3. Company Law 4. AML and CTF Flashcards
1
Q
3.1 What is a scheme of arrangement?
A
A statutory procedure allowed for under Part 26 of the Companies Act 2006, whereby a company makes a compromise arrangement with its shareholders and/or creditors, allowing it to restructure itself
2
Q
3.1. What is the key difference between a part 26 and a part 26A plan?
A
A part 26A plan can be sanctioned even when there is a dissenting class of creditors or members
Part 26A focuses more closely on companies in significant financial difficulty
3
Q
3.1 What purposes can a scheme of arrangement be used for? (8)
A
- Acquiring a company or business
- Merging two or more companies or businesses
- Acquiring shares owned by minority investors
- Restructuring a business (such as creating a new holding company)
- A management buy-out/in of a company
- Demerging/splitting a company into separate entities
- Reconstructing a group into two or more separate companies
- Effecting a moratorium among a company’s creditors (eg, an agreement to postpone payments to them)
4
Q
3.1.1 What are the 3 main stages for a scheme of arrangement?
A
- Explanatory Statement - dispatched to shareholders and creditors
- Members’ and creditors’ meetings - the proposal must be approved by a majority in number, and 75% in value, of those present/proxies
- Court Approval
5
Q
3.1.1 How soon after a scheme is sanctioned by court must a copy of the court order be filed with the Registrar of Companies?
A
7 days
6
Q
3.2.1 What are the squeeze-out rights?
Provided in Section 979 of the Act
A
Where a bidder has offered to acquire all of the shares in a company not currently held by them, and has acquired or agreed to acquire both 90% of the shares to which the offer is related and 90% of the voting rights attached to the shares, the bidder may oblige the shareholders to sell any remaining shares to them, and at the price in the original takeover
7
Q
3.2.1 How far in advance must a bidder give shareholders notice that they wish to exercise squeeze-out rights?
A
Within 3 months of the last date on which the offer can be accepted, or within 6 months of the date of the offer if earlier
8
Q
3.2.1 What are the sell-out rights?
Provided in Section 983 of the Act
A
Allow that where the bidder has acquired or contracted to acquire at least 90% in value of all of the shares in the target company, those shareholders who did not accept the offer have the right to oblige the bidder to acquire their shares
9
Q
3.2.1 Within what time-frame must sell-out rights be exercised?
A
Within three months from either:
a) the end of the period within which the offer can be accepted
b) the date of the notice to shareholders informing them of their right to exercise their sell-out rights;
whichever is the later
10
Q
3.2.2 What are pre-emption rights?
Section 561 of the Act
A
Whenever a company issues new equity shares wholly in exchange for cash, it must offer the shares in the first instance to their existing shareholders, pro rata to their existing shareholdings.
essentially allows shareholders to protect their proportion of total equity in a company when new shares are issued
only applies for issue of new shares in exchange for cash, not in share-for-share acquisition
Private companies may exclude pre-emption rights from their Articles of Association, but public companies may not
11
Q
3.2.2 How long must shareholders be allowed at minimum to accept the offer of new shares?
Under Section 562
A
No less than 14 days
12
Q
3.4.1 Under which circumstances can the Department of Business & Trade (DBT) investigate a company’s affairs? (4)
A
- The company may have been conducting its affairs with intent to defraud creditors, or in a manner prejudicial to members, or for unlawful or fraudulent purposes
- Promoters or managers may be guilty of fraud or any other act of misconduct
- The company has failed to provide proper information to the members
- The company was formed for any fraudulent or unlawful purpose or engaged in prejudicial acts
13
Q
3.4.3 What powers does the secretary of state for DBT have? (3)
A
- Give directions to an inspector as to the subject matter to be investigated (e.g. the area of operation, specific transactions, or a period of time)
- Terminate an investigation when criminal offence matters have been passed to a prosecuting authority
- Set requirements for the contents and time limit of the inspector’s report
14
Q
3.5 What is classified as Financial Assistance? (3)
Sections 678-680 of the Companies Act prohibit a public company, or its subsidiary, from directly or indirectly giving financial assistance to a third party for the purchase of its own shares, or to reduce or discharge a liability incurred by a purchaser or a third party for the purpose of acquisition
A
- A gift
- Provision of a guarantee, security, indemnity, release or waiver
- Any other form of assistance whereby the company’s net assets are reduced to a material extent
