses operated by different operators.

(3)  These registration arrangements are designed to reflect the requirement of the ML Regulations 2003 that each operator must appoint a “nominated officer” responsible for compliance and the monitoring and reporting of suspicious activities. 

(4)  These arrangements also determine the supervision and control methods put in place by the Commissioners.  Thus an officer will be allocated to an operator and the money service business it operates, to enable him to review the entirety of the money service business carried out by that operator.  Any deficiencies in anti-money laundering procedures identified in the operation of that business, in whatever premises it is carried on, can be dealt with between the Commissioners’ control officer and the nominated officer of that operator.  The control officer will monitor at the “head office” of the operator whether business-wide anti-money laundering policies, procedures and training are properly formulated and delivered to the branches.  He will also (directly or through other officers responsible to him) monitor by visits to the branches whether such policies and procedures are being implemented in the course of carrying on the business, taking up with the nominated officer any problems or shortcomings identified in branch visits. 

(5)  Where the same premises are registered more than once (for example, by the operator who carries on a business conducted for him by an agent at those premises, and also by the agent who is carrying on his own business at those premises), those premises can be visited by two different control officers, each monitoring the particular business and operator which is his responsibility.  There is some liaison (more so as practice and experience in supervision and monitoring has developed within the Commissioners’ teams responsible for money laundering matters) between different control officers, for example identifying premises or branches which are seen to present particular risks.

(6)  The Commissioners are concerned, in the case of money transfer businesses, not only to prevent transactions proceeding where there are immediate grounds for suspicion, but to detect more sophisticated operations, for example where a series of transactions, each seemingly “innocent”, or below identification thresholds, are linked or associated in some way and taken together may comprise money laundering.

(7)  The Commissioners’ Notice MSB 1 “Money Service Business – Registration” dated May 2002 includes the following in relation to the registration of agents and agent’s premises (this Notice was updated in August 2003 to reflect changes made on the introduction of the ML Regulations 2003, but the following extract was not then amended):

“6.4      Do I include my agent’s premises?

Yes, if they carry out your work for you.  However, if they are agents who must register in their own right, you do not have to register them or provide us with any information about them on registration (see section 7 for more details).

…

7.2             I’m an agent.  Must I register?

It depends on how much control the principal has over you as an agent.

Some agency agreements are conducted ‘at arm’s length’, so that the control lies mainly with the agent rather than with the principal.  You normally have an ‘arm’s length’ agreement if as an agent you:

·        own or rent the premises at which the MSB activity takes place; and

·        employ the staff who carry out the MSB activity; and

·        are not instructed by the principal (and the principal has no right to instruct you).

If you have such an agreement, you must register in your own right and pay the fees yourself.  We may ask for information about your principal later to help maintain the accuracy of our register.

However, if the principal has control over the way you conduct your money service business, they must register for you and pay the fee for you.  You should check that they have done this.”

The Appellant’s submissions

56.  Mr Cavender put forward four related arguments in support of the Appellant’s case:

(1)  that the Appellant is outside the scope of the ML Regulations 2003 in principle;

(2)  that it is unfair that the Appellant should be required to register and pay a fee (based on supervision costs) in relation to premises for which the Appellant’s agent is required to register and for which that agent has paid the registration fee, since multiple registrations in respect of the same premises are not contemplated by the ML Regulations 2003;

(3)  that it is the customer-facing agents alone who are able to implement and comply with the anti-money laundering procedures required by the ML Regulations 2003, not the principal who is remote from the customer, and the ML Regulations 2003 can only be fairly applied in a workable system with that purpose in mind; and

(4)  that the ML Regulations 2003 should be viewed in the light of their successor provisions.

57.  As to the argument that the Appellant is outside the scope of the ML Regulations, the Appellant’s case is that, since the Appellant has no establishment or branch in the United Kingdom (or, indeed, any other Member State), it is outside the scope of the Directive.

58.  The Directive imposes on Member States the obligation to ensure that “financial institutions” comply with anti-money laundering procedures.  The Appellant’s business (money transmission) brings it, in principle, within the Directive definition of “financial institution”.  However, the Directive definition of financial institution includes the following: “This definition of financial institution includes branches located in the Community of financial institutions, whose head offices are inside or outside the Community”; it follows by inference that the definition does not extend to an institution such as the Appellant which has its head office outside the Community and no branches inside the Community.  For these purposes agents are not branches.  This provides a natural and sensible territorial scope to the Directive, especially where the operative provisions of the Directive are not limited in their scope to businesses conducted in Member States.

59.  This approach is supported by the operative provisions of the Directive (and the successor Directive 2005/60/EC), which require Member States to impose on financial institutions obligations which can be enforced against them directly – either by action against the head office or against the presence they have in the Member State by virtue of a branch.  The Directive’s scope must be seen in the context of anti-money laundering arrangements imposed by other jurisdictions such as the United States, which will be responsible for supervising entities, such as the Appellant, with a head office in that country.

60.  Further, the fact that the Appellant has an agent in the United Kingdom does not result in it having a branch in the United Kingdom.  Community law distinguishes between branches and agents (see, for example, Article 43 of the Treaty on European Union which concerns freedom of establishment).  It is consistent with the scheme of the Directive that agents should not be regarded as branches of a financial institution, since an agent carrying on the business of a financial institution located outside the Community will be a financial institution for Directive purposes in its own right.

