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Flashcards in Money Laundering and Financial Services Deck (29)
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When is the S.327 offence committed? Defence?

When there is direct involvement in concealing or disguising criminal property - e.g. using dirty money to purchase an asset for the client.
MR - knowledge or suspicion that the property is criminal property.

Defence - an authorised disclosure to the appropriate person under S.338.


When is the S.328 offence committed (1 AR 1 MR)

When solicitor
(i) AR - enters into or becomes concerned in
(ii) MR - an arrangement which you know or suspect facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person

Defence - an authorised disclosure to the appropriate person under S.338


When is the S.329 offence committed?

Acquiring, using or possessing criminal property

Defence - an authorised disclosure to the appropriate person under S.338


When is the S.330 offence committed (1 AR 2 MR)? Defence?

AR - Failure to disclose known or suspected ML to a nominated officer in the regulated sector as soon as practicable after the information comes to him

MR -
(i) knows, suspects or has reasonable grounds for suspecting that another person is engaged in money laundering
(ii) based on information encountered during the course of business in the regulated sector (i.e., legal advice)

Defence of reasonable excuse: (i) information privileged; or (ii) does not know or suspect that the other person is engaged in ML AND his employer has failed to provide him with AML training


Who should a solicitor report to to avoid becoming liable under S.330? What happens afterwards?

The firm's Money Laundering Reporting Officer.

1. The MLRO will decide whether to make a suspicious activity report under S.331.
2. If report made, MLRO and solicitor cannot do any prohibited act within 7 working days unless authorised by NCA.
3. After 7 days, if NCA did not refuse permission, solicitor can act.


What is the offence of tipping off, and what is the defence?

Tipping off a client or any third party that a suspicious activity report has been made or the client is suspected of money laundering.

Defence - tipping off client inadvertently in connection with legal proceedings or the giving of legal advice, i.e.
1. Does not know or suspect that the advice he gives the client is likely to be prejudicial
2. Does not intend to further a criminal purpose


What kind of legal work/entities is likely to fall within the MLR (3 kinds)? What kind is exempt?

Any activities involving acquisition or sale of assets, managing client monies or assets, creating or managing trusts or companies.
Entities - any independent legal professional or trust or Coy service provider engaging in the relevant activity.
Litigation work is exempt.


4 points at which MLR can be engaged?

1. Establishing a new business relationship
2. Carrying out an occasional transaction (e.g. old client suddenly asks for a one-off transaction)
3. Suspecting money laundering or terrorist financing
4. Doubts about the veracity of the identification provided by the client


What are the 4 requirements of standard CDD?

1. IDENTIFICATION - identifying client, verifying identity on the basis of ID documents from independent source and if necessary getting info on purpose and intended nature of transaction
2. OWNERSHIP - identifying ultimate owner of client and ultimate beneficiary of legal services and verify their identity based on independent docs
3. AUTHORITY - Verifying authorisation by anyone purporting to act on client's behalf
4. MONITORING - ensuring that ID docs remain up to date


When can simplified CDD be used?

1. Conducted risk assessment
2. Concluded low risk of ML or TF - e.g. client is a public Coy or a FI subject to the Money Laundering Directive
3. Continue to monitor r/s for any events which might trigger standard CDD measures


4 risk factors justifying CDD?

1. Higher risk of ML or TF
2. Client not physically present or provides false docs or info
3. Transaction unusually large or complex with no apparent legal or economic purpose
4. Client is a PEP


What does enhanced CDD entail?

Obtain further ID docs, checking the veracity of docs and in riskiest cases, establishing sources of funds and true purpose of transaction


3 requirements for CDD to be carried out only after work has begun?

1. Slight delay necessary to avoid interruption to normal course of business
2. Low risk of ML or TF
3. Verification carried out as soon as practicable after first contact with client


What if you cannot complete CDD because client doesn't give you enough info or docs?

Must cease to act for the client.


What is the prohibition under S. 19(1) of the FSMA (3 elements)?

