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SQE1: Legal Services > Money Laundering > Flashcards

Money Laundering Flashcards

1
Q

What is failure to comply with the Money Laundering Regulations?

A

A criminal offence

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2
Q

Which are the 2 key pieces of legislation in relation to AML?

A

Money Laundering Regulations 2017

Proceeds of Crime Act 2017

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3
Q

What is the role of the SRA in relation to the Money Laundering Regulations?

A

‘Beneficial owners, officers, or managers’ of a law firm + sole practitioners must apply to the SRA for approval under the Regulations

  • Approval must be granted unless the applicant has been convicted of a criminal offence
  • Acting without approval is a criminal offence
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4
Q

What are 9 key requirements for law firms in the Money Laundering Regulations?

A

Risk assessment

AML policies, controls & procedures

Appointing a Money Laundering Reporting Officer & a Money Laundering Compliance Officer

Screening relevant employees

Independent audit

Being able to respond to enquiries from law enforcement

Client due diligence

Training

Record keeping

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5
Q

What are the risk assessment requires on law firms regarding AML?

A

2017 Regulations: Firm must take appropriate steps to identify & assess risk of firm being used for money laundering

  • Must keep up-to-date record
  • The risk assessment must take into account the SRA risk assessment re legal services

→ Firm must establish & maintain AML policies, controls & procedures to mitigate & manage those risks identified

  • Procedures can be proportionate to the firm’s size & nature
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6
Q

Who are the key individuals a law firm must appoint under the Money Laundering Regulations?

A

★ Money Laundering Reporting Officer

  • Receives reports from within the firm & liaises w/ NCA where necessary
  • Must possess experience & understanding of financial crime

★ Money Laundering Compliance Officer

  • If appropriate, having regard to the size & nature of the firm
  • Must be a senior member of the firm

Nb. MLRO & MLCO can be same individual

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7
Q

What must a law firm set up in relation to law enforcement enquiries under the Money Laundering Regulations?

A

Controls which enable it to respond fully & rapidly to any enquiries from law enforcement as to whether it has maintained a business relationship with any person during the past 5 years

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8
Q

What are the training obligations on firms under the 2017 Regulations?

A

Firms must provide (& maintain a record) of training to their employees in respect of money laundering

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9
Q

What are the record keeping obligations on firms under the 2017 Regulations?

A

A firm must keep various records, including a copy of any documents & info obtained to satisfy the DD requirements & sufficient supporting records in respect of a transaction subject to DD or ongoing monitoring

Must be kept for at least 5 years from when the business relationship ends or the end of the occasional transaction

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10
Q

What corporate offence is in the Criminal Finances Act 2017?

A

Failure to prevent the criminal facilitation of tax evasion

  • Applies to law firms
  • Strict liability (ie. no knowledge or intention required)
  • The only possible defence is that the firm had in place reasonable prevention procedures
  • Penalty is unlimited fines & / or confiscation of assets
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10
Q

When must a law firm notify the Office of Financial Sanctions Implementation?

A

If it is known or reasonably suspected that a person is a designated person (on sanctions lists) or has committed offences under financial sanctions & asset freezing regimes

If a firm wants to act for such a person, must first obtain a licence to receive reasonable fees for the provision of legal advice

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11
Q

When must firms obtain verification of the ID of their clients?

A

In various circumstances, including:

  • Where the client & solicitor agree to form a business relationship
  • An occasional transaction of a transfer of funds exceeding €1,000
  • An occasional transaction of €15,000 or more (whether a single operation or several linked ones)
  • Where solicitor suspects money laundering or terrorist financing
  • Where solicitor doubts the veracity or adequacy of documents supplied to verify ID
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11
Q

When must due diligence be carried out?

A

As soon as possible after first contact & before a business relationship is established / transaction carried out

Nb. Can be during the establishment of a business relationship if:

  • little risk of any money laundering,
  • necessary not to interrupt the normal conduct of business &
  • ID verified as soon as practicable after contact is first established
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12
Q

When can due diligence be carried out during the establishment of a business relationship, as opposed to before?

