PC Flashcards
Which ONE of the following statements is CORRECT?
Every lawyer, whether they work in a law firm or in-house, is at risk of exposure to money laundering.
The money laundering regulations apply to law firms but not to in-house lawyers or other industries.
The money laundering regulations apply to corporate solicitors in law firms but not to other areas of practice or to in-house lawyers or other industries.
Every lawyer, whether they work in a law firm or in-house, is at risk of exposure to money laundering.
Correct. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR 2017’) apply to a wide range of people and businesses, not just law firms.
Which ONE of the following statements is CORRECT?
There is a risk of a firm being involved in money laundering only when it receives proceeds of crimes in excess of £10,000 into its bank account.
There is a risk of a firm being involved in money laundering only when it receives proceeds of crimes in excess of £100,000 into its bank account.
Money laundering can include receiving small proceeds of minor crimes into your employer’s bank account.
Money laundering can include receiving small proceeds of minor crimes into your employer’s bank account.
Correct
Correct. Receiving the proceeds of crime, however small into your bank account can constitute possessing criminal property and could be a criminal offence.
Which option correctly identifies the key pieces of legislation relating to money laundering in the UK?
The Proceeds of Crimes Act 2002 (‘PoCA’) and the Money Laundering Regulations 2007 (‘MLR’)
The Proceeds of Crime Act 2002 (‘PoCA’), and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)
The Financial Services and Markets Act 2000 (‘FSMA’) and the Money Laundering Regulations 2007 (‘MLR’)
The Proceeds of Crime Act 2002 (‘PoCA’), and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’)
Correct
Correct, these are the two key pieces of legislation relating to money laundering in the UK.
Identify whether the following scenario indicates a high or low risk of money laundering:
Your client, a British national, is purchasing a flat for his daughter. He deposits £500,000 in your firm’s client account for the purchase from a bank account in Bermuda. The next day he rings you to inform you that the purchase is not going ahead. He asks you to transfer the £500,000 to his wife’s bank account in the Cayman Islands
High risk, because the client’s deposit came from an offshore bank account in a tax haven, the transaction has been cancelled at short notice and the client is asking you to transfer the money to a different account, also offshore in a different tax haven
Low risk. Neither Bermuda nor the Cayman Islands are on the FATF list of countries with a high risk of money laundering.
High risk because Bermuda and the Cayman Islands are on the European Commission’s list of high risk jurisdictions.
High risk, because the client’s deposit came from an offshore bank account in a tax haven, the transaction has been cancelled at short notice and the client is asking you to transfer the money to a different account, also offshore in a different tax haven
Correct
Correct. There are a number of risk factors here which should alert you to the high risk of money laundering. The client has deposited a large sum of money in cash in your firm’s account. The money came from an offshore bank account in a tax haven. The transaction has been cancelled at short notice and the client is asking you to transfer the money to a different account, also offshore in a different tax haven.
Identify whether the following scenario indicates a high or low risk of money laundering:
Your client, a French national, living in the UK is setting up a trust for her grandchildren. She plans to invest £50,000 in the trust over the course of two years.
High risk because the client is investing a large sum of money in a trust which is a suspicious area of activity because it could be a vehicle for money laundering.
Low risk because France is not a high risk country and there appears to be a legitimate reason for the client to set up the trust.
High risk because although the client is a French national, she is setting up a trust in the UK
Low risk because France is not a high risk country and there appears to be a legitimate reason for the client to set up the trust.
Correct. A client setting up a trust, does have the potential to be a vehicle for money laundering and you will need to carry out customer due diligence on the client, as you will see later in this topic. However there is nothing to suggest a high risk of money laundering here, France is not a high risk country and there appears to be a legitimate reason for the client to set up the trust.
Identify whether the following scenario indicates a high or low risk of money laundering:
Your client, a South African national, has instructed you on a litigation claim and asked you to commence proceedings against her neighbour. The neighbour contacts you and wants to pay £100,000 into your firm’s client account to settle the matter.
Low risk because litigation is not a high risk activity from a money laundering perspective.
High risk because the dispute being settled early is an indicator that the litigation might be a sham. Also the other party is seeking to pay a large sum of money into your firm’s bank account.
High risk because South Africa is on the European Commission’s list of high risk jurisdictions.
High risk because the dispute being settled early is an indicator that the litigation might be a sham. Also the other party is seeking to pay a large sum of money into your firm’s bank account.
Correct. There are a number of risk factors here which should alert you to the high risk of money laundering. A dispute being settled early and easily should alert you to the risk of this being a sham litigation, and the other party seeking to pay a large sum of money into your firm’s account is another warning sign. South Africa is not on the list of high risk countries, but there are enough other factors here to indicate a high risk of money laundering.
