United Kingdom VAT & Duties Tribunals (Excise) Decisions

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Cite as: [2007] UKVAT(Excise) E1058, [2007] UKVAT(Excise) E01058

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Mohammed Naeem Esmail Mamaniat v Revenue & Customs [2007] UKVAT(Excise) E01058 (10 August 2007)

E01058

THE MONEY LAUNDERING REGULATIONS 2003 — registered money transmitter — Regulation 4(3) — breach of identification procedures — reasonable excuse and mitigation considered — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

MOHAMMED NAEEM ESMAIL MAMANIAT Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Howard Middleton

Sitting in public in Manchester on 7 June 2007

No attendance by or on behalf of the Appellant

Richard Chapman,counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal before the tribunal was that of Mohammed Naeem Esmail Mamaniat (the Appellant) against a decision of Customs set out in their letter of 3 March 2006 to impose a penalty of £500 in respect of a breach of Regulation 4(3) of The Money Laundering Regulations 2003 SI 2003/3075 (the Regulations). The Appellant registered a money service business on 9 December 2002. That Regulation requires him to maintain procedures to obtain satisfactory evidence of identity of a person for whom he is dealing. It applies where payment of €15,000 or more is to be made in one-off or linked transactions.

The Appellant did not attend the hearing in person or by representation. There was with the tribunal's papers a copy of a letter dated 22 January 2007 from the tribunal centre addressed to the Appellant sending the Statement of Case and List of Documents served in the matter by Customs and requesting him (inter alia) to indicate any hearing dates between May to August 2007 that the Appellant would wish to avoid. This letter had clearly been received by the Appellant as he had returned it to the tribunal centre with a handwritten note as follows:

"NB: I could not able to come to hearing you can solve my hearing in my 'absent' because I'm carer for father for more that 35 hours a week that I am not able to fix the time + date this is 'final' (sic)"

"Thank you" was added and the note was signed "M.N. Mamaniat" and dated 12 February 2007. Counsel for Customs was handed a copy of this letter at the start of the hearing. He asked that the appeal be dismissed. The tribunal determined to proceed with the hearing in the absence of the Appellant on the material available and since the three witnesses for Customs were in attendance.

The tribunal had Counsel's skeleton argument. The three witnesses were formally called confirmed their witness statements and the tribunal put some questions to each. The Appellant was a transmitter of money and as such had to comply with the Regulations. He had been visited on three separate occasions by a different officer each time and in addition two letters of warning had been sent to him before the penalty decision. When he was visited by the first officer he was in addition a full-time taxi driver.

The first visit and audit to check (inter alia) on compliance had taken place on 9 February 2004 and had been made by Nan Pitts. She identified three single transactions between June 2003 and December 2003 where the sum transferred had exceeded €15,000 (approximately £10,000) but no formal identification had been obtained. A money service questionnaire was completed. She followed up her visit with a warning letter on 13 February 2004. The Appellant signed a money business service declaration form dated 23 February 2004 in which he certified that he understood that the Regulations applied to his business of sending money abroad. He was also served with copies of the relevant notices MSB1 (the registration notice) and MSB2 (the anti-money laundering guide).

The next witness Guntis Rebane visited the Appellant on 28 June 2005. He found three single transactions where the Appellant had not followed the required identification procedures in respect of transactions exceeding €15,000. Another warning letter was sent on 29 June 2005.

The third visit was made on 27 February 2006. The officer attending Claire Kathryn Horsfield identified two out of four transactions since the last visit involving more than 15,000 euros which had not complied satisfactorily with the identification procedures. The officer then sent to the Appellant on 3 March 2006 a penalty notice in the sum of £500 and on the same date sent also a letter explaining her decision.

We are satisfied that the Appellant is well-known within his community and clearly trusted as a transmitter of funds since he deals with a substantial total mostly cash. In the money service questionnaire he gave the value of the money transmitted over the previous year to be £600,000. He himself receives no commission but profits from the variation in currency exchange rates.

The evidence of the officers and the material in the tribunal bundle before us confirms that each officer found clear breaches of the necessary identification procedures. This resulted in some instances in primary evidence with photographic identity not being taken up and in others secondary evidence with confirmation of address not being obtained in certain individual transactions of more than €15,000. The Appellant's response had been that he knew the people in his community.

An appeal against the imposition of a penalty lies to the tribunal under Regulation 22. This sets out the power of the tribunal as follows to:

"(a) quash or vary any decision of [Customs], 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."

Accordingly ours is a general appellate jurisdiction to determine whether there was a liability to a penalty and if so whether the amount was correct and we may substitute our own decision for that of Customs. It is not a supervisory function only testing the reasonableness of the decision appealed against or best judgment on the part of Customs.