61.  Turning to the ML Regulations 2003 themselves, they take a different approach to the Directive, applying to a person who is carrying on a business in the United Kingdom (see regulation 3(1)).  It is clear that such a person must be carrying on that business himself (that is, if its head office is outside the United Kingdom, as a branch, and not through an agency), since the obligations imposed (identification procedure, record keeping, reporting) are matters which that person can comply with only if it is directly engaged in the business through its own employees. 

62.  Likewise, it is unreasonable (and an ineffective means of ensuring compliance) that the principal should be made criminally liable for the failings of the agent’s employees, for example as to the use of identification procedures, as provided by regulation 3(2): in such a situation, since the ML Regulations 2003 have no general concept of a principal being vicariously liable for the offences of its agent and there is no such concept as a general principle in law, the principal is likely to be able to claim the protection of the defence that it took all reasonable steps to avoid the commission of the offence (see regulation 3(5)), which leaves the Commissioners without a prosecution right against the agent, whose employees are at fault.

63.  The interpretation that the principal is not carrying on the business is consistent with the Commissioners’ own guidance on the ML Regulations 2003 as apparent in their Notice MSB 1, which specifies that if there is an “arm’s length” agency, it is the agent, not the principal, who should register.  If the agent is so controlled by the principal that in substance it is the principal who is directing the business, then it might conceivably be said that the agent is akin to a branch, and the principal should register.  A thorough analysis of the contractual arrangements between the Appellant and its agents shows that there is no such direct control – the agents are at arm’s length and have their own conduct of the business: the contractual arrangements are not such as to lead to the conclusion that the Appellant is operating the business.

64.  As to the argument that there cannot be multiple registrations and multiple fees paid for a “relevant business” carried out at the same premises, it is the case that each of the agents is obliged to and has registered under the ML Regulations 2003 in respect of the premises where the Appellant’s service is offered, as such agent is obliged to do as an operator carrying on at those premises a money service business (for example its bureau de change business).  The agent is required to comply with the ML Regulations 2003 in relation to that “relevant business”, and to pay a fee in respect of the premises at which it carries on a money service business (regulation 14(3)).  That registration and fee relates to any money service business operated from those premises, and there is nothing in the ML Regulations to suggest that multiple fees should be paid.  Further, the fee paid is to meet the cost of supervision by the Commissioners, and since the supervision of activities at a particular premises should not be increased if the agent is conducting two or more money service businesses (one for its own account and one as agent), it is disproportionate that two fees should be paid in relation to the businesses carried on at those premises.

65.  The Appellant’s third argument is that the ML Regulations 2003 must be construed and applied consistently with the policy underlying them.  That policy is to place identification, record-keeping and reporting obligations on the persons dealing with customers, and to provide for supervision of those who employ such persons.  If the ML Regulations 2003 are applied so that the Appellant, as principal, rather than its agent carrying out the transactions with the customers, is the operator of the money service business, the Commissioners, as the supervising authority, have no direct recourse against the person (namely the agent) responsible for ensuring anti-money laundering procedures are followed at the point they are most relevant, namely across the counter from the customer.  If, however, the agent is regarded as the operator of the business, which in substance it is, he is the one required to register and is the one who can properly and sensibly be held to account by the supervising authorities.

66.  Finally, the successor regulations to the ML Regulations 2003, the Money Laundering Regulations 2007 (SI 2007 No. 2157) follow the replacement Directive (Directive 2005/60), applying those regulations to financial institutions acting in the course of business carried on by them in the United Kingdom where the definition of “financial institution” extends to branches in an EEA state of institutions whose head office is located in a non-EEA state.  There is no reference to businesses carried on by United Kingdom agents.  The ML Regulations 2003 should be seen as having the same scope, both sets of regulations reflecting the underlying Community approach.

The Commissioners’ submissions

67.  For the Commissioners, Miss Tipples submitted that the ML Regulations 2003 must be interpreted in a purposive manner so as to accord, so far as possible, with the provisions and purpose of the Directive, even though the Directive does not have direct effect: Marleasing SA v La Comercial Internacional de Alimentacion SA 1 ECR 4135.  The Directive’s purpose is made clear in its title and recitals, namely to prevent the use of the financial system for money laundering purposes, recognising that money laundering is usually carried out in an international context.  The Directive identifies “credit institutions” and “financial institutions” as entities which must put in place anti-money laundering procedures designed to protect the integrity of the financial system.

68.  In the Directive, a “financial institution” is defined by reference to the operations it carries on (most significantly, for the present case, activities of money transmission/remittance offices), regardless of where its head office is or whether it carries on those operations through a branch or through an agency.  The Appellant is a “financial institution” as defined and therefore should be subject to those requirements in the Directive (as to customer identification, record keeping, training, reporting etc) which Member States must ensure are laid upon financial institutions carrying on business in their respective jurisdictions.