Which ONE of the following options completes the following sentence CORRECTLY:
It is a defence to the offence of concealing, disguising, converting or transferring criminal property to:
“report your suspicion to a nominated officer”
“report your suspicion to the SRA”
“report your suspicion to your manager”
“report your suspicion to a nominated officer”
Correct
Correct. You have a defence to the offence of concealing, disguising, converting or transferring criminal property under s. 327 PoCA if you made an authorised disclosure. Under s. 338 the disclosure should be made to a constable, customs office or a nominated officer. In practice the most practical thing to do is therefore to report your suspicion to your employer’s nominated officer.
Which ONE of the following activities does NOT fall within the definition of ‘regulated sector’ in Schedule 9 of PoCA?
Advising a client on an employment dispute.
Advising a client on the purchase of a property.
Advising a client on setting up a trust for their grandchildren.
Advising a client on an employment dispute.
Correct. ‘Regulated sector’ as defined in Schedule 9 PoCA includes “participating in financial and real property transactions concerning:
the buying and selling of real property or business entities
the managing of client money, securities or other assets,
the opening or management of bank, savings or securities accounts;
the organisation of contributions necessary for the creation, operation and management of companies;
the creation, operation or management of trusts, companies or similar structures
Advising a client on the purchase of a property and on setting up a trust would fall within participating in financial and real property transactions. However advising on litigation matters (including an employment dispute) does not fall within the definition of regulated sector, as set out in Schedule 9.
You are an apprentice in the property department of a law firm and you are contacted by a new client (‘Client’) who has never instructed the firm before. The Client contacts you directly asking for details of the firm’s client account. He wants to send the sum of £6,000,000 from an account in Bermuda to the firm’s client account in readiness for a quick completion of his purchase of a property in London, on which he is just about to instruct the firm (the ‘Purchase’). He insists that he wants you to act personally on the Purchase.
You explain to the Client that you are not able to give the Client the firm’s client account details. The Client tells you he will call in at the office tomorrow and he wants you to give him the firm’s client account details then.
Which ONE of the following statements is CORRECT?
You should meet the Client and give him the account details. There are no grounds for suspicion here as it is not unusual for a property in London to cost £6,000,000
You should meet the Client and give him the client account details – so as not to arouse suspicion.
When the Client arrives at the office, you should not give him the client account details, but tell him that you have reported the matter to the MLRO (money laundering reporting officer) because you suspect money laundering.
You should immediately make a disclosure to the firm’s MLRO (money laundering reporting officer) under the Proceeds of Crime Act 2002 (‘PoCA’) that you suspect the money is criminal property. You must wait to receive appropriate consent from the MLRO before carrying out the Client’s instructions.
You should immediately make a disclosure to the firm’s MLRO (money laundering reporting officer) under the Proceeds of Crime Act 2002 (‘PoCA’) that you suspect the money is criminal property. You must wait to receive appropriate consent from the MLRO before carrying out the Client’s instructions.
Correct
Correct. There are a number of risk factors here which should alert you to the risk of the Client attempting to launder money, notably: the client is new to your firm and has sent a large amount of money (£6 million) in cash to your firm’s client account, the client wants the transaction to complete quickly and he wants you (an inexperienced apprentice) to act personally on the transaction.
If you carry out the Client’s instruction you are at risk of committing an offence under s. 327 (transferring criminal property), s. 328 (becoming concerned in an arrangement which facilitates the acquisition…use or control of criminal property) and/or s. 329 PoCA (acquires, uses or has possession of criminal property).
You will also commit an offence under s. 330 PoCA if you fail to disclose your suspicion to the firm’s nominated officer. You should not take further action until you receive appropriate consent from the MLRO, s. 327(2)(a), s. 328(2)(a) PoCA.
You should be careful that you do not commit the offence of tipping off the client under s. 333A PoCA.
Xavier Gaston is a French national. He has never instructed Price Prior before, where you are currently an apprentice in the corporate department. Xavier has sent the sum of £2,000,000 from an account in Jersey to Price Prior’s client account in readiness for a quick completion of his acquisition of all the shares in FWL (Retail) Ltd, which he is just about to instruct you on (the ‘Acquisition’). Xavier insists that he wants you to act personally on the deal.
If you proceed with Xavier’s instructions and complete the Acquisition WITHOUT making an authorised disclosure to Price Prior’s MLRO, which ONE of the following statements is CORRECT in relation to offences that you have committed under the Proceeds of Crime Act 2002 (‘PoCA’)?
You are likely to have committed an offence under section 333A PoCA.
You are likely to have committed an offence under sections 329 and 330 PoCA
You are likely to have committed a direct involvement offence under section 329 PoCA, but not a non-direct involvement offence because you are not working in the regulated sector.
