Legal practices and other professional firms are obliged to keep client records by the Money Laundering Regulations 2007 (MLR) – but does that make them data-holders for the purposes of HM Revenue and Customs’ (HMRC’s) powers to demand information? In an important ruling, the First-tier Tribunal (FTT) has answered that question in the negative.
The case concerned a law firm that had been served by HMRC with a request for information concerning the beneficial ownership of offshore entities. The notice was served pursuant to data-gathering powers conferred on HMRC by Section 86 of the Finance Act 2011. Its validity, however, depended on whether the firm was properly viewed as a ‘relevant data-holder’. That issue, in turn, hinged on whether the firm could be said to ‘maintain a register’ of the information sought.
In upholding the firm’s challenge to the notice, the FTT found on the basis of the natural meaning of the phrase that maintaining a register must mean more than merely keeping or preserving records. All taxpayers are under a statutory obligation to keep records and, if HMRC’s broad interpretation of the phrase were correct, that would make every taxpayer a relevant data-holder.
The obligation on professional firms to keep copies of documents which show that due diligence has been carried out on clients with a view to detecting money laundering was an obligation to keep records, not to maintain a register. It followed that the firm’s record-keeping obligations under the MLR did not mean that it was a relevant data-holder within the meaning of the Act.