69.  Further, the meaning of “branch” in the definition of “financial institution” must be construed to include any agency and any other form of permanent presence contemplated by Article 43 of the Treaty on European Union: this follows from the way in which the concept of “branch” is used in the Community legislation regulating credit institutions.  Article 1(A) of the Directive adopts the definition of “credit institution” from Article 1 of Directive 2000/12/EC relating to the business of credit institutions and includes branches within the meaning of that Article.  A proper reading of Directive 2000/12/EC having regard to its aims shows that “branch” in that Directive must include any form of permanent presence which a credit institution may have in a Member State.  Where the Directive refers to a branch of a financial institution, “branch” is not expressly defined, and so the meaning of “branch” in relation to a credit institution should be applied so as to give the same meaning in relation to a financial institution.

70.  The ML Regulations 2003 properly give effect to the Directive by requiring a person carrying on a relevant business (in the present case, a business of transmitting money) in the United Kingdom to comply with specified anti-money laundering procedures and to register with the Commissioners to ensure appropriate supervision of such compliance.  It is the Appellant, and not its agents, which carries on the money transmission business (as evidenced by the fact that the customer using the service contracts directly with the Appellant, not with the agent) and therefore the Appellant is, in relation to that business, the operator who must be registered under the ML Regulations 2003.  The business is carried on in the United Kingdom because virtually all the relevant actions and operations take place in the United Kingdom, and the customer’s contract with the Appellant to transmit money is made in the United Kingdom at the point the customer completes and signs the send form and pays over to the agent the amount of the funds to be transmitted. 

71.  With regard to the detailed application of the ML Regulations 2003, once it is established that a person is carrying on such a relevant business in the United Kingdom, it is not material how that person, the operator, chooses to carry on that business, whether directly or through agents: if through agents, then it is for the operator to ensure that the agent, and the agent’s employees comply with the obligations imposed by the ML Regulations 2003, and it is the operator who is held to account if it fails to ensure that is the case.

72.  In the present case, the Appellant retains direct control over every aspect of its money transmission business by the detailed terms of the contracts it enters into with its agents: there is little by way of discretion in the way that an agent deals with a customer, and the role of the agent is no more than to provide the Appellant’s customer with access to the Appellant’s MoneyGram service.  The agent cannot therefore be regarded as itself carrying on a money transmission business such as to render it an operator liable to be registered.

73.  The Appellant’s contractual and procedural arrangements with its agents fully take account of the Appellant’s obligations under the ML Regulations 2003 to maintain anti-money laundering procedures, with the Appellant requiring agents to comply with all legal and regulatory requirements; providing agents with a comprehensive guide to the Appellant’s anti-money laundering policies; specifying its particular transaction thresholds at which different levels of customer identity checks must be applied; appointing a “nominated officer”; and ensuring that such nominated officer is sent copies of suspicious activity reports.

Decision

74.  The matter we have to decide is whether, for the purposes of the ML Regulations 2003, the Appellant is “a person who acts as an operator”: if that is so, regulation 10 requires that the Appellant must be registered by the Commissioners, and regulation 14 entitles the Commissioners to charge the Appellant a fee for such registration.  It is our decision that the Appellant is such a person and should be so registered and should pay the registration fee charged to those required to be registered.

75.   As set out in paragraph 11, in June 2006, as part of a procedure agreed with the Commissioners to bring this matter before the tribunal, the Appellant failed to register the premises of three agents at which customers could use its MoneyGram money transfer service, and therefore the matter in dispute falls to be determined under the ML Regulations 2003 which were in effect for the period 1 March 2004 to 14 December 2007.  Since 15 December 2007 money laundering matters, including registration requirements, have been governed by the Money Laundering Regulations 2007 (SI: 2007/2157).  Part of the Appellant’s case was to view the scheme and purpose of the ML Regulations 2003 through the lens of the provisions of the Money Laundering Regulations 2007.  We think that is neither a correct approach nor a helpful one: the Money Laundering Regulations 2007 were introduced following the implementation of EC Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, and in enacting the Money Laundering Regulations 2007 Parliament decided to follow a scheme of drafting more closely aligned to the terms of the 2005 Directive.  There was no evidence before us as to whether that different scheme of drafting was merely a change in drafting style, or represented a material change in substance which Parliament wished then to enact.  It may be the case, as the Appellant argued, that the scope of the 2005 Directive is similar to that of the Directive which the United Kingdom gave effect to in the ML Regulations 2003, but where, as we think is the case, the application of the ML Regulations 2003 can be understood from the terms of those regulations themselves, it is not necessary to seek their meaning from successor provisions drafted on a different basis pursuant to different Community legislation.

76.  To ascertain whether, for the purposes of regulation 10, the Appellant is an “operator”, it is necessary to look to the definition provisions in regulation 2, the relevant parts of which are set out in paragraph 25 above: in essence, an operator is a person who carries on a money service business, and the business of “transmitting money (or any representation of monetary value) by any means” is, for these purposes, a money service business.  It is common ground that the nature of the Appellant’s business is the transmission of money, so that it is carrying on a money service business.

77.  In their terms, these definitions contain no territorial or jurisdictional limitation.  That is to be found in the operative provisions, which impose upon operators certain requirements designed to counteract money laundering activities.  Regulation 3(1) begins: “Every person must in the course of relevant business carried on by him in the United Kingdom….”, and “relevant business” includes the business of transmitting money.  In regulation 4(1), for the purposes of regulations 4 to 7, the person “A” means a person who carries on relevant business in the United Kingdom.  Regulation 10, which requires an operator to be registered, does not specify that he needs to be registered only if the business he is operating is carried on by him in the United Kingdom, but that must be the proper construction having regard to the operative provisions and the extent of any powers which, as a practical matter, can sensibly be vested in the Commissioners to supervise and ensure compliance with the ML Regulations 2003.

