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SQE2 > 6a. Money laundering and financial services > Flashcards

6a. Money laundering and financial services Flashcards

1
Q

Money laundering

What are the three phases of money laundering?

A
  1. Placement
  2. Layering
  3. Integration
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2
Q

Money laundering

What happens during:
(1) placement
(2) layering, and
(3) integration?

A
  1. Cash generated from crime is placed in the financial system
  2. Origins of the proceeds of crime are obscured by passing them through complex transactions
  3. Funds are made to appear legitimate, by investing in businesses, etc.
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3
Q

Money laundering

At what stages is a solicitor most likely to become involved in money laundering?

Can passive possession of criminal property be money laundering?

A

Layering or integration stages

Yes

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4
Q

Money laundering

Although the Proceeds of Crime Act generally applies to all people, to whom are certain offences, e.g. failure to report and tipping off reserved for?

A

Persons engaged in activities in the regulated sector

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5
Q

Money laundering

What is the presumption of a predicate offence in the context of money laundering?

Is a conviction of a predicate offence required for a prosecution for a money laundering offence?

A

Money laundering offences presume that a criminal offence has occurred in order to generate the criminal property being laundered

No

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6
Q

Money laundering

Are there inchoate offences related to money laundering offences?

A

Yes. It is an offence to conspire or attempt to launder, and to counsel, aid, abet, or procure money laundering.

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7
Q

Money laundering

What are the three direct money laundering offences?

A
  1. Concealing
  2. Arrangement
  3. Acquisition, use, or possession
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8
Q

Money laundering

When does a person commit the offence of concealing?

A

When they conceal, disguise, convert, or transfer criminal property or remove it from the UK

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9
Q

Money laundering

What is criminal property?

A

Any property derived from criminal conduct, including money, real and personal property, and intangible property whether in the UK or not

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10
Q

Money laundering

What is the extent to which concealing or disguising applies?

What is the mental state required to commit the offence of concealing (and arrangement and acquisition)?

A

Concealing or disguising the property’s nature, but also its source, location, or ownership

Subjectively know or suspect that the property represents a benefit from criminal conduct

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11
Q

Money laundering

What are the three timings which determine the authorised disclosure defence available to a charge of concealing (and arrangement and acquisition)?

A
  1. Before concealing
  2. During concealing
  3. After concealing
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12
Q

Money laundering

What is the authorised disclosure defence if disclosure is made before concealing?

A

It is a full defence if a person makes an authorised disclosure of the act to police, customs officer, or other nominated officer within the organisation, before the act

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13
Q

Money laundering

What is the authorised disclosure defence if disclosure is made during concealing?

A

It is a full defence during the act if:

  1. Person had no relevant knowledge or suspicion when the act started
  2. Disclosure was made as soon as practicable after knowledge or suspicion; and
  3. Disclosure was made on the person’s own initiative (not prompted by imminent discovery/encouragement of another)
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14
Q

Money laundering

What is required to avail of the authorised disclosure defence if disclosure is made after concealing?

A

There must have been good reason why a disclosure was not made

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15
Q

Money laundering

Which way is the conflict between disclosure as a defence to concealing and the duty of confidentiality resolved?

In what instance can a solicitor be excused from disclosing in the context of concealing?

A

Disclosure is an exception to the general duty of confidentiality

Where legal professional privilege applies

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16
Q

Money laundering

In what situation could a solicitor not rely on legal professional privilege in the context of concealing?

A

Where the solicitor knows the transaction they are working on is a money laundering offence, or they suspect it and their suspicions are true.

Therefore, the offence can be committed by suspecting or knowing, but where LPP applies, the solicitor must know in order to lose the privilege, or suspect it and be right in the facts.

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17
Q

Money laundering

When does a person commit the offence of arrangement?

What are the defences to arrangement?

A

When they know or suspect what they are doing facilitates the acquisition, retention, use, or control of criminal property by or on behalf of another person

The same disclosure defence as concealing

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18
Q

Money laundering

When does a person commit the offence of acquisition?

