MLR1PP8510 - Penalties guidance: MSBs/HVDs: calculating the culpable turnover: two approaches

There are two different approaches to calculating the culpable turnover.

The first approach is to build up the culpable turnover figure. This is appropriate where only a few culpable transactions have been identified or the total culpable turnover is easy to identify. This may also be the most appropriate method to use where only one specific regulation has been breached or there are only a few relevant transactions.

Under these circumstances the culpable turnover is simply the total of the culpable transactions. Care should be taken to ensure that the same slice of culpable turnover or the same culpable transactions are not included twice.

For example, a HVD failed to check the identity of four customers who paid a total of £800,000 in cash. He also failed to provide one salesman with any anti-money laundering training. This salesman took a total of £600,000 in cash for individual or linked transactions in excess of 15,000 Euro without any identity checks. £200,000 of the £600,000 related however to one of the four customers already included. The culpable turnover for both breaches is therefore £1,200,000 not £1,400,000. The £200,000 must only be included once.

The second approach is to deduct any non-culpable turnover in the relevant period from the total relevant turnover in the relevant period. Any part of the businesses turnover which was not exposed by the breaches will then be deducted from the total relevant turnover. Again it is up to the business to provide us with evidence which will enable us to verify these details. This may be the most appropriate approach when there are a lot of culpable transactions and breaches of different Regulations, or where it is difficult to identify the culpable transactions.

The starting point here is to first establish the total turnover for the relevant period. This should be exclusive of any VAT where this is relevant. Some trading activities such as money transmitting and exchanging currency are VAT exempt. The following amounts should then be deducted from this figure but not necessarily in this order.

• any non-business income
• any turnover that the business can show has come from non-regulated activities. For example turnover from holidays sold by a currency exchange office who also trades as a travel agent. Income from this source is not relevant turnover
• any turnover that the business can show has come from non-relevant transactions. For example:

• turnover from credit card or cheque sales made by an HVD
• turnover from occasional transactions below 15,000 Euro made at a currency exchange office or cheque casher
• turnover below 1,000 Euro from occasional transactions made at a money transmitter under the Payments Regulation

• any relevant turnover which the business can show was not subject to the breaches. For example, the breaches may have only occurred at one set of premises. Turnover from other premises would be excluded. Or, only some of the staff breached the Regulations. Turnover generated by compliant staff would be excluded. Or, the regulations were applied to some transactions despite the breach. If this can be shown then the income from these can be deducted from the culpable turnover.

The breaches may be so far reaching that they have potentially exposed a business’s entire relevant turnover to money laundering or a business may be unable to demonstrate that any part of the relevant turnover was not exposed by breaches. Under these circumstances the total relevant turnover in the relevant period should be treated as the culpable turnover.

Both of these approaches are based on penalising the customer culpable turnover or client numbers once, even when there may be one or more breaches per customer. The approach at MLR1PP9350 may be used where there are multiple breaches per customer and a more appropriate penalty is required that accounts for an increased incidence of failure across groups of related breaches.