78.  The Appellant’s case is that, although it carries on the business of transmitting money, it does not do so in the United Kingdom: it appoints agents for that purpose and they act as operator of such business as is carried on in the United Kingdom, so that they (and they alone) are required to register in relation to such business.

79.  Both parties argued for a purposive construction of the ML Regulations 2003 in support of their respective cases.  That purposive construction looked to the purpose as it may be discerned both internally from the practicalities of the operative provisions of the ML Regulations 2003 themselves and from the Directive.

80.  As to the Directive, the dispute between the parties was centred on the question of whether the Directive applies to a financial institution whose head office is outside the Community and which does not have a branch located within the Community but instead appoints agents within the Community for its business purposes.  The Appellant argued that it is such a financial institution, that the Directive does not extend to such a financial institution, and that it is reasonable to construe the ML Regulations 2003 so that they are correspondingly restricted in their scope.  The Commissioners argued for a broader scope for the Directive, and thus the ML Regulations 2003, their case being that the Directive applies to a non-Community financial institution which chooses to carry on its business within the Community through agents just as it applies to such a financial institution acting through a branch.  The arguments on this issue developed during the course of the hearing and beyond, and both parties made lengthy and detailed submissions in writing after the hearing.

81.  It is common ground that the Directive is not limiting upon Member States other than in terms of requiring Member States to ensure that the anti-money laundering obligations set out in the Directive are imposed on the institutions specified in the Directive: a Member State is free to impose more wide-reaching obligations, and to impose obligations on institutions beyond those specified in the Directive (see Article 15).  The Directive does not confer directly enforceable rights on those who may be required by a Member State to implement anti-money laundering procedures.  Thus it is possible that the ML Regulations 2003 may validly apply to persons not within the contemplation of the Directive.  In the present case, however, the Commissioners did not seek to take that point, but argued instead that the ML Regulations 2003 are to be construed in the light of the scope of the Directive.

82.  The dispute between the parties on the scope of the Directive related to the definition in Article 1(B) of “financial institution”.  A “financial institution” is an undertaking (other than a credit institution) whose principal activity is to carry on one or more of the operations listed in Annex I to the Directive on credit institutions (Directive 2000/12/EC).  Those operations include the activities of money transmission/remittance offices.  The definition continues: “This definition of financial institution includes branches located in the Community of financial institutions, whose head offices are inside or outside the Community”.

83.  The respective submissions of the parties on this point are summarised in paragraphs 57 to 60 and 67 to 69 above.  The Appellant argues that the reference to “branches” is a limitation on the definition of “financial institution” which is exact in its meaning and as such gives the Directive a sensible territorial scope.  In the context of Community treaties and legislation a branch is something different from an agent, and had it been intended to bring within the scope of the Directive an undertaking based outside the Community carrying on operations within the Community solely through agents, that would have been specified.  The Appellant further argues that there are sensible policy reasons which justify a non-Community undertaking coming within the scope of the Directive by reason of its Community branch whilst it does not do so by reason of its agent in the Community.

84.  The Commissioners’ primary submission is that the definition of “financial institution” is based on what the undertaking does: whether or not its principal activity is to carry out the activities of money transmission/remittance offices – if it does so carry out such activities in the Community by any means (whether through a branch or agency) it properly falls within the scope of the Directive.  The Commissioners also argue that, having regard to the Directives on credit institutions which are invoked in the Directive, “branch” should be read as including all forms through which an undertaking may have a permanent presence within the Community, be it branch, agency or even subsidiary.

85.  The point is not without its complexity, as evidenced by the lengthy written submissions made by both parties and by the fact that, over the course of the hearing and written submissions, the case of each party developed.

86.  In our judgment the scope of the Directive on an issue such as this should be understood by reference to the broad purpose of the legislation especially where, as with the Directive, Member States have a degree of latitude in what they individually legislate for beyond the minimum laid down in the Directive.  Of course, it is important that the type of undertaking which Member States are required to regulate should be carefully defined, and this the Directive does by reference to the nature of the business undertaken or by reference to undertakings defined in other Community legislation.  Thereafter, the way in which that undertaking chooses to undertake its business need not be, and is not, a matter of precise definition, since it should allow for a variety of arrangements which, in different Member States (or in different “home” countries), may be prompted by different commercial, taxation or other factors not relevant to the question of anti-money laundering procedures and regulation.

87.  We agree, therefore, with the Commissioners that if an undertaking has as its principal activity the activities of money transmission/remittance offices, so that it is a “financial institution” as defined, then it is within the scope of the Directive.  Clearly a financial institution which in no way is connected with the Community (that is, is not based within the Community and does not have any trading activity within the Community) is not the concern of Community legislation, and some connection of such kind is therefore to be implied.  We cannot see that anything more is required for the Directive, as it relates to “financial institutions”, to have sensible effect.  In particular, we cannot see that the Directive should be constrained in its effect so that it applies to financial institutions based outside the Community which carry out their money transfer business within the Community through branches but not where they carry out that business through agents – as a business matter and, we would consider, as a matter germane to combating money laundering, that is not a distinction which signifies. 

