ECSH64395 - Regulation 78 - Power to impose civil penalties: prohibition on management


Category Heading 
 Description 
The Law https://www.legislation.gov.uk/uksi/2017/692/regulation/78 
What it means This provides HMRC with the authority to impose a temporary or permanent prohibition on an officer, knowingly involved in a breach of a relevant requirement, from holding a future management role in a supervised business. This also includes sole traders.  
 
An ‘officer’ is defined under regulation 3 (see further reading below) 

knowingly means that they had knowledge of a relevant requirement, knowledge that the breach was occurring and failed to prevent the breach. 
 
A relevant requirement has the meaning given in Schedule 6 (see further reading below) 

Management role means having responsibility for taking decisions about the management of a relevant business. This also covers acting as a sole trader. 
Purpose To prevent those, who have knowingly allowed a breach of a relevant requirement, from holding a future role with management responsibility in a supervised business, in order to protect against the risk of money laundering and/or terrorist financing.  
Time Line Prohibition was introduced with MLR 2017 
What to establish Has there been a breach of a relevant requirement under the MLRs? 

Was the individual an officer of the Business at the time of the breach? 

Did the individual have knowledge of the Business’s obligations and have knowledge that it was failing in those obligations? 

All relevant circumstances must be taken into account when determining if a Prohibition is appropriate – See Regulations 83(1) for further details – See link in further reading below. 

Determine what length of Prohibition is appropriate – it can be permanent or for any specified period – 78(2) 

The following non-exhaustive factors should be taken into account: 
The seriousness/extent of the breaches 
The extent of the risk of money laundering/terrorist financing 
The length of the period within which the breaches occurred 
The extent to which the individual was responsible for the breaches 
Other sanctions being imposed. 

Determine whether the Prohibition will be imposed in relation to holding a management role in: 

a)  a specified relevant business (for example, the Business within which the breaches occurred) – 78(4)(a); 
b)  a particular type of relevant business – 78(4)(b); or 
c)  any relevant business – 78(4)(c) 

Consider whether an intention to impose a Prohibition, or an immediate Prohibition is appropriate depending on the risk of money laundering and/or terrorist financing. 

Before imposing a Prohibition HMRC must check whether there are any criminal convictions – 83(1A) 

A Prohibition can be imposed in addition to a penalty and to the publishing of a censuring statement - 79 

Any relevant Business within which the individual is employed, in a management role, must be notified of the Prohibition. 
How to test compliance & Evidence to obtain 
 Confirm that relevant activity has taken place.
 
Identify the relevant requirements the Business must comply with by using MLR 2017 and sector guidance.
 
Establish whether any relevant requirement has been breached by the Business.

Establish who the officers of the Business were at the time of the breaches and their responsibilities.
  
Ask questions to establish whether any of the officers had knowledge of the relevant requirements, consider: 
What is stated during meetings/in correspondence 
What training they have undertaken 
Whether they have read HMRC published guidance, MLR2017 etc. 
 Whether their position of responsibility in the Business requires knowledge of the relevant requirements. 

Ask questions to establish whether any of the officers were aware that breaches of relevant requirements had occurred and how long they had been aware. 

Establish what, if anything, the officers had done to address the breaches of relevant requirements. 
Best Practice When note booking during meetings it is important to detail who said what, to be able to later evidence knowledge of the relevant requirements, knowledge of the breaches and responsibility for those breaches.  

If an officer refuses to provide information, consider a notice under Regulation 66. 

Is a criminal referral appropriate? If so, this must be completed before taking any civil action. 

Always ensure the sanction you intend to impose is the correct one for the case. Decide which sanction, or combination of sanctions will have the most impact and desired effect.  

Regulation 79 details that any one or more of the sanctions in Regulations 76, 77 and 78 may be imposed by a supervisor in relation to the same breach.  

Consider whether any referrals, including cross-tax are required. 
 
There should be checks carried out to ascertain if there are any schedule 3 convictions prior to imposing any sanctions or referring to Governance Panel (this is usually done by completing an R83 form)  

The decision notice must detail – 83(3) 
The Prohibition decision and terms of the Prohibition  
The reasons for imposing a Prohibition 
The right to a review under Regulation 94 
The right to appeal under Regulation 99 

All Prohibitions must go to Governance Panel before being issued. The Governance Panel is held every two weeks (usually a Wednesday) and case papers should be submitted no later than one week prior. See Governance Panel Terms of Reference in further reading.  

Consider whether the Business can continue trading after imposing a Prohibition. For example, if the person being prohibited is the sole BOOM (in a management role), then there may not be provision for it to continue trading.
 
You should consider how you will monitor whether the Business has taken the steps to remove the prohibited individual from their management role. For example, they should be removed from the online registration/application. 

Record any Prohibition decision in the Decision Evidence Log, including a full Regulation 83 review.  

Add details of the Prohibition to the PDNC grid in the Knowledge Library 

Add the Prohibition to the ECS Watchlist 
AMP No additional Best Practice. 
ASP If you decide to do a prohibition of management on a sole trader ASP, you must take into consideration the fact that you are preventing that individual from earning any future income under this sector. This sanction should only be used in the most serious of breaches and must be proportionate. 
EAB No additional Best Practice. 
LAB No additional Best Practice. 
HVD No additional Best Practice. 
MSB No additional Best Practice. 
TCSP No additional Best Practice. 
Further Reading