15
Q
3.5 What is the possible penalty for the use of Financial Assistance?
A
- Any financial assistance is void and therefore any contracts have no legal effect
- The company and its officers may be liable to a fine and/or two years’ imprisonment on conviction in the Crown Court
- Directors initiating are in breach of their duties and therefore liable to the company for any losses
16
Q
3.5.1 What are the exceptions for the use of financial assistance? (4)
A
- The principal purpose of the transaction is not the provision of financial assistance
- The financial assistance is an incidental part of a larger purpose
- The assistance is lending in the ordinary course of the company’s business
- A loan is made to employees as part of an employee share scheme
17
Q
3.5.1 What are the possible punishments for a person found guilty of providing unauthorised Financial Assistance?
A
- On conviction or indictment, to imprisonment for a period not exceeding two years and/or to a fine
- On conviction, to imprisonment for a period not exceeding 12 months or to a fine not exceeding the statutory amount (£5000)
18
Q
3.6.1 What time frame must public companies hold an AGM?
Private companies do not have to hold an AGM unless provided for in their articles
A
Within 6 months of the financial year’s end
19
Q
3.6.1 What is the notice period required for an AGM of a public and a private company?
A
Public Company - 21 calendar days
Private Company - 14 days
20
Q
3.6.1 What is the minimum notice period for GMs for listed companies?
Companies Act Section 307, listed on UK-regulated markets such as the LSE Main Market, but excluding AIM and Aquis Exchange Growth
A
21 calendar days, but this may be reduced to 14 days if shareholders pass a resolution at their AGM each year, and the company allows shareholders to vote via electronic means
21
Q
3.6.1 What is the minimum notice period for GMs for non-listed companies?
A
14 calendar days
GMs of public companies may be held at shorter notice providing shareholder representing 95% of voting rights agree to the notice period, 90% for private companies
22
Q
3.6.2 How long do directors have to convene a GM if they receive a S.303 request?
A
They must call the meeting within 21 days from the date of receipt of the notice, and it must be held no more than 28 days from the notice convening the meeting
If this is not fulfilled, S.305 states that the shareholders who requested the meeting (or any of them representing more than 50% of the total rights of those shareholders) may call the meeting, and are entitled to be reimbursed their reasonable expenses in relation to this
23
Q
3.6.3 What is an ordinary resolution?
A
- Require only a simple majority (>50%) of votes cast
may be required in the approval of annual financial statements, appointment and removal of auditors, appointment and removal of directors and approval of a dividend
24
Q
3.6.3 What is a special resolution?
A
- Requires a 75% majority of votes cast
examples include resolutions for changing a company’s name, waiving pre-emption rights, de-listing a public company, share buy-backs, changes to the Articles of Association and voluntary winding-up (liquidation) of a company
25
3.6.3 What non-director shareholders can propose resolutions? (2)
- shareholders representing at least 5% of voting rights
- at least 100 shareholders holding at least £100 paid-up shares each
The costs of circulating the notice of this resolution must be paid by the requesting members unless notice is given before the end of the previous financial year
The shareholders above may require the company to circulate to all shareholders a statement, of not more than 1000 words, regarding a matter to be dealt with at a meeting, or a matter referred to in a proposed resolution to be dealt with at that meeting
26
3.6.4 What is a quorum?
Two members unless otherwise stated in the company's Articles
27
3.6.5 What are Sections 994-8 of the Act?
A shareholder may petition the court if they consider that the company's affairs are being conducted in a way that is unfairly prejudicial to the interest of some or all of the shareholders, or that it is proposing some prejudicial act or omission
If the court is satisfied that the petition is well founded, it may take steps to regulate the company's affairs in the future, or require the company to take steps to remedy the matter or matters complained of
28
3.7 What is S.793 of the Act?
Provides a public company (listed or unlisted) with the power to issue a notice to a person who it knows, or has reasonable cause to believe, has an interest in its shares or has had an interest in the previous three years directly or through concert parties
The notice requires shareholders to disclose if they have an interest and to provide information about their interest if they do
If a shareholder has sold their shares within the last 3 years, they must disclose who they were sold to, the date of the txn, and the broker used (if applicable)
29
3.7 What are the penalties of failing to respond to a S.793 in time?
This enables companies to disenfranchise (i.e. remove the voting/dividend rights of) defaulting shareholders
30
3.7 What are the penalties of a shareholder providing false info to a S.793?
They are liable to:
- Maximum of two years in jail on conviction
- and/or an unlimited fine
- company may seek court orders imposing restrictions on transfer, voting, and the payment of dividends
Only the company secretary may send out the enquiry notices (rather than shareholders or third parties)
- on conviction, to imprisonment for a period not exceeding 12 months or to a fine not exceeding the statutory amount (£5000)
31
3.8 What are the requirements to be a public limited company (plc)? (4)
- a minimum of two shareholders
- a minimum issued share capital of £50,000 on which all the share premium, and at least 25% of the nominal value, have been paid up
- have a memorandum of association which states that it is a public company
- be correctly registered as a public limited company
Such companies must have 'plc' or 'public limited company' at the end of their names