(i) any persons who are neither authorised nor exempt from
(ii) carrying on a regulated activity, i.e., a specified activity which relates to a specified investment
(iii) in respect of which there is no exclusion.


What are the four "specified investments" for purposes of the FSMA and Part III of the RAO?

1. Any rights under a contract of insurance
3. Instruments creating or acknowledging indebtedness
4. Regulated mortgage contracts (mostly homeowner mortgages) - (i) lender provides credit to an individual or trustee borrower; (ii) in relation to a first legal mortgage over land; (iii) where at least 40% of that land is used or intended to be used as a dwelling.


What are the six "specified activities" for purposes of the FSMA and Part II of the RAO?

In relation to a specified investment -
1. Dealing as principal (e.g., as solicitor-trustee)
2. Dealing as agent (e.g. solicitor under POA)
3. Arranging deals
4. Managing (i.e. involves exercise of discretion)
5. Safeguarding AND administering
6. Giving specific advice on particular investments


What are the three excluded activities under Part II of the RAO? Important caveat?

1. Acting as a (bare) trustee, nominee or personal representative - N/A if solicitor receives extra remuneration for the specified activity
2. Regulated activity is a necessary (i.e., would not otherwise be able to discharge everyday duties) and minor/collateral part of the professional service offered
3. Regulated activity undertaken in connection with the sale of a body corporate (i.e. must be a controlling stake - merely acquiring shares is not excluded)

1 and 2 do NOT apply for INSURANCE MEDIATION (any work to do with insurance)


4 exclusions for dealing as principal?

1. Absence of holding out
2. Investment is contractually based
3. Dealing as a trustee or personal representative
4. Sale of a body corporate


3 exclusions for dealing as agent?

1. With/through authorised persons
2. Necessary in the course of a profession
3. Sale of a body corporate


5 exclusions for arranging?

1. With/through authorised persons
2. Introducing client to an independent authorised person
3. Trustees and personal representatives
4. Necessary in the course of a profession
5. Sale of a body corporate


Exclusion for managing?

Acting as a trustee or personal representative


Exclusion for advising?

Advising in connection with sale of a body corporate


4-stage test under S.327 for whether the person carrying on the regulated, non-excluded activity is exempt?

1. Person is a member of a profession regulated by a PROFESSIONAL BODY
2. Person does not receive any benefit from a 3P which he does not ACCOUNT to his client for
3. The specified activity must be a MINOR AND INCIDENTAL part of the professional services
4. The person must COMPLY with the rules of the professional body - Rule 4 of Scope Rules states, (i) activity arises out of or complements particular professional services; (ii) activity is incidental to provision of those services; and (iii) firm accounts to client for any 3P benefit


If the solicitor concludes that the regulated activity is neither excluded nor exempt, what should he do?

1. Get authorised by PRA or FCA and comply with the relevant handbook; or
2. Refuse to carry out the activity to avoid a breach of 19(1)


What is the prohibition under S.21 of the FSMA (4 elements)?

Firms must not (i) make financial promotions, i.e. communications which invite or induce others to engage in controlled investment activities (ii) in the course of business (iii) which are not exempt (iv) unless they, or the content of their communications are authorised


5-step inquiry for a "Financial Promotion" under S.21?

1. Is the communication made in the course of business?
2. Is the communication either (i) made by someone in the UK or (ii) made by someone outside the UK but capable of having an effect in the UK
3. Is the communication (i) real time; or (ii) solicited?
4. Does the communication relate to a controlled investment (same meaning as specified activity for S.19 but including options and futures)?
5. Does it directly or indirectly invite someone to engage in investment activity (i..e effecting, dealing, arranging, managing) in relation to a controlled investment?


What kinds of financial promotions are exempt?

Generally - (i) non-real time communications; (ii) solicited real time communications; and (iii) communications made by an exempt person.


How to authorised communication if the person delivering communication is not himself an authorised person?

Get a person authorised by the PRA or the FCA to draft or approve the content of the communication.