88.  Mr Cavender’s “policy” justification for such distinction was that where an entity based outside the Community operates within the Community through agents, the proper place for regulation of the entity in a scheme of regulation which is international is the “home” country: but the same might be said with regard to entities which operate their business through branches, and in any event does not deal satisfactorily with those cases (and this is not, we should emphasise, the situation of the Appellant) where there is little or no effective regulation in the “home” country.  He also said that where the business is conducted through agents within the Community, regulation at the Community level is effected through regulation of the agents.  But that is not necessarily the case, as an agent will itself only come with the definition of “financial institution” in the Directive if the money transmission business is its principal activity – which was not the case for any of the Appellant’s three agents with which we are concerned (leaving aside the question we revisit below, which is whether the business is properly regarded as that of the agent in any event).  He also made the point that, in cases of non-compliance, there can be no enforcement against an entity based outside the Community which has agents rather than branches: it is true that the “financial institution” operating within the Community solely through agents will not have tangible assets of its own within the jurisdiction of any Member State, but that does not preclude a Member State from supervising the proper application of anti-money laundering procedures in relation to the business conducted through the agent and the closure of that business in cases of persistent non-compliance.

89.  If one begins from the position that “financial institution” for the purposes of the Directive is properly defined by reference to the type of activity carried on, not by reference to the means whereby it is carried on, in the Community, do the closing words of the definition in Article 1(B) (“This definition of financial institution includes branches located in the Community of financial institutions, whose head offices are inside or outside the Community”) necessarily limit the definition?  Miss Tipples argued an intricate case in her written submissions to the effect that, in context, the expression “branch” encompasses any form of permanent presence, including an agent.  That may be so, but in any event those words do not in themselves have effect to restrict the concept of “financial institution” apparent from the nature of the activity carried on – in context they may be regarded as words of explanation rather than words of delineation.

90.  Therefore we conclude that if the ML Regulations 2003 are to be construed so as to conform with the purpose and scope of the Directive from which they are derived, it is not inconsistent with such purpose and scope that they should apply to a person based outside the Community who carries on a money transfer business in the United Kingdom through agents.

91.  The next question is whether, in construing the purpose and scope of the ML Regulations 2003, the operative provisions themselves in those regulations indicate a scheme which is consistent with the Appellant’s case that it is not subject to regulation (and therefore registration) in the United Kingdom by reason of the agency arrangements it has here.

92.  The essence of the Appellant’s case on this point is that the anti-money laundering procedures with which the ML Regulations 2003 are primarily concerned (customer identification; suspicious activity reports; staff training) are “customer-facing” matters, so that the person who requires supervision and who should be held to account for any shortcomings is the person who delivers the service to the customer.  The Appellant argues that, to achieve their purpose, the ML Regulations 2003 must be applied, in the Appellant’s circumstances, to the agent and not to the overseas principal.  The Commissioners argue that in relation to certain key matters effective combating of money laundering requires that the person with full oversight of the business complies with regulation, and that such person is in a position to ensure that its agents comply with the “customer-facing” procedures: therefore it is within the purpose of the ML Regulations 2003 that such person is regulated.

93.  Our starting point is that it is reasonable to expect that a system of regulation in relation to a business carried on in the United Kingdom should regulate the person carrying on that business, rather than the agency through which the business is carried on (we discuss below whether, in the present case, it is the Appellant or its agents who carry on such business).  That person has control over the entirety of the operation and should be responsible for it.

94.  Turning to the provisions in the ML Regulations 2003 which require a person to put in place anti-money laundering procedures, regulation 3 imposes on a person carrying on relevant business in the United Kingdom the general obligation to establish internal control procedures designed to combat money laundering and the specific obligation to comply with the particular requirements set out in subsequent regulations.  It is the case that some of those requirements relate to the point where the customer is in contact with the business – at the counter face, so to speak.  Thus in regulation 4, for example, “A” (the person carrying on the money transfer business in the United Kingdom) must maintain identification procedures which “require that as soon as is reasonably practicable after contact is first made” between “A” and the customer, the customer must produce satisfactory evidence of his identity, failing which the business must not proceed.

95.  Whilst it will certainly be the agent (or, strictly, the agent’s employee) rather than the principal who will have face-to-face dealings with the customer and must implement any identification procedures and report any suspicious action on the part of the customer, we cannot see why the principal should not be expected or required to ensure that the person it appoints to have that “customer-facing” function has in place the required procedures for dealing with customers.  Nor do we think it strains the language of the ML Regulations 2003 to apply them to the principal in this way.  The provision in regulation 4 referred to above, for example, can aptly be applied to the principal, where the customer transacts with the principal through an agent.

96.  In practice it appears that the Appellant took care to ensure that, through its agents, the required anti-money laundering procedures specified in the ML Regulations 2003 were in place and applied.  As a matter of contract it required its agents to comply with applicable laws; it provided its agents with a guide to United Kingdom money laundering requirements and procedures; the training manual provided to agents for operating the MoneyGram service includes a section on anti-money laundering procedures; it required its agents to apply the Appellant’s own customer identification procedures and thresholds; and it appointed its own “nominated officer” as contemplated by regulation 7, and set up procedures whereby that officer received copies of suspicious activity reports filed by agents’ counter clerks (amending those procedures, with the agreement of the agents and the Commissioners, to ensure more streamlined reporting to SOCA).