32
3.8 What are public companies allowed to do? (2)
- Sell shares to the public
- Apply to the FCA for listing or for admission to another market, such as AIM
A public company does not have to be listed
33
3.8 What are private companies allowed to do? (1)
- They may place restrictions on who may be a shareholder
they must have either 'ltd' or 'limited' at the end of their names
they require a min of one member/shareholder
34
3.8.1 What is the memorandum of association?
- external rulebook of the company, governing its relationship with the outside world
Must state:
- the name of the company
- whether the company has a share capital or not
- that each of the subscribers listed wish to form a company and has agreed to become a member
35
3.8.1 What are the articles of association?
- internal rulebook of the company governing the relationship between the company and its members (shareholders)
There are standard terms for articles contained in the Companies (Model Articles) Regulations 2008, but each company can create its own rules.
The model articles can be found on the Companies House website
Once established, the provisions are binding on the shareholders in their relationship with the company and with each other. They may only be altered on the passing of a special resolution in a GM
The articles typically include:
- the company's name and form
- details of each class of shares, including voting, redemption, and distribution rights
- provisions for GMs, including resolutions, notice, short notice, quorum, and chair
- directors' reqs, including meetings and maintenance of registers
- actions that are permitted or prohibited for the company and its directors, such as pre-emption rights, transfer restrictions, borrowings and trading activities
36
3.8.2 What are the penalties for a private company selling securities to the public?
The company and its officers are liable to fines for a breach of S.755
The allotment will still be valid
Pvt companies can only issue shares to people known to them, such as employees, pvt investors, or family members
An exception to this rule is if a pvt company commits to re-register as a public company within six months of the date the shares are issues
37
3.8.2 What are the conditions for a pvt company to be re-registered as a public company, under S.90?
- A special resolution to re-register is passed
- It meets the reqs to be a public company set out previously
- it has not previously been re-registered as unlimited
- it makes the necessary changes to its name and articles to comply with the provisions for public companies
- it obtains a balance sheet, dated no earlier than 7 months before the application to re-register as a public company, including both an unqualified audit report and a written statement from the company's auditor that the amount of the company's net assets at the balance sheet date was not less than the aggregate of its called-up share capital and undistributable reserves
- there was no change in the financial position of the company between the balance sheet date and the date of application for re-reg, which changes this position
38
3.8.2 Who must the application for re-reg be made to?
Applications for re-reg must be made to the Registrar of Companies, accompanied by copies of the special resolution, amended articles, balance sheet, and statements referred to above, together with a statement that the reqs for re-reg as a public company have been complied with
39
3.9 What are the main duties of directors (and shadow directors) according to S.170-175?
- A director of a company must act in accordance with the company's constitution and only exercise powers for the purpose for which they are conferred
- Directors must act in the way they consider, in good faith, is most likely to promote the success of the company for the benefit of its shareholders as a whole, having regard for:
- the long-term consequences
- the interests of the company's employees
- the need to foster the company's business relationships with suppliers, customers, and others
- the impact of the company's operations on the community and environment
- the company's reputation for high standards of business conduct
- the need to act fairly
- Directors should exercise independent judgement
- Directors should exercise such care, skill and diligence as might reasonably be expected from a person with the general knowledge, skill and experience that might reasonably be expected from a person carrying out those functions, and the general knowledge, skill and experience that the director actually has
- Directors have a duty to avoid conflicts of interest
- A director must not accept benefits from a third party
- The director has a duty to declare interest in any proposed transaction or arrangement with the company. This includes a duty not to profit personally and depriving the company of a business opportunity
40
4. What is 'criminal property'?
Property which an alleged offender knows or suspects constitutes or represents benefit from any criminal product
41
4. What is 'criminal conduct'?
The conduct undertaken by an individual that has resulted in an offence.
With regards to money laundering, it would be accepting money that the individual knew was derived from criminal activity and the attempt to launder it to make it appear 'clean' or legitimate money
42
4. What are the 3 stages to a successful ML operation?
1. Placement
2. Layering
3. Integration
43
4. What is Placement?
Introduction of the money into the financial system; typically, this involves placing the criminally derived cash into a bank or building society account, a bureau de change, or any other type of enterprise which can accept cash, such as a casino
44
4. What is Layering?
Involves moving the money around in order to make it difficult for the authorities to link the placed funds with the ultimate bene of the money. This may involve buying and selling international currencies, shares, or bonds in rapid succession, investing in CISs, or insurance-based investment products, as well as high-value physical items such as cars or jewellery, or moving the money from one country to another
45
4. What is Integration?
At this final stage, the layering has been successful, and the ultimate bene appears to be holding legitimate funds and/or assets (clean money rather than dirty money). The money is regarded as integrated into the legitimate financial system
46
4.1.1 Which acts provide the primary legislation for AML? (4)
And the secondary legislation?
