OPDU Report 24 - May 2008

Trustee Risk Management
Paid Trustees: Registration and Money Laundering
Keith Wallace

Decision deadline - 31 May 2008¹

Remunerated trustees need to take a decision before 31 May whether they need to register with HM Revenue and Customs under the 2007 Money Laundering Regulations.²

What’s it all about?

These regulations meet our treaty obligations to further strengthen the global anti-money laundering drive.

They use the overarching financial service legislation but extend this to catch players whose activities are not normally controlled by this route. These parties include casinos, fine art dealers, trustees, company formation services and so on.

The tighter control is achieved by ensuring these new arrivals on the scene should be registered and supervised.

Who will register?

With welcome pragmatism, on this occasion, the Government has taken the view that if someone is registered already with one of 21 “professions”³ that body can be the registration authority for these money laundering duties and continue to supervise their member in this, as in other operational fields.

For those who are not a member of one of these 21 professions, there has to be somebody to register and supervise them, and that party is the Revenue.

The 21 “professions” ?

Refer to the end of this article for a list of the professions. Their range is wider than those professions that can give you financial services cover.

There is, though, one puzzling omission, which is that individual actuaries⁴ cannot get cover through their profession.

If your membership of one of these gives you cover, refer to your organisations for any special rules and requirements in this area.

Do I need to register?

The key to this is the definition in Regulation 3(10). A “trust or company service provider” is defined as a “firm or sole practitioner who by way of business provides… to other persons” the service of acting as a trustee.

Must be paid

Obviously if you receive no remuneration you cannot be operating “by way of business” and are
outside scope.

Director of Trustee Company

More and more pension schemes now have purpose formed trustee companies, rather than boards of individual trustees. If you are a director of a trustee company you are outside the scope of the regulations. This is because in your office as director you are not a “firm” – “firm” is defined to exclude any individual, regulation 2(1) and a director is not in common parlance regarded as a “sole practitioner”.

Individual Trustees – “Business”

So, for the regulations to bite, you have to be both remunerated and an individual trustee before considering other tests.

Some answers are obvious. A deferred or pensioner beneficiary on his scheme’s trustee board who receives an honorarium for his duties cannot be said to be conducting the activity “by way of business”.⁵

Problems come with what might be called “external” and multiple individual trusteeships. At this point the amber light starts to glow. Do you advertise your services? Are you a regular lecturer or author and how do you describe yourself on these occasions? How many trusteeships do you have, what is the scale of remuneration and what is the scope of any special duties? Are you applying for trusteeships; is your name on candidate registers or with head-hunters?⁶

How do I register?

Obtain HMRC guidance MLR9, MLR2007 and MLR100 notes, fill in the form “MLR100” and submit to Southend-on-Sea with a cheque for £95. At the time of writing this article, the Revenue were expecting to issue further guidance.⁷

And your duties

Your individual responsibilities are modest. You have to check the identity of any co-trustee, verify the status and existence of your pension scheme and keep a record to show that this has been done. Neither you nor the scheme itself need to conduct any money laundering identity checks on your scheme beneficiaries since pension schemes have a special and lighter requirement in this respect (regulation 13(7)). Then there are duties around suspected crime proceeds and terrorism which are unlikely to confront a scheme trustee in practice.

Pension Trustee Company

To complete the picture, here, a pension scheme trustee company is outside the regulations since the activity is not conducted “by way of business”.

Self-employed administrators, secretaries and investment officers of pension schemes
These regulations address the trusteeship activity and do not catch you.

Suggested steps

1.  If you are an unpaid trustee, relax.
2. If you are a paid director of a pension trustee company and are at all anxious, obtain and file a letter from your scheme’s lawyer that you are outside scope (because a director is neither a “firm” nor a “sole practitioner”).
3.  If you are a paid individual trustee of a scheme connected with your past employment, and have any anxiety, obtain and file a letter from your scheme’s lawyer that you are outside scope (because you are not giving your services “by way of business”).
4. If you hold two or more paid individual trusteeships take a decision after advice. If your decision is not to register, retain that advice to show that thought has been given.
   
5. If you are active in trusteeship, are seeking additional trusteeships and make yourself known in the industry as a professional trustee you ought to register.
   
6.  For your next trustees’ meeting, have “money laundering” put on the agenda to show that the scheme itself has been giving thought to these questions.
   
   
   

Notes
1. The original deadline was 31st March and is now 31st May 2008. Late application may attract a civil penalty.
2. The Money Laundering Regulations 2007 SI 2157.
3. Supervisory authorities (regulation 23(1)(c)) for the 21 “professions”.
1) Association of Chartered Certified Accountants
2) Council for Licensed Conveyancers
3) Faculty of Advocates
4) General Council of the Bar
5) General Council of the Bar of Northern Ireland
6) The Institute of Chartered Accountants in England and Wales
7) The Institute of Chartered Accountants in Ireland
8) The Institute of Chartered Accountants of Scotland
9) Law Society
10) Law Society of Scotland
11) Law Society of Northern Ireland
12) Association of Accounting Technicians
13) Association of International Accountants
14) Association of Taxation Technicians
15) Chartered Institute of Management Accountants
16) Chartered Institute of Public Finance and Accountancy
17) Chartered Institute of Taxation
18) Faculty Office of the Archbishop of Canterbury
19) Insolvency Practitioners Association
20) Institute of Certified Bookkeepers
21) The Institute of Financial Accountants
4. The position of actuaries. In financial services, actuaries’ firms may either have the full FSA registration with an “APF” licence, or may conduct limited financial services under their professional institute as a “DPB firm”. An individual actuary outside either of these permission routes needs to register with HMRC under these regulations if his trusteeship activities are caught by them.
5. The current guidance MLR 9 recognises this at 13.10.
6.The current guidance MLR 9 has some frankly inadequate comment on this “business test” at 3.3.
7. If you make your services available through your personal service company, refer to the HMRC material for which of you needs to register.
8. This article draws with kind permission on Reed Smith’s Client Alert of February 2008.

Keith Wallace
Consultant (Solicitor)
Reed Smith
020 7772 583
KWallace@ReedSmith.com