97.  Whilst such action on the part of the Appellant indicates that it is feasible for a principal in the Appellant’s position to ensure that, through its agents, there is compliance with the detailed practical requirements of the ML Regulations 2003, what happened in this case is not strictly relevant to the objective question of whether, as a scheme of regulation, the ML Regulations 2003 can properly and sensibly be applied to such a principal.  We think that they can, even in relation to “customer-facing” matters.  Mr Cavender argued that this would be so only if the fact of the agency were acknowledged in some way in the regulatory provisions, for example, if the opening words of regulation 3(1) read: “Every person must in the course of relevant business carried on by him or his agent in the United Kingdom…”.  But if it is the case that the business is carried on by the principal then the agent is simply the instrument of the principal for the purpose of carrying on the business, and the ML Regulations 2003 should concern themselves with the principal and the manner of his compliance.

98.  If one looks beyond the “customer-facing” procedures there is, in our view, a compelling reason why the ML Regulations 2003 should and can be read to apply to the principal as part of a coherent scheme for preventing money-laundering.  As the evidence of Mr Tucker made clear, a major concern in this field is with “linked transactions”, a series of transactions entered into on different occasions, perhaps by different persons and which individually might avoid detection but together raise suspicion.  The more sophisticated and systematic money laundering abuses are likely to be carried out through linked transactions.

99.  Specific reference is made to such linked transactions in regulation 4(2)(c) (dealing with identification procedures) and, more generally, the requirements to report suspicious activity in regulation 7 can extend to suspicions aroused by linked transactions.  Only the principal, with his overview of the entire business, is in the position to monitor transactions to detect possible suspicious activity through linked transactions, and no agent will be aware of transactions outside the confines of its agency.  It was Mr Gore’s evidence that the Appellant used sophisticated computer software to search on a weekly basis for possible linked transactions in relation to its customers in this country.  A purposive construction of the ML Regulations 2003 must take account of the need to prevent money laundering carried out at its more sophisticated levels by means of linked money transfer transactions.

100.         Finally, on the question of discerning the purpose of the ML Regulations 2003 from their provisions, Mr Cavender referred to the enforcement provisions in regulation 3, which make contravention of regulation 3 a criminal offence, for which it is a defence that the person concerned took all reasonable steps and exercised all due diligence to avoid committing the offence.  His submissions on the point are summarised at paragraph 62 above.  His case is that an effective system of regulation must hold to account directly those who fail to implement required procedures, and where practical conduct of the business is by the agent, it is the agent who should be the proper object of supervision and enforcement, and therefore the proper object of the regulations.

101.         We see no particular difficulty in a reading of the ML Regulations 2003 which not only places on the principal (rather than its agent) the obligations to comply with anti-money laundering measures, but also renders the principal criminally liable if it fails to meet those obligations because it has not taken all reasonable steps to avoid such failure.  To the extent that compliance relates to “customer-facing” activity, the principal has it within its power to insist that the right procedures are in place, the right training given, the right records maintained, and the right reporting mechanisms available, and to have a remedy – ultimately, withdrawing the business from the agent – should its agent fail in that.  If it has those controls in place it will, no doubt, be expected to show that it has properly exercised them when raising a defence to any criminal proceedings.  If it does not have them in place it might, not unreasonably, have difficulty in raising such a defence.  That seems to us to be an enforcement regime which reasonably and coherently applies in the principal/agent context.  It applies, too, where (as with CEL) sub-agents are appointed – clearly there is a further link in the chain of control, but if a principal chooses to operate in that way it is its responsibility to ensure that the control is in place.  We do not see that the enforcement provisions of regulation 3 lead to a construction of the ML Regulations 2003 such that they can apply only to the agent in arrangements of this kind.

102.         Having concluded that, on a purposive construction, the ML Regulations 2003 can in principle apply to a person carrying on a money transfer business in the United Kingdom through an agency, we turn to the question of whether the Appellant is such a person.  This is to be answered from the documents before us and the evidence of Mr Gore.

103.         The Appellant’s case is that the Appellant appoints its agents for them to carry on the business in the United Kingdom, and it follows that they, and not the Appellant, are identifiable as the person to whom regulation 3 must apply.  The Commissioners’ case is that the proper construction of the arrangements between the Appellant and its agents is that the business which is carried on is the business of the Appellant, and it is carried on in the United Kingdom.

104.         The Appellant’s MoneyGram business is the business of transferring money, and the nature and operation of that business is set out in paragraphs 41 and 43 above.  It carries on that business by appointing a large number of agents, and customers wishing to transfer money by means of the MoneyGram service can do so (at least, in the United Kingdom) only through such an agent, using documentation provided by the Appellant from which the agent transmits the relevant information into the Appellant’s computer system which in due course allows the receiver of the funds to collect them at another agency of the Appellant.  The agent collects the funds and also the Appellant’s fee from the customer and remits them (indirectly, by periodic net settlement) to the Appellant, which in turn remits them (again, through a net settlement process) to the agent from which the receiver will collect them.

105.         In analysing the business it is right to concentrate primarily on the customer or sender – the receiving process is, of course, part of the business since it is the delivery or completion of the service which the customer has contracted for, but the nub of the business is to be found at the customer or sender stage of the process.