- Proceeds of Crime Act 2002 (POCA)
- Serious Organised Crime and Police Act 2005 (SOCPA)
- Counter-terrorism Act 2008 (CTA)(Schedule 7)
- Terrorism Act 2000 (TA)
Secondary is provided in:
the Money Laundering Regulations 2017
- this gave effect to the Fourth Money Laundering Directive (4MLD)
The Money Laundering and Terrorist Financing (amendment) Regulations 2019
- this gave effect to the Fifth Money Laundering Directive (5MLD)
The Joint Money Laundering Steering Group (JMLSG) guidance provides guidance on how to implement the reqs of the ML regulations
47
4.1.1 What is the Proceeds of Crime Act (POCA)?
Specifies that money laundering relates to criminal property - that is, any benefit (monetary or otherwise) that has arisen from criminal activity
The broad req is for firms to report suspicions of money laundering to the authorities
48
4.1.1 What is The Serious Organised Crime and Police Act 2005 (SOCPA)?
Act amended certain section of POCA
POCA created the 'Spanish Bullfighter' problem, i.e. Bullfighting is illegal in the UK but not in Spain, meaning an FI should arguably regard deposits made by a Spanish Bullfighter as proceeds of crime, even though it is legit business in Spain
SOCPA allows alleged offenders to defend themselves if they believe their activity was not illegal in the country it was performed.
The Secretary of State has reserved the right to still deem certain offences as 'relevant criminal conduct' which may be legal where they occurred i.e. the Govt may specify serious tax evasion or drug cultivation as types of criminal conduct as activities which need to be reported despite occurring overseas
49
4.1.1 What is the Terrorism Act 2000 (TA)?
Provides the criminal offences of raising, receiving, owning, or using finance or property for terrorist activity; entering into an arrangement as a result of which finance is made available for terrorist activity; or facilitating the concealment or movement of such finance or property
There is a statutory obligation to report any suspicious transaction in relation to terrorist financing, and in particular suspicions that a person may be providing funds for terrorism, or laundering money which is terrorist property
should be interpreted with the help of JMLSG guidance
scope not limited to acts in the UK
50
4.1.1 What is the maximum imprisonment on conviction of the Terrorist Act 2000?
in the Crown Court:
- 14 years' imprisonment
- unlimited fine
- or both
The court may also order the forfeiture of the property or finance concerned
there is a defence if the person can show they had reported, intended to report but had a good reason not to, or acted with the express permission of the police
51
4.1.1 What is the punishment for failing to report a TA 2000 offence?
- up to 5 years' imprisonment
- an unlimited fine
- or both
52
4.1.1 What is The Counter-Terrorism Act 2008 (CTA)?
Came into force in Nov 2008
Includes provisions relating to terrorist financing and money laundering, including giving HMT new powers to direct firms in the financial sector to take certain actions in respect of business with parties outside of the UK, where they have concerns that ML, proliferation of nuclear/biological weapons, or terrorist financing are going on.
53
4.1.1 What are possible penalties for non-compliance of a Treasury direction?
Can result in civil penalties or criminal prosecution
- maximum of two years' imprisonment
- an unlimited fine
- or both
54
4.1.1 What are the Money Laundering Regulations 2017 (MLRs)?
The Money Laundering Regs 2017 (MLRs) give effect to the Fourth Money Laundering Directive (4MLD)
The Money Laundering and Terrorist Financing (amendment) Regulations 2019 gave effect to the Fifth Money Laundering Directive (5MLD)
The regs deal predominantly wit the processes which firms must adopt in order to combat ML i.e. systems and training for AML, and obligations to check ID of new customers
55
4.1.1 Why was the 4MLD introduced?
To strengthen AML legislation.
Brought about a number of changes, including relating to the rules around customer DD
56
4.1.1 Why was the 5MLD introduced?
Introduce further changes, including new reqs for cryptoassets (including token) exchanges and custodian wallet providers, various changes to customer DD (including the more stringent req to 'determine and verify' information relating to the law to which the company is subject, its constitution and the full names of the board of directors and the senior persons responsible for the company's operations), and additional rules around EDD
57
4.1.1 What is The Criminal Offences Act 2017?
Companies and partnerships are criminally liable if they failed to prevent tax evasion by either a member of their staff or an external agent, even if they were not involved or unaware of it
Prosecution could lead to both conviction and unlimited penalties
A further measure in the Act allows for unexplained wealth orders to be served on individuals suspected of a serious crime to explain the sources of wealth, any proceeds of crime can be seized by authorities
Also covers further powers to investigate suspected ML or TF, and new orders to require someone to disclose info they have on ML taking place
