What is money laundering?
Money laundering is the process by which criminals disguise the source of their proceeds of crime
What are the three stages of money laundering?
Placement
Layering
Integration
In terms of money laundering what is placement?
Placement: injection into the financial system
In terms of money laundering what is Layering?
Layering: separation of criminal proceeds from their source
In terms of money laundering what is Integration?
Integration: the provision of apparent legitimacy
What is the key theme of the Money Laundering Regulations (MLR) 2017?
Customer due diligence (CDD)
Under the MLR 2017 what obligations do firms have for ordinary customers?
o Obligation on firms to pursue customer due diligence
- Identify the customer
- Obtain information on the purpose and intended nature of the business relationship
Under the MLR 2017 when must enhanced due diligence occur?
- Non-face-to-face business
- Correspondent banking relationships
- Politically exposed persons (PEPs), e.g. heads of state, government ministers
What does the Joint Money Laundering Steering Group (JMLSG) provide?
Gives practical assistance (guidance) in interpreting the MLR
What are the main requirements of the Joint Money Laundering Steering Group (JMLSG)?
o Internal controls, policies and procedures
o Identification procedures
o Record keeping for 5 years
o Recognition and reporting of suspicious transactions
What is the FCA’s principle/ informal guidance (SYSC) on money laundering protocol for firms?
o Appoint a Money Laundering Reporting Officer (MLRO)
What is the difference between terrorist financing and money laundering?
Terrorist financing can occur from a legitimate source and funds. Terrorist financing is often using legitimate funds and doesn’t go through the same process as money laundering
What crime act covers money laundering?
Proceeds of Crime Act (POCA) 2001
Under POCA 2001 what is the maximum term for assisting a money launderer
up to 14 years’ imprisonment and/or an unlimited fine
Under POCA 2001 what is the maximum term for Tipping-off
5 years’ imprisonment and/ or an unlimited fine
Under POCA 2001 what is the maximum term for failure to report
5 years’ imprisonment and/or an unlimited fine
Under POCA 2001 what is the maximum term for failure to comply?
two years’ imprisonment and/or an unlimited fine
What has to occur for something to be deemed as inside information?
Price sensitive’ information of a ‘specific and precise’ nature
o Not a rumour
What is a primary insider?
someone has info first hand
What is a secondary insider?
knows info from primary source
What act covers insider trading and what are the offences under this?
Criminal Justice Act 1993 offences:
o Dealing while in possession of inside information
o Encouraging another to deal, knowing or reasonably believing that dealing will occur
o Disclosing information to another (other than in the proper performance of one’s duties)
What investments are covered under the insider trading criminal justice act 1993?
o Shares o Debentures (forms of bonds) o Public sector debt securities (e.g. gilts) o Options o Warrants
What investments are not covered under the insider trading criminal justice act 1993
o Commodities
o Foreign exchange
If accused of insider dealing what would a ‘general/idiot’ defence refer to?
Passed on information in proper course of duties but did not expect the recipient to deal
If accused of insider dealing what would a ‘specific’ defence refer to?
Stabilised a new issue under the FCA’s stabilisation rules
Aside from a general/ specific defence what defences may be used if accused of insider dealing?
o Deal not done to make a profit or avoid a los
Aside from a general/ specific defence what defences may be used if accused of insider dealing?
o Deal not done to make a profit or avoid a los
o Market maker had inside information but acted bona fide for that business
o Only had information that certain securities were to be issues, acquired or disposed of, so it was therefore reasonable to deal
What are the penalties for insider dealing?
o Magistrates’ court: Six months imprisonment and/or a £5,000 fine
o Crown court: Seven years imprisonment and/or an unlimited fine
High burden of proof needed often to prosecute in crown
Which legislation covers market abuse?
FSMA 2000 and also further in regulation 2005. & EU Market Abuse Regulation (MAR) 2016
List the types of behaviours that may constitute market abuse & where these arise from
o Insider dealing o Improper disclosure o Misuse of information o Manipulating transactions/ devices o Dissemination o Misleading behaviour and distortion
taken from the FCA Code of Market Conduct:
What type of offence is market abuse and what does this result in?
Civil offence (so can’t get prison time) has a lower burden of proof
Who is free to give fines for market abuse?
Regulator is free to give fines
What in effect is needed to be proved to prove market abuse?
proven is the effect act has had on the market
What are penalties for market abuse?
unlimited fine (and/or FCA sanctions)
What act covers bribery offences
UK Bribery act 2010
List bribery offences
o Paying bribes
o Receiving bribes
o The bribery of foreign officials
o Failure of commercial organisations to prevent bribery
What does a company need to demonstrate to prevent bribery?
demonstrate that it has ‘adequate procedures’
What is the penalty for bribery by an individual?
7-10 years imprisonment
What is the penalty for bribery by a company?
Unlimited fine