106.         The customer contracts with the Appellant, and not with the agent, by completing the send form.  The role of the agent is limited to making the customer identity checks specified by the Appellant where transactions exceed a specified threshold; checking the send form to see that it is properly completed; taking payment of the amount to be transferred (paid into the agent’s account); inputting the data from the send form by special computer terminal provided by the Appellant into the Appellant’s central processing system in the United States; and advising the customer that this process has been completed and the transaction accepted by giving the customer his unique reference number.  Should the agent have any difficulty with these processes (for example, as to identity checks) it may call the Appellant’s offices in the United States for assistance.  Should the customer have any queries about the transaction after contracting with the Appellant, the customer takes the matter up directly with the Appellant through MIL or a call centre now based in the United States.  The customer may apply either to MIL or to the agent to cancel the contract and obtain a refund. Any such refund is at the Appellant’s discretion.

107.         The Appellant contracts with its agents that they will offer or provide the MoneyGram service at certain of their premises on specified terms, and in particular in accordance with the detailed user manual provided for the purpose by the Appellant.  The availability of the service is promoted at the cost of the Appellant, and the Appellant specifies how its brand name is to be used.  In some cases (for example the Thomas Cook contract), a trust is created in favour of the Appellant over all funds received by the agent for transfer.

108.         The Commissioners argue that, viewing these arrangements in their totality, the Appellant, and not the agent, is engaged in carrying on the business of transmitting money.  We agree with them.  The agent is there to offer the Appellant’s service to the customer and to provide the “mechanics” for the customer to avail himself of that offer and to access the service.  But the money transfer transaction is conducted between the customer and the Appellant, and the agent is little more than the gateway – albeit an essential gateway – to that transaction.  The role of the agent is carefully prescribed, and the only discretion which the agent has is the limited one of refusing to deal with the customer if there are grounds for suspicion as to his identity in cases where an identity check is required.  It is true that the agent receives payment of the funds from the customer, but it does so not with the purpose of itself transmitting funds to the receiver in completion of the customer’s transaction, but simply to account for them to the Appellant to enable the Appellant to effect that transmission.  The agent’s role in this regard as a conduit is underlined by the trust impressed on the funds in the Appellant’s favour in certain of the agency agreements.

109.         The Commissioners also argue that the Appellant carries on that business in the United Kingdom.  They argue that the preponderance of the activity with regard to the customer’s contract is carried on in this country.  They also argue that the contract between the customer and the Appellant is concluded in this country, on an analysis that the contract is made when the customer completes and signs the send form and pays to the agent the funds he wishes to transmit.

110.         We are of the view that, for the purposes of applying the ML Regulations 2003, it is right to take a broader, perhaps less “technical”, view in determining whether a business is carried on in the United Kingdom than would be appropriate in, say, the context of a taxing statute.  The business of money transfer is to a large extent international in its character, and an overly legalistic analysis to identify in which jurisdiction the business is carried on is not necessarily helpful in that context – it is likely to span jurisdictions as a seamless transaction where the sender initiates the money transfer transaction in one country, the transaction is processed by computer in a second country and the are transmitted for collection by a receiver in a third country. 

111.         Thus it may credibly be argued that the contract with the customer is concluded in the United States, if the correct analysis is that there is no contract until (in the United States) the Appellant indicates, by issuing to the customer his unique reference number, acceptance of the contract (an analysis supported by the fact that, prior to issuing that number, the Appellant automatically scans a “watch list” to check that the customer is not named on that list).  But even were that the correct analysis as to where the contract is made, we would nevertheless conclude that, for the purposes of the ML Regulations 2003, the transactions which the Appellant enters into with its United Kingdom customers result in the Appellant carrying on in the United Kingdom the business of transmitting money.  The Appellant offers its service in the United Kingdom and provides in the United Kingdom the facilities which the customer needs to access that service; its customers are here and they complete here all the steps required for them to use the service and the Appellant collects from them the funds to be transmitted; and through the support functions provided to the Appellant by MIL a number of significant ancillary matters are dealt with in the United Kingdom.  It is certainly the case that important parts of the money transmission are carried out outside the United Kingdom, so that the business may be regarded as also carried on elsewhere, but as we have said, the cross-border nature of the business is likely to result in it being carried on in a number of different jurisdictions.

112.         The Appellant’s final point is that the ML Regulations 2003 do not anticipate that more than one registration fee should be paid for the same premises, and that since each of the agents registers for “money service business” which they independently carry on from specified premises, the Appellant should not be expected to pay a further fee for a different money service business carried on at the same premises.  The Appellant’s submissions on the point are summarised at paragraph 64 above.  The Appellant supported its case with criticism of the way in which the Commissioners have chosen to supervise anti-money laundering compliance, with a separate team for each operator, leading, as the Appellant claims, to duplication and inefficiency where different services are provided at the same premises, which, it says, is a matter of proper concern for operators since registration fees are fixed, by virtue of regulation 14, at the level required to meet the supervision and enforcement costs of the Commissioners.