58
4.1.1 How can a business avoid criminal liability in the Criminal Offences Act 2017?
If it can show it had implemented prevention procedures, or where it can show that, in the circumstances, it would have been unreasonable or unrealistic to have expected it to have had procedures in place
59
4.1.1 What is the FCA Senior Management Arrangements, Systems and Controls (SYSC) Sourcebook?
Provides high-level standards of governance for FCA-authorised firms on the obligations of senior management in implementing the AML provisions in the UK financial Services Sector
60
4.1.1 What is the Joint Money Laundering Steering Group (JMLSG)?
Made up of leading UK trade associations in the financial services sector, including UK finance, the Building Societies Association, and the Association of British Insurers (ABI)
Aim to promulgate good practices in countering ML and to give practical assistance in interpreting the ML Regs.
Primarily achieved via publication of industry guidance on implementing risk management, anti-terrorist financing, and AML provisions
Note the guidance is not mandatory
Guidance is approved by HMT - if a firm shows they adhered to them, the courts will take this into account as evidence of compliance with the legislation
61
4.1.1 What is the stated purpose of the JMLSG guidance? (4)
- outline the legal and regulatory framework for AML and combating the financing of terrorism (CFT) requirements and systems across the financial services sector
- interpret the reqs of the relevant laws and regs, and explain how they may be implemented in practice
- indicate good industry practice in AML and CFT procedures through a proportionate, risk-based approach (RBA)
- help firms design and implement the systems and controls necessary to mitigate the risk of them being used in connection with ML and TF
62
4.1.1 What is contained in part I (General Guidance) of the JMLSG guidance? (8)
- the importance of senior management taking responsibility for effectively managing the ML and TF risks faced by the firm's businesses (Chapter 1)
- appropriate controls in the context of financial crime (Chapter 2)
- the role and responsibilities of the nominated officer and the MLRO (Chapter 3)
- adopting a risk-based approach to the application of CDD measures (Chapter 4)
- helping a firm have confidence that it has properly carried out its CDD obligations, including monitoring customer transactions and activity (Chapter 5)
- the identification and reporting of suspicious activity, and data protection (Chapter 6)
- staff awareness, training and alertness (Chapter 7)
- record-keeping (Chapter 8)
63
4.1.1 What is contained in part II (Sectoral Guidance) of the JMLSG guidance?
Deals with particular issues faced by different sectors (i.e. retail banking, financial advisers, private equity)
Should not be read alone, but instead in conjunction with part I
64
4.1.1 What is contained in part III (Specialist Guidance) of the JMLSG guidance? (5)
- Chapter 1: transparency in electronic payments (wire transfers)
- Chapter 2: deleted - the 'equivalent jurisdictions' text has been moved to chapter 4 of Part I
- Chapter 3: equivalent markets (non-HMT approved)
- Chapter 4: compliance with the UK financial sanctions regime
- Chapter 5: directions under Schedule 7 to the CTA
65
4.2 What are the 5 offences the POCA establishes with regards to ML?
1. Concealing - it is an offence for a person to conceal or disguise criminal property or to convert, transfer or remove such property from the jurisdiction
2. Arrangements - that is, being concerned in an arrangement which the person knows, or suspects, facilitates the acquisition, retention, use or control of criminal property for another person. Being concerned in an arrangement may be widely interpreted - it could include a person advising on a transaction, for example
3. Acquisition, use and possession
4. Failure to disclose - there is a duty on employees in the regulated sector to make reports where they know or suspect that another person is engaged in ML or TF activity. It is an offence for employees to fail to disclose such info to their MLRO.
5. Tipping-off - this is a particular offence applying only to persons working in the regulated sector, and it involves disclosing a suspicious activity report or investigation. It is possible to commit this offence even if you don't now that a report has actually been made
66
4.2 What are the three conditions that need to be satisfied for failure to disclose ML or TF to an MLRO to be an offence?
1. The person knows or suspects (or has reasonable grounds to know or suspect) that another person is committing an offence
2. The information giving rise to the knowledge or suspicion came to them during the course of business in a regulated sector
3. The person does not make the required disclosure to a nominated officer, such as the firm's MLRO, as soon as is practicable
67
4.2.1 What are the punishments for being found guilty of the first three offences?
Concealing, arrangements and acquisition
Note that these apply to all persons and businesses (not just financial services firms)
- Imprisonment for up to 14 years
- an unlimited fine
- or both
68
4.2.1 Which types of firms are included for Offences 4 and 5? (9)
Failure to disclose and tipping-off
Involves a wide range of organisations involved in handling substantial amounts of cash