A

If:

  • little risk of any money laundering,
  • necessary not to interrupt the normal conduct of business &
  • ID verified as soon as practicable after contact is first established
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13
Q

What can’t a solicitor do if they don’t complete due diligence in time?

A

Carry out a transaction with or for the client or establish a business relationship

Should also consider terminating any existing business relationship & making a disclosure to the NCA

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14
Q

What are the 3 kinds of due diligence?

A
  1. standard
  2. enhanced
  3. simplified
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15
Q

What is standard due diligence?

A

Verifying the ID of the client using reliable documents & taking reasonable measures to understand the ownership/control structure of non-natural persons

16
Q

What documents are required to verify the identity of natural persons?

A

One govt document verifying name & address or name & DOB

or

A govt doc verifying name + a supporting doc verifying name & DOB/address

Ideally should be the original docs

17
Q

What information is required to verify the identity of a partnership?

A

Information on the constituent individuals + proof of registration

Nb. Where partnership is well-known & reputable, with long history in industry & substantial public information about them, sufficient to obtain name, address & nature of business

18
Q

What information is required about a company for due diligence purposes?

A

Need to verify the existence of the company (usually name, company number, registered address) + proof of registration

If unlisted, should also verify the law to which it is subject, its constitution or other governing docs, the names of the board of directors or other responsible senior persons

19
Q

When is enhanced due diligence required?

A

Where there is something about the arrangement or transaction that creates a high risk of money laundering

incl must be carried out where:

  • Has been identified as high risk in risk assessment etc
  • Involves a high-risk third country
  • Client has provided false or stolen ID documentation
  • Client is a politically exposed person / family member of PEP / close associate of PEP
  • Transaction is complex or unusually large or unusual pattern of transactions or transactions have no apparent economic or legal purpose
20
Q

When must the identity of the beneficial owners be verified as part of due diligence?

A

When standard due diligence is not required –> ie. enhanced or simplified DD

21
Q

What is a PEP?

A

An individual with prominent political functions incl:

  • Heads of State, ministers, MPs, ambassadors, high-ranking armed forces officers
  • Members of courts whose decisions are not generally subject to further appeal
  • Members of boards of central banks or auditors
  • Members of bodies of State-owned enterprises

If acting for a PEP / family member of PEP / close associate of PEP, must have approval of senior management to act for client + take adequate measures to establish source of wealth & funds involved

22
Q

What additional requirement is there when acting for a PEP, family member of a PEP or close associate of a PEP?

A

The approval of senior management to act for the client + take adequate measures to establish source of wealth & funds involved

23
Q

Who is the beneficial owner of a company?

A

Any individual who exercises ultimate control over management of the company;

or

Owns or controls more than 25% of the shares or voting rights;

or

Controls the body corporate

24
Q

Who is the beneficial owner of a partnership?

A

Any individual who is entitled to or controls more than 25% share of the capital / profits / voting rights;

or who otherwise exercises control over the management

25
Q

Who is the beneficial owner of a trust?

A

Each of the following:

i. The settlor

ii. The trustees

iii. The beneficiaries

iv. Where individuals benefiting from the trust have not been determined: the class of persons in whose main interest trust is set up

v. Any individual who has control over the trust

26
Q

When is simplified due diligence permitted?

A

Where a firm determines through an individual risk assessment that the business relationship / transaction presents a low risk (should also consider the beneficial owners)

Factors to take consider include: whether client is a listed company, where the client is established & does business (but presence of one of these things does not nec indicate lower risk!)

Solicitor must obtain evidence that the transaction & client are eligible for simplified DD

27
Q

What are the 5 warning signs of money laundering that solicitors should be aware of?