You are not likely to have committed an offence under PoCA.
You are likely to have committed an offence under sections 329 and 330 PoCA
Correct
Correct. There are a number of risk factors here which should alert you to the risk of Xavier attempting to launder money, notably: the client is new to your firm and has sent a large amount of money (£2 million) in cash to your firm’s client account, the client wants the transaction to complete quickly and he wants you (an inexperienced apprentice) to act personally on the transaction.
If it is later discovered that the Acquisition was part of a money laundering operation, you will have had possession of criminal property (the proceeds of crime) so you are likely to have committed an offence under s. 329 PoCA 2002.
In addition, you will have committed an offence under s. 330 PoCA 2002 because there is sufficient grounds for you to suspect that Xavier is engaged in money laundering, for the reasons set out above. Under s. 330 PoCA 2002 it is an offence for someone practising in the regulated sector (which you are, as you are involved in buying a business entity) not to make a disclosure to your firm’s MLRO. You are practising in the regulated sector because you are buying a business entity which falls within the definition of “participating in financial and real property transactions concerning: the buying and selling of real property or business entities”.
You will not have committed an offence under s. 333A PoCA 2002 because you have not done anything to tip Xavier off to the fact that you suspect he may be attempting to launder money.
Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:
Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for the client.
Ongoing monitoring
Standard CDD
Enhanced CDD
Standard CDD
Correct
Correct. There is nothing on these facts to suggest that this client present a high risk of money laundering. The is not from a high risk country and is funding 50% of the purchase through a mortgage. As this is a one-off transaction, it will be an occasional transaction and you should obtain standard CDD on the client before you start working for her.
Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:
You have been instructed by a company Autolext Corporation (‘Autolext’) on the purchase of 60% of the shares in a data analytics company, Data Inc for £2 million. Data Inc is registered in the Cayman Islands. Autolext is registered in Bermuda and has a majority shareholder who is Iranian. Autolext has asked to you set up a wholly owned subsidiary, Autolext Data Limited which will be the vehicle that purchases the shares in the Data Inc. Autotext will pay cash for the shares.
Enhanced CDD
Ongoing monitoring
Standard CDD
Enhanced CDD
Correct
Correct. There are a number of factors that suggest that there is a high risk of money laundering in this scenario. The client is registered in Bermuda, an off-shore tax haven, and its majority shareholder is from a high risk country, Iran. The value of the transaction is high and is being funded in cash. The client is also asking you to establish a subsidiary for the sole purpose of purchasing the shares, which could indicate a transaction that is unusually complex with no apparent purpose. The target is also registered in an off-shore tax haven, the Cayman Islands. You would need to make further enquiries to satisfy yourself as to the source of the £2 million, the identity of the majority shareholder and that the transaction is genuine.
Identify whether the following scenario requires standard CDD, enhanced CDD or ongoing monitoring:
Plaza Properties Limited is a private limited company and an existing client of your firm and regularly instructs you on the acquisition and sale of properties in its portfolio. You have received a new instruction to act for it on the acquisition of the freehold of an office building near Maidenhead for £10 million. Part of the acquisition is funded by a loan.
Ongoing monitoring
Standard CDD
Enhanced CDD
Ongoing monitoring
Correct
Correct. This is an existing client whom the firm acts for on a regular basis. The firm will already have carried out CDD on the client. The firm will need to carry out ongoing monitoring, by checking that the transaction is consistent with the firm’s knowledge of the client and checking at regular intervals that the identification documents it holds for the client are up to date. There is nothing on these facts to suggest that this client present a high risk of money laundering.
BLP
You recently acted for a client in connection with the sale of his personal training business and that sale has now concluded.
The client tells you that following the sale, he now has £50,000 cash and he would like some advice about how to invest this money, specifically whether he should buy shares in XYZ Plc. He wants to know whether shares are generally a good investment at the moment and, in particular, whether or not he should buy the shares in XYZ.
Which one of the following statements is correct in relation to the above scenario?
You would be able to give the client generic advice on the rights attaching to shares because this advice does not fall within Article 53(1) RAO.
It is likely that Article 67 of the Financial Services and Markets Act (Regulated Activities) Order 2001 (‘RAO’) would apply to your advice.
You would be free to advise about the merits of the shares in XYZ Ltd because you could rely on the exclusion under Art 70 RAO.
The advice is likely to be complementary under Scope Rule 2.
The advice is not likely to be incidental under s 327 FSMA.
You would be able to give the client generic advice on the rights attaching to shares because this advice does not fall within Article 53(1) RAO.
Correct
BLP
Which one of the following would not be classified as financial services and therefore not be regulated under FSMA?