In a letter of 9 March 2006 addressed to Claire Horsfield the Appellant asked for a reduction of the penalty as he had six children, had been ill and taught 46 children in the evening. As indicated above he informed the tribunal centre several months ago that he is a carer for his father spending more than 35 hours weekly on it. We do not know if he continues to work even if only part-time as a taxi driver or if he still teaches in the evening; nor indeed what assets he has as no details have been supplied. Whilst in those earlier comments he was requesting the reduction in view of his personal and financial circumstances in his Notice of Appeal dated 29 May 2006 the Appellant referred also to having taken ID copy by "full photocard driving licence" showing clearly the photograph and the full UK address which had been sent to the review team.

This point was dealt with by the review officer Angela Cook in her letter of 2 May 2006. Whilst she has not given evidence to the tribunal nor completed a witness statement we are satisfied from the contents of her letter that paperwork supplied by the Appellant subsequent to the decision was in fact checked with the officer who had issued the penalty. It was established that there was no new information and that in respect of the driving licences which were issued in 2000 there was no evidence to show whether these addresses were in fact the same in October 2005 with regard to the transaction with Mr A E Dadipatel and in February 2006 with that of Mr I Bhamji.

The Regulations are specific and Notice MSB2 which we are satisfied that the Appellant received sets out clearly the need for both primary and secondary evidence and indicates the alternative ways to establish both the photographic evidence and confirmation of address essential to the process. Any address needs to be verified on recent material. In any event the evidence of the witnesses which we accept was that they had explained the requirements and procedures to the Appellant and were satisfied that he understood them.

There is in our view no doubt that the Regulations were breached and accordingly that Customs had the power to impose penalties. However in Regulation 20 (2) it is provided that:

"[Customs] must not impose a penalty on a person where there are reasonable grounds for them to be satisfied that the person took all reasonable steps for securing that the requirement would be complied with."

Further Regulation 20 (4) provides that:

"Where a person is liable to a penalty under this regulation, [Customs] may reduce the penalty to such amount (including nil) as they think proper."

Both Nan Pitts and Guntis Rebane identified and informed the Appellant orally and in writing of the inadequate and incomplete information that the Appellant was producing. They had neither of them imposed a penalty though each had sent letters warning of the consequences of non-compliance. It was only when Claire Horsfield became the officer dealing with the Appellant that she felt that a penalty had to be imposed. In her witness statement she said that she had considered alternative procedures to improve compliance for example a third warning letter but as previous warnings both oral and written had been ignored she had concluded that only way to obtain full compliance was to issue a penalty.

So far as the amount of the penalty was concerned Claire Horsfield placed the figure at £500. The Regulations permit an imposition of up to £5,000 for each failure to comply but we were informed that it is more usual for Customs for a first penalty after a warning letter to impose £1,000. As to why she had not done so in this case she explained that she had taken into account that in respect of the two transactions she had dealt with in her letter she had decided to allow a further reduction since the Appellant had obtained one form of identification in each case.

As a tribunal we may quash or vary any decision of Customs and substitute our own. There is no definition in the Regulations as to what constitutes "reasonable grounds" or "reasonable steps" within Regulation 20(2) or a reasonable excuse or mitigation. In our view factors such as acting in good faith and lack of funds to pay a penalty need not as such be excluded from consideration. There may indeed be unexpected events or complex circumstances which could be seen as establishing a reasonable excuse for breaches or compassionate grounds for mitigation. However we find no indication of any situations of that nature arising in the instant case. The Appellant's contacts were local and he had an established procedure in place with another service transferor for the transmission of funds and a "deliveryman" in respect of small amounts. We have no evidence of the Appellant's financial or personal circumstances. There has been no suggestion that his money service business operation has been affected. Under Regulation 20(2) the Appellant must establish that he took "all reasonable steps" for securing that the requirement would be met. We can see no reason why the Appellant should not have been able to ensure that he obtained and checked the necessary identification material. It appears to us that what was taken up was based more on what was available rather than what the Regulations required. Like Customs we do not see any reasonable excuse for the breaches giving rise to the penalty.

Customs has a power to mitigate for instance to take into account particular circumstances even where the liability to a penalty is established. We do not find any such circumstances in this case. The Appellant registered his business as long ago as 2002. He was able to satisfy Customs that his recording procedures were in order. However he has been lax in meeting the clear identification procedures. While he has acted in good faith and we know of no loss to the Revenue we can find no reasons for a further reduction in the penalty below that allowed by Customs.

We have looked at the proportionality of the decision of Customs in the context of the instant case. We are satisfied that a proper balance has been held between the nature of the breach and its effect, the legislative requirements and the rights of the Appellant to operate his money service business.

We dismiss the appeal.

We make no direction as to costs.

ELSIE GILLILAND

CHAIRMAN
Release Date: 10 August 2007

MAN/06/8024