113.         The registration details of the various agents at the relevant time and the activities in respect of which they were registered are set out at paragraphs 46(1) (the Post Office), 47(1) (Thomas Cook) and 48(2) (CEL and its sub-agents) above.  There was some discussion at the hearing as to whether the agents had registered in relation to the Appellant’s money transmission business in view of their respective registration application forms, but we concluded that this was not the case for Thomas Cook and CEL, and that there was no satisfactory evidence on the point in relation to the Post Office (for large organisations applications and registration is dealt with electronically, and, we learned somewhat to our surprise, “historic” registration electronic records are not kept).  What is certain is that each of the agents was registered in relation to money service business which they carried on themselves (bureaux de change in the case of the Post Office and Thomas Cook and cheque encashment in the case of CEL) at the premises at which the Appellant’s money transmission service was available.

114.         Regulation 14 gives the Commissioners power to charge a fee to each applicant for registration.  As mentioned, fees are to be fixed so that in aggregate they meet the Commissioners’ expenses of operating the regulatory scheme.  It is a matter of discretion, rather than requirement, that fees are charged on a “per premises” basis since, without prejudice to the general power given to the Commissioners to levy fees, “a fee may be charged in respect of each of the premises at which the operator…carries on…money service business….”

115.         We see nothing in that language which precludes the charging of a fee for each operator using the same premises at which they carry on their respective money service businesses.  This is so even if one operator carries on its business through the agency of another.  Nor do we see anything inherently unfair in such an arrangement.  Where, as we have found to be the case, the Appellant is carrying on in the United Kingdom a money service business and hence is liable to register under the ML Regulations 2003, it requires to be supervised and it is reasonable that it should pay its share of the overall regulatory supervision cost.  Its supervision is a distinct matter from the supervision of its agent which happens itself to carry on a different money service business.  The supervision scheme the Commissioners have put in place, with an officer or team of officers responsible for each operator, seems as sensible as any other scheme which might be devised.  Mr Tucker explained that it is designed to relate an officer to the “nominated officer” which each operator is required to appoint, since that person is the focal point of compliance in each operator organisation.  It may, as the Appellant claims, lead to some confusion in the detail of execution and in certain inefficiencies and oversights from lack of collaboration where there is supervision of the same counter clerks dealing with two or more services.  Those, however, are matters of administrative procedure.  We see no grounds for the Appellant to be relieved from payment of the registration fee.

116.         As mentioned, the registration details of the Post Office are uncertain.  However, our decision on this point would be unchanged if the Post Office had applied for registration, and had been registered, in relation to the Appellant’s money transmission business.  In terms of fees paid it would be a matter of indifference to the Post Office: it pays the fee in relation to its bureau de change business and does not pay a further fee for any other money service business it might happen to carry on.  If it did register in relation to the Appellant’s money transmission business, we would say that it was mistaken to do so.  Its mistake would not result in any return of fees.

117.         Finally, we need to refer to the Commissioners’ Notice MSB 1 “Money Service Business – Registration” dated May 2002 in so far as it relates to agents – the relevant extract is set out at paragraph 55(7) above.  The Notice comprises guidance as to how the ML Regulations 2003 are applied.  It does not have the force of law.

118.         The Appellant, entirely reasonably, points out that the position of agents, as described in the Notice, accords with the Appellant’s case in this matter, namely that where the agent is at arm’s length (and, the Appellant says, applying the criteria on the point listed in the Notice, that reflects the nature of its arrangements with its agents), registration is the responsibility of the agent.

119.         It is clear that the Appellant’s case has to be determined by reference to the law, that is, the terms of the ML Regulations 2003 themselves without regard to any gloss the Commissioners may have put on them by practice notice.  The Appellant understood this to be the case, but criticised the Commissioners for putting forward a case which disregarded without question their published guidance.

120.         Our decision is not affected by the Notice guidance, but it is of concern to us that matters published by the Commissioners by way of guidance as to the scope and application of a regulatory scheme should differ so significantly from the law and from the conclusions on the law which the Commissioners themselves have reached.  We understand that this is the first case on this question, and that the view of the Commissioners as to the position of agents may have evolved as the case was in preparation.  We trust that current guidance notes published by the Commissioners will reflect the position in law as it is determined in this appeal. 

121.         In the present case the Appellant was made aware of the Commissioners’ view as to the Appellant’s position from an early date, and so it is unlikely that the Appellant has been materially prejudiced by any inaccuracy in the Notice guidance.

122.         For the reasons given we dismiss the Appellant’s appeal.

123.         In case the matter should go to appeal, we need to record that at the hearing before us Mr Cavender reserved the right, should the Appellant eventually succeed in its appeal, to argue that this tribunal has inherent jurisdiction not only to quash the decision of the Commissioners to impose a penalty and to reduce that penalty to nil (the explicit powers conferred on the tribunal by regulation 22), but also to direct that the Commissioners repay all previous registration fees paid by the Appellant which such an outcome would show had been wrongly demanded.  He indicated that he would argue that the tribunal has such jurisdiction in the light of the decision in the case of Autologic Holdings plc and Others v HMRC [2005] UKHL 54.

124.         As to costs, we are at liberty, since these proceedings commenced under the rules applicable to the VAT and Duties Tribunal, to apply those rules and make an award of costs.  However, Miss Tipples was instructed not to apply for costs on the Commissioners’ behalf, and therefore we make no order as to costs in this appeal.

The Appellant’s right of appeal

125.         The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

 

 

 

 

 

EDWARD SADLER

 

TRIBUNAL JUDGE

RELEASE DATE: 25 March 2010