- Authorised firms
- estate agents
- bureaux de change
- Consumer credit institutions
- law firms
- casino operators
- accountants
- high-end auctioneers
- insolvency practitioners
69
4.2.1 What is the punishment for a regulated person found to be in offence of failure to disclose or tipping-off?
- imprisonment for up to 2 years
- unlimited fine
- or both
70
4.2.1 What is the punishment for an unregulated person found to be in offence of failure to disclose or tipping-off?
- imprisonment of up to 5 years
- unlimited fine
- or both
71
4.2.2 When does a person have a defence against the first three offences?
Concealing, arrangements and acquisition, use and possession
- If they make the required disclosure to the MLRO
- or if the person was the MLRO, to the National Crime Agency (NCA)
72
4.2.3 What is considered 'prejudicing an investigation' according to part 7 of POCA? (2)
- making a disclosure that is likely to prejudice an investigation
- falsify, conceal, destroy or otherwise dispose of documents relevant to an investigation, or permit such falsification
73
4.2.3 What is not considered 'prejudicing an investigation' according to part 7 of POCA? (5)
- the person did not know or suspect that the disclosure would prejudice an investigation
- the disclosure was made in the performance of a duty under POCA or other similar enactment
- the person is a legal adviser acting in their professional capacity in advising their client or in contemplation of legal proceedings (apart from where the disclosure is made with the purpose of furthering a criminal purpose)
- the person did not know or suspect that documents were relevant to the investigation
- the person did not intend to conceal from an investigator any facts disclosed by the documents
74
4.2.3 What is the punishment for prejudicing an investigation?
- A fine
- up to 5 years imprisonment
75
4.3 Who does the ML Regulations 2017 apply to?
Note these are referred to as the regulated sector
- Authorised firms
- estate agents
- bureaux de change
- Consumer credit institutions
- law firms
- casino operators
- accountants
- high-end auctioneers
- insolvency practitioners
76
4.3 Who supervises the regulated sector?
It is split between the FCA (for most financial services firms) and HMRC
77
4.3 What are the 3 main areas covered in the ML Regulations 2017?
1. Due Diligence - includes identifying customers
2. Internal policies and procedures - including record-keeping, training of staff, and reporting of suspicions of ML
3. Supervision and registration - this provides the powers of the supervisors
78
4.3 What are the punishments of failing to comply with the ML Regulations?
- 2 years imprisonment
- fine
The Crown Court will consider whether the firm followed the relevant guidance of the JMLSG at the time when an offence may have been committed
79
4.3.1 What does SYSC 4.1.1R require firms to have?
Robust governance arrangements, including effective processes to identify, manage, monitor and report the risks it is, or might be, exposed to, and internal control mechanism to ensure effective controls and safeguarding arrangements
80
4.3.1 What do SYSC 6.1 (compliance) and SYSC 6.3 (financial crime) provide guidance on?
The measures that firms should take with regards to financial crime
81
4.3.2 What factors should a firm take into consideration when identifying its ML risk and in establishing its systems and controls? (5)
- its customer, product and activity profiles
- its distribution channels
- the complexity and volume of its transactions
- its processes and systems
- its operating environment
82
4.3.2 What should a firm ensure its systems and controls include? (5)
- training for its employees in relation to ML prevention
- provision of info to its governing body and senior management, including a report at least annually by the firm's MLRO on the operation and effectiveness of those systems and controls
- documentation of its risk management policies and risk profile in relation to ML
- measures to ensure that ML risk is taken into account in its day-to-day operation and also with the development of new products, the taking-on of new customers, and changes in its business profile
- measures to ensure that new client identification procedures do not unreasonably deny access for persons who may not be able to produce detailed evidence of ID
83
4.3.2 What roles does the MLRO take under APER and SM&CR?
APER - A controlled function
SM&CR - SMF 17 - performing a senior management function role
84
4.3.2 What does the FCA say about the guidance provided by the JMLSG?
'The guidance... provides a sound basis for firms to meet their legislative and regulatory obligations when tailored by firms to their particular business risk profile. Departures from this guidance, and the rationale for so doing, should be documented, and firms will have to stand prepared to justify departures, for example to the FCA'
85
4.3.2 What does Section 24 state about the measures firms must take for relevant employees?
- they are made aware of law relating to ML and TF and the reqs of protection which are relevant to the implementation of MLR 2017
- provide with regular training on how to recognise and deal with transactions and other activities or situations which may be related to ML or TF
Firms must keep records on these points
86
4.3.3 What factors will a firm's senior management consider in a risk assessment to determine the arrangements and controls needed by a firm?