A

When they acquire, use, or possess criminal property

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19
Q

Money laundering

In the context of acquisition, what is possession?

What are the defences to acquisition?

A

Physical custody

The same disclosure defence as concealing and arrangement, plus one additional defence

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20
Q

Money laundering

What is the additional defence to acquisition?

A

If the criminal property was acquired, used, or possessed for adequate consideration, and they did not know or suspect it was criminal property

Deefence not available if the accused knows or suspects that the consideration may help another to carry out criminal conduct

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21
Q

Money laundering

What are the three indirect money laundering offences?

A
  1. Failure to report
  2. Tipping off
  3. Prejudicing an investigation
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22
Q

Money laundering

When does a person commit the offence of failure to report?

A

When they suspect, know about, or should have suspected or known about money laundering and/or terrorist financing and do not make a suspicious activity report

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23
Q

Money laundering

What is the scope of information which must be reported?

Within what timescale must the solicitor make their report, and what is one acceptable reason for delaying?

A

Anything coming the the solicitor in the course of business, and not just relating to their clients/matters

As soon as practicable. Delay may be excused if the reason is legal advice is being sought, provided action is still prompt.

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24
Q

Money laundering

What are some available defences to failure to report?

A
  1. The information falls within a privilege not excluded by AML laws
  2. Information came to solicitor from a client (a) in connection with giving of legal advice to the client or (b) seeking legal advice
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25
Q

Money laundering

What is the lack of training defence to failure to report?

Who is liable for failure to train staff?

A

Employees in firms who have no knowledge or suspicion of money laundering, even though they should, have a defence if they have not received training

The firm’s partners are liable for breach of the Regulations

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26
Q

Money laundering

What are the two ways the offence of tipping off can be committed?

Does tipping off have to be in writing and direct?

A
  1. Disclosing to a third person that a suspicious activity report has been made if that disclosure might prejudice any investigations
  2. Disclosing an investigation to a third person

Tipping off can be in writing, oral, or by conduct (e.g. waiting too long or wanting to delay and making a person suspicious), and it can be direct or indirect

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27
Q

Money laundering

What are the four defences to tipping off?

A
  1. Disclosures within an undertaking or group
  2. Disclosures between lawyers
  3. Disclosures to supervisory bodies
  4. Disclosures by professional advisors to the suspect client for offence abatement
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28
Q

Money laundering

What is the defence of disclosure within an undertaking or group?

A

It is not tipping off to disclose to an employee, colleague, officer, or partner in the same undertaking/group that a SAR has been made

29
Q

Money laundering

What two criteria must be satisfied for disclosure to a different undertaking/group to not be tipping off?

A
  1. Entities share common owners, management, or control, and
  2. Carry on business in EEA or country with money laundering laws equivalent to the EU
30
Q

Money laundering

What four elements must be satisfied for disclosure between lawyers to not be tipping off?

A
  1. Disclosure made to legal professional in EEA or country with money laundering laws equivalent to the EU
  2. Disclosure relates to client/former client of both parties, or a transaction or provision of services involving both
  3. Disclosure is made for purposes of preventing a money laundering offence, and
  4. Both parties have equivalent professional duties of confidentiality and protection of personal data
31
Q

Money laundering

When is disclosure to a supervisory body not tipping off?

A

When the disclosure is for the purpose of prevention, investigation, or prosecution of a criminal offence, an investigation under POCA, or enforcement of any court order under POCA

32
Q

Money laundering

What is disclosure for offence abatement defence to tipping off?

A

When the disclosure to the client is for the purpose of dissuading the client from engaging in conduct amounting to an offence

33
Q

Money laundering

What are the two ways in which a person can commit the offence of prejudicing an investigation?