Advising on the acquisition of a business.
Dealing in investment products on behalf of clients.
Advising on investment products on behalf of clients.
Arranging investment products on behalf of clients.
Advising on the acquisition of a business.
BLP
You are a solicitor in the corporate department of Price Prior. Your client wishes to buy 50% of the shares in a company as an investment. Your client has instructed you to advise her on the acquisition (including on the merits).
Which one of the following statements is correct regarding authorisation under FSMA?
You will not need to be authorised by the FCA to act for the client because your advice will be excluded from FSMA under Article 70 RAO.
You will not need to be authorised by the FCA to act for the client because acting for a client who is acquiring shares in a company is not a specified activity under Article 53(1) RAO.
FSMA does apply and you will need to be authorised by the FCA to act for the client on the acquisition.
Shares are not a specified investment, therefore FSMA does not apply.
There is a specific exclusion relating to advising on the merits that will allow you to act.
You will not need to be authorised by the FCA to act for the client because your advice will be excluded from FSMA under Article 70 RAO.
Which one of the following best describes who the SRA Accounts Rules apply to?
All law firms (including sole practices) worldwide, including all who manage or work within them.
Authorised bodies only.
Managers and employees of a law firm’s accounts department only.
All firms (including sole practices) the SRA regulates, including all who manage or work within them.
All firms (including sole practices) the SRA regulates, including all who manage or work within them.
Correct. The SRA make this clear in their introduction to the SRA Accounts rules and in Rule 1.
Which topic do the majority of the SRA Accounts Rules relate to?
Dealings with other money (not client money) belonging to clients or third parties.
Client money and client accounts.
Application of the SRA Accounts Rules
Accountants’ reports and storage and retention of accounting records.
Client money and client accounts.
Correct. Rules 2-8 (of 13) are on this topic and are the largest section of the SRA Accounts Rules.
Who is responsible for compliance with the SRA Accounts Rules?
All managers and employees of an authorised body are jointly and severally responsible.
The managers of an authorised body are severally responsible.
The managers of an authorised body are jointly and severally responsible.
Only the authorised body’s compliance manager is responsible.
The managers of an authorised body are jointly and severally responsible.
Correct. Rule 1.2 states that: ‘The authorised body’s managers are jointly and severally responsible for compliance by the authorised body, its managers and employees with these rules.
A client is selling a property. You receive the deposit money for the property from the buyer’s solicitor before exchange and hold it to their order, as requested.
Which one of the following best explains whether the money is client money or not?
The money is not client money because you do not provide regulated services to the sender of the money (the buyer’s solicitor).
The money is not client money because it does not belong to a client of yours.
The money is client money because it is held by you on behalf of a third party in relation to regulated services delivered by you.
The money is client money because it is held by you on behalf of a third party in relation to regulated services delivered by you.
Correct. This situation falls within Rule 2.1(b).
Your client is buying a property and prior to completion of the purchase sends you a cheque in respect of the stamp duty land tax which will be paid on the purchase after completion.
Which one of the following best explains what kind of money this cheque represents and why?
It is non-client money as a bill has not yet been delivered to the client for the stamp duty land tax.
It is client money because it has been received in respect of an unpaid cost or expense.
It is non-client money as the stamp duty land tax is a paid disbursement.
It is client money because it has been received in respect of an unpaid cost or expense.
Correct. It is client money under Rule 2.1(d).
Which one of the following is correct in respect of non-client money?
If you receive money generally on account of costs in a transaction from a client, it will be non-client money as it is not for a specific cost.
If you receive money from a client in respect of a paid disbursement, it is non-client money.
If you receive money from a client in respect of an unpaid disbursement, it is non-client money.
If you receive money from a client in respect of a paid disbursement, it is non-client money.
Correct. It will fall outside Rule 2.1(d) and the definition set out there of client money and so it will be non-client money.
Which one of the following is NOT a requirement under Rule 8 of the SRA Accounts Rules?
To, at least every five weeks, for all client accounts, reconcile the bank statement with the cash book balance and the client ledger total.
To keep accurate, contemporaneous and chronological records in respect of client ledgers (including the business side of the client ledger account) and a cash book for client accounts.
To keep a record of all bills or other notifications of costs given by you.
To obtain, at least every week, bank statements for all client accounts and business accounts which you hold or operate.
To obtain, at least every week, bank statements for all client accounts and business accounts which you hold or operate.
Correct. Whilst this looks like the requirement under Rule 8.2, the correct frequency in Rule 8.2 is at least every five weeks not at least every week. The time period (at least every five weeks) matches that of the reconciliation required in Rule 8.3.
Which of the following correctly sets out the accounts where a receipt of client money from Dr