- the nature of the firm's products and services
- the nature of its client base
- the ways in which these may leave the firm open to abuse by criminals
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4.3.3 What may the AML policy statement include? (5)
Guiding Principles
1. Customers' identities need to be satisfactorily verified before the firm accepts them
2. A commitment to the firm knowing its customers appropriately - both at acceptance and throughout the business relationship - through taking appropriate steps to verify a customer's identity and business
3. Staff will need adequate training and need to be made aware of the law and their obligations
4. There should be recognition of the importance of staff promptly reporting their suspicions internally
5. An unequivocal statement of the culture and values to be adopted and promulgated throughout the firm towards the prevention of financial crime
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4.3.3 What may the Risk Mitigation Approach include on an AML policy statement? (4)
1. A summary of the firm's approach to assessing and managing its ML and TF risk
2. Allocation of responsibilities to specific persons and functions
3. A summary of the firm's procedures for carrying out appropriate identification and monitoring checks on the basis of their risk-based approach
4. A summary of the appropriate monitoring arrangements in place to ensure that the firm's policies and procedures are being carried out
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4.3.4 When should customer identities be verified according to JMLSG part I Chapter 5?
- Whenever the firm is entering into a business relationship with a party
- Undertaking a txn of 15000EUR or more outside of a business relationship
Additional due diligence should be carried out whenever the firm suspects ML or TF, even in relation to existing customers
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4.3.4 What are the stages of customer due diligence?
1. Obtaining evidence of identity and any beneficial owner
2. Verifying evidence of identity to ensure that the evidence is valid
3. Obtaining information to enable the firm to understand the nature and purpose of the relationship intended, monitoring the relationship, and identifying suspicious txns
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4.3.4 What is the standard identification req for personal customers?
Customer's name
Residential address
DOB
Firms should also ascertain source of the customer's wealth and/or funds
In ascertaining source of funds, firms should establish whether the funds are to be paid from (for example) a bank account, credit or debit card, or solicitors' account
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4.3.4 What is the standard identification req for corporate customers?
Full name
Registered number
Registered office and business address
Verify the identity of an beneficial owner of the company
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4.3.4 When should identification be obtained for the customer if simplified due diligence (SDD) does not apply?
As soon as is reasonably practicable after first contact between the firm and the customer
If there is a delay between the forming of the business relationship and the verification of the customer's identity (e.g. in the case of non-face-to-face business) firms' risk management procedures should limit the extent of the relationship
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4.3.4 What are the two principal reasons why a firm should hold sufficient info about the circumstances and business of their customers?
- to inform their risk assessment process, and thus manage their ML/TF risks effectively
- to provide a basis for monitoring customer activity and transactions, thus increasing the likelihood that they will detect the use of their products and services for ML and TF
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4.3.4 What are the specific circumstances the MLR 2017 says EDD measures must be used? (4)
- any case identified by the firm under its risk assessment (or in information provided by the authorities) where there is a high risk of ML/TF
- any txn with a person established in a high-risk third country where the client has not been physically present for identification purposes in respect of a relation to correspondent banking relationships
- in respect of a business relationship or occasional txn with a PEP, if the firm has determined that a customer or potential customer is PEP, or a family member or known close associate of a PEP in any case where a customer has provided false or stolen ID docs or info on establishing a relationship
- in any case where a txn is complex and unusually large or there is an unusual pattern of txns
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4.3.4 What is a PEP?
An individual who is or has, at any time in the preceding year, been entrusted with prominent public functions, other than as a middle-ranking or more junior official
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4.4.1 What factors should senior management consider in its risk assessment when determining the arrangements, systems and controls needed by a firm to prevent ML and TF?
- nature of the firm's products and services
- nature of its client base and geographical location
- ways in which these may leave the firm open to abuse by criminals
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4.5 What does the TA 2000 define terrorism as?
The use or threat of use of action where it:
- involves serious violence against a person or serious damage to property
- endangers a person's life, other than the person committing the action
- creates serious risk to the health or safety of the public
- is designed to seriously interfere or disrupt an electronic system
- is designed to influence the govt or intimidate the public, or is made for the purpose of advancing a political, religious or ideological cause
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4.5.1 What is the punishment of failure to report terrorism according to TA 2000 and Anti-Terrorism Crime Security Act 2001?
- Up to 5 years in jail
- A fine
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4.5.2 What powers does Schedule 7 of the Counter Terrorism Act 2008 give?
It gives the Treasury powers to issue directions to firms in the financial sector relating to: CDD and ongoing monitoring, systematic reporting on txns and business relationships, and limiting or ceasing business
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4.5.2 How does the CTA 2008 affect Customer due diligence and monitoring?
the provisions are broadly similar to the requirements already imposed under the MLR
treasury can now, for example, direct that CDD be undertaken again or completed before entering into a business relationship
may direct specific activity monitoring be undertaken
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4.5.2 How does the CTA 2008 affect Systematic reporting?
prior, reporting orders were only available to law enforcement and obtained through courts
now, Treasury can require info be provided re: business relationships and transactions involving the specified person(s), on a one-off or periodic basis
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4.5.2 How does the CTA 2008 affect Limiting or ceasing business?
under MLR (reg 18) Treasury powers limited to where the Financial Action Task Force (FATF) has applied countermeasures
CTA is more flexible and allow directions to be imposed in a wider range of situations
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4.5.2 Who are Financial Sanction Regulations imposed by? (2)
United Nation's Security Council (UNSC)
UK Govt
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4.5.2 What does HM Treasury's Office for Financial Sanctions Implementation (OFSI) take into account when considering exemptions to working with persons on the UK sanctions list?
- Basic needs
- Fees for the provision of legal services
- Routine maintenance of frozen funds and economic resources
-Extraordinary expenses
-Pre-existing judicial decisions
- Humanitarian assistance activity
- Diplomatic situations
- Prior obligations
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4.5.2 Often, there is a lot of overlap between AML provisions and terrorist financing acts. What are the two major difficulties when terrorist funds are compared with other ML situations?
- often, only quite small sums of money are required to commit terrorist acts
- If legitimate funds are used to fund terrorist activities, it is difficult to identify when the funds become terrorist funds
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4.5.2 What is the FATF responsible for?
Financial Action Task Force
examining, and the development of, measures to combat ML
It is the global ML and TF watchdog
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4.6 What is active bribery? and passive bribery?
Active is the offering, promising or giving of a bribe
Passive is the requesting, agreeing to receive or accepting of a bribe
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4.6 What does section 6 of the Bribery Act set out?
creates an offence relating to bribery of foreign public officials in order to obtain or retain business or an advantage in the conduct of business
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4.6 What does section 7 of the Bribery Act set out?
Creates a new form of corporate liability for failing to prevent bribery on behalf of a commercial organisation
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4.6 What does the Bribery Act define as a 'Public Foreign Official'?
Someone who exercises a public function for a foreign country, including a foreign govt, public agency or public enterprise
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4.6 What does section 9 of the Bribery Act set out?
Requires the Secretary of State to publish guidance about procedures that commercial organisations can put in place to prevent employees undertaking bribery
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4.6 What does section 12 of the Bribery Act set out?
The courts have jurisdiction over the Sections 1, 2 or 6 offences committed in the UK, but they also have jurisdiction over offences committed outside the UK if the person committing them has a close connection with the UK by virtue of being a British national or ordinarily resident in the U, a body incorporated in the UK or a Scottish partnership
Sections 7 and 12 do not require a close UK connection to apply, as long as a business or part of a business is carried out in the UK
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4.6 What does section 1 of the Bribery Act set out?
A person is guilty of an offence where they, or someone acting on their behalf, offers, promises or gives a financial advantage to another person in either of two situations:
1. they intend the advantage to bring about the improper performance of a relevant function or an activity by another person, or to reward such improper performance
2. they know, or believe, that the acceptance of the advantage offered, promised, or given in itself constitutes the improper performance of a relevant function or activity
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4.6 What does section 2 of the Bribery Act set out?
The offence of being bribed arises when a person requests, agrees to receive, or accepts financial or other advantages in relation to the improper performance of a relevant function or activity
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4.6 What does section 6 of the Bribery Act set out?
Creates a stand-alone offence of bribery of a foreign public official. The offence is committed if a person offers, promises or gives a financial or other advantage to a foreign public official with the intention of influencing the official in the performance of official functions. The person offering, promising or giving the advantage must also intend to obtain or retain business or an advantage in the conduct of business by doing so.
the offence is not committed if the official is permitted or required by the applicable written law to be influenced by the advantage
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4.6 What does section 7 of the Bribery Act set out?
A commercial organisation is guilty of an offence if a person associated with it bribes another person, intending to obtain or retain business or a business advantage for the organisation. The organisation has a defence if it can show that it had in place adequate procedures designed to prevent bribery
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4.6 What is an individual who is found to have improper performance, with regards to Bribery, liable to upon conviction in the Crown Court?
Imprisonment for a maximum of 10 years
An unlimited fine
- or both
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4.6 What are the six key principles the steps that companies can take to put in place adequate procedures, according to Govt published statutory guidance about Bribery?
1. Proportionate procedures
2. Top-level commitment
3. Risk Assessment
4. Due diligence
5. Communication
6. Monitoring and Review
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4.6. Although all commercial organisations' bribery prevention policies will generally be different, which elements are largely the same across companies? (3)
- Commitment to bribery prevention (Principle 2)
- General approach to mitigation of specific bribery risks, such as those arising from the conduct of intermediaries and agents, or those associated with hospitality and promotional expenditure, facilitation payments or political and charitable donations or contributions (Principle 3)
- Overview of its strategy to implement its bribery prevention policies