A

Know or suspect that a money laundering, confiscation, or civil recovery investigation is being or is about to be conducted and either

  1. Make a disclosure to any person that is likely to prejudice the investigation, or
  2. Falsifies, conceals, or destroys documents relevant to the investigation, or causes that to happen
34
Q

Money laundering

For the purposes of prejudicing an investigation, what are three elements that can negate the offence for the defendant?

A
  1. Did not know/suspect the disclosure would be prejudicial
  2. Did not know/suspect the documents were relevant
  3. Did not intend to conceal facts from person carrying out investigation
35
Q

Money laundering

Who is exempt from having an MLRO?

A

An individual who provides regulated services but does not employ any people or act in association with anyone else

36
Q

Money laundering

What level of seniority must an MLRO be?

A

Sufficient seniority to make decisions on reporting which can impact a business’s relations with its clients and its exposure to sanctions, and to have access to all the business’s client files

37
Q

Money laundering

What information must the MLRO report?

Must the MLRO have sole discretion to report?

A

Information or other matters leading to knowledge or suspicion (including reasonable grounds for such) must be disclosed

Yes, this must not be subject to the consent of anyone else

38
Q

Money laundering

Who has the responsibility of reporting to the MLRO?

What is best practice when a MLRO is away and there is no replacement during their absence?

A

The individual, always

To self report any suspicions directly to the NCA as harm might arise from the delay

39
Q

Money laundering

After a SAR is submitted, what time scale does NCA have to review?

What is the situation if NCA has not responded after this time?

A

7 days

Deemed consent is given

40
Q

Money laundering

During the 7 day notice period, must all work on the matter cease?

A

No, other activities such as searches or writing correspondence can take place, but the main act subject to the SAR must not

41
Q

Money laundering

What happens if NCA refuses consent within the 7 day window?

A

There is a 31 day moratorium during which the act must not take place, but auxiliary activities can just like within the 7 day period

The MLRO can give consent for the act after the 31 days has passed, if the NCA has not responded

42
Q

Money laundering

When events would trigger a requirement to carry out customer due diligence?

A
  1. Establish a business relationship
  2. Carry out an occasional transaction
  3. Suspect money laundering/terrorist financing
  4. Doubt the veracity or adequacy or documents or information previously obtained
43
Q

Money laundering

When is a solicitor-client relationship considered to be a business relationship?

A

When, at the time it is established, it is expected to have an element of duration

44
Q

Money laundering

What is an occasional transaction?

A

Transaction worth €15,000 or more, carried out other than as part of a business relationship

45
Q

Money laundering

What must a solicitor do if customer due diligence cannot be completed?

A
  1. Refrain from any of the activities triggering the requirement
  2. Terminate any existing business relationship
  3. Consider making a disclosure to NCA
46
Q

Money laundering

What are a solicitor’s customer due diligence obligations when dealing with a trust?

A

They must verify the identity of any beneficiaries before a payment to them or before they exercise their vested rights

47
Q

Money laundering

What should a solicitor not do until full verification is completed?

A
  1. Undertake substantive work
  2. Permit funds to be deposited in the firm’s client account
  3. Permit property to be transferred
  4. Permit final agreements to be signed
48
Q

Financial services

What is the general prohibition under the Financial Services and Markets Act 2000?

A

No person may carry on a regulated activity in the UK unless they are authorised or exempt from authorisation

49
Q

Financial services

What is a regulated activity?

A

A specified activity in relation to a specified investment carried out in the course of business to which no exclusions apply

Must be in the course of business

50
Q

Financial services

What are the five specified activities which are regulated?

A
  1. Advising
  2. Dealing as Agent
  3. Arranging
  4. Managing
  5. Safeguarding

ADAMS

51
Q

Financial services

What is advising?

A

Giving advice to an investor on the merits of buying, selling, subscribing for, or underwriting a particular investment

52
Q

Financial services

What is dealing as an agent?

A

Actually buying, selling, subscribing for, or underwriting a particular investment for another person

53
Q

Financial services

What is arranging?

A

Making arrangements for another person to buy, sell, subscribe for, or underwrite a particular investment

54
Q

Financial services

What is managing?