A

a. The client
eg. secretive, obstructive, evasive, criminal associations

b. Funding
Unusual source, eg. large cash payment, unexplained third party, multiple accounts

c. The transaction
Unusual features, eg. loss making, repetitive, no obvious commercial purpose, unexplained urgency, settled too easily/quickly

d. Unusual instructions
eg. outside solicitor’s area of expertise, no explanation why firm chosen, willing to pay high fees

e. Geographical concerns
eg. unexplained movement of monies between diff jurisdictions, connection to suspect jurisdictions

28
Q

What are the seven offences set out in the Proceeds of Crime Act 2002?

A

Direct involvement
Arranging
Acquisition, use or possession
Concealing

Indirect involvement
Failure to disclose
Failure to disclose by nominated officer
Tipping off
Prejudicing an investigation

29
Q

What is the offence of arranging (s328 POCA 2002)?

A

Offence to enter into or become concerned in an arrangement which a person knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of the proceeds of crime

Defences:
* Authorised disclosure defence

  • Overseas defence
30
Q

What is the authorised disclosure defence under POCA 2002?

A

If the person, who would otherwise be committing an offence, makes a disclosure to a constable, HMRC officer or nominated officer

Prior to the act
* Makes authorised disclosure as soon as practically possible prior to the act and
* Consent of the nominated officer or NCA is obtained → NO can’t give consent until
-NO receives NCA consent;
-NO hears nothing for 7 working days (starting w// first working day after disclosure); or
-If consent refused by NCA if it is subsequently granted within 31 days or period of 31 days has expired from the date of refusal

During the act
Made ASAP after solicitor first knows or suspects + disclosure is made on their own initiative

After the act
Made ASAP on solicitor’s own initiative & there is a good reason for failure to disclose prior to completing the act

31
Q

What is the overseas defence under POCA 2002?

A

Where the individual knew, or believed, that the ‘criminal conduct’ occurred abroad & was lawful in the country where it took place

32
Q

What is the offence of acquisition, use or possession (s329 POCA)?

A

Offence to acquire, use or have possession of the proceeds of crime

Defences
* Authorised disclosure defence
* Overseas defence
* Adequate consideration defence

33
Q

What is the adequate consideration defence?

A

If there was adequate consideration for acquiring, using or possessing the proceeds of crime (unless individual knew or suspected that those goods might help carry out criminal conduct)

34
Q

What is the offence of concealing (s327 POCA)?

A

Offence to conceal, disguise, convert or transfer the proceeds of crime, or remove the proceeds of crime from England, W, S or NI

Defences
* Authorised disclosure defence

  • Overseas defence
35
Q

What is the offence of failure to disclose (s330 POCA)?

A

A person commits an offence if:

(a) Knows or suspects, or has reasonable grounds to know or suspect (objective) that a person is engaged in money laundering

and

(b) The information comes to him in the course of a business in the regulated sector

and

(c) The information may assist in identifying the money launderer or location of laundered property

and

(d) He does not make a disclosure ASAP

Defences
* Authorised disclosure defence

  • Training defence (individual didn’t suspect, there were reasonable grounds to suspect but employee hadn’t received proper training)
  • LPP defence (solicitor not obliged to disclose any info that comes to the solicitor as a professional legal adviser in privileged circumstances
  • Overseas defence
36
Q

What is the offence of failure to disclose by a nominated officer (s331 POCA)?

A

Where a nominated officer knows or suspects or has reasonable grounds to know or suspect, money laundering as a consequence of their role as nominated officer & fail to make the necessary disclosure to NCA as soon as practical

Defence: reasonable excuse for not disclosing

37
Q

What is the offence of Tipping Off (s333A POCA)?

A

i. Disclosing a disclosure
If likely to prejudice any investigation

ii. Disclosing an investigation
If likely to prejudice any investigation

Defences
* If person who made disclosure did not know or suspect disclosure would prejudice investigation

  • If disclosure made by adviser to their client for the purpose of dissuading
38
Q

What is the offence of prejudicing an investigation (s342 POCA)?

A

Offence if know or suspect that a money laundering investigation has, or is about to be, commenced & make a material disclosure to any other person which is likely to prejudice the investigation or interfere with relevant material

Similar to tipping off, but extends to non-regulated individuals

SQE1: Legal Services (6 decks)

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