A

Managing assets belonging to another person in circumstances which involve the exercise of discretion

55
Q

Financial services

What is safeguarding?

A

Protecting and administering assets belonging to another person

56
Q

Financial services

What are the six specified investments most relevant to a solicitor which are regulated?

What are two things which are not specified investments?

A
  1. Insurance contracts
  2. Shares/securities
  3. Debentures
  4. Mortgage contracts
  5. Pension schemes
  6. Funeral plans

  1. Interests in land; 2. National savings products, e.g. Premium Bonds
57
Q

Financial services

What is the difference between an exemption and an exclusion?

A

An exemption is from the requirement to be authorised under the general prohibition, so all conduct would be excusable under this. An exclusion goes to whether or not the conduct is a regulated activity and therefore caught by the general prohibition, but is not available in all circumstances.

58
Q

Financial services

What is the Designated Professional Bodies exemption which means a regulated activity would not violate the general prohibition at all?

A

If a solicitor provides a regulated activity incidentally to the provision of legal advice and does not receive compensation for this from anyone else without accounting to the client for it, it is exempted

59
Q

Financial services

How is whether an activity is incidental determined for the purposes of the Designated Professional Bodies exemption?

A

By considering whether the activity is incidental:

  1. To the work the firm does as a whole, and
  2. To the client’s particular matter
60
Q

Financial services

What are some activities in the SRA Financial Services (Scope) Rules to which the Designated Professional Bodies exemption does not apply?

A
  1. Recommending a client get rid of any rights under a personal pension scheme
  2. The firm entering into a regulated credit agreement as lender (except in relation to the firm’s fees)
61
Q

Financial services

In order to provide incidental financial services under the Designated Professional Bodies exemption, what two special rules does the SRA impose on firms?

A

Firms must:

  1. Let clients know at the outset that the firm is regulated by the SRA and not the FCA, and
  2. Confirm that the client is coming to the firm for this incidental service and has not sought/relied upon any advice from the firm in relation to the transaction
62
Q

Financial services

What are four exclusions that will render a specified activity in a specified investment not a regulated activity?

A
  1. Takeover exclusion
  2. Acting as trustee, nominee, or personal representative
  3. Introducing or acting through an authorised person
  4. The necessary exclusion
63
Q

Financial services

What is the takeover exclusion that will render a specified activity in a specified investment not a regulated activity?

A

A solicitor can deal as agent, arrange, or advise with respect to a client who is buying/selling 50% or more of the voting shares of a company, or when the object of the transaction is taking control of the company

64
Q

Financial services

What is the introducing/acting through exclusion that will render a specified activity in a specified investment not a regulated activity?

A

A solicitor may arrange/act as an agent with respect to specified investments if the client receives advice from an authorised person and the solicitor is merely assisting the client in acting on this advice

65
Q

Financial services

In what two circumstances is the introducing/acting through exclusion that would render a specified activity in a specified investment not a regulated activity not available?

A
  1. Where the specified investment is an insurance contract
  2. Where the solicitor received payment/commission from the authorised person/any source other than the client
66
Q

Financial services

What is the necessary exclusion that will render a specified activity in a specified investment not a regulated activity?

A

It is not a violation of the general prohibition to carry on an activity (other than managing) if the activity is reasonably regarded as a necessary part of providing legal services

67
Q

Financial services

In what three circumstances is the necessary exclusion that would render a specified activity in a specified investment not a regulated activity not available?

A
  1. Where the activity is managing
  2. Where the activity relates to insurance policies
  3. Where the activity is billed separately from the main legal advice
68
Q

Financial services

Even though they are very similar, what is the key advantage of the Designated Professional Bodies exemption over the necessary exclusion?

A

The Designated Professional Bodies exemption is available for managing, and for activities related to insurance policies, but the necessary exclusion cannot be used in these circumstances.

DPB will always be a better answer choice, but note the instances when it is not available.

SQE2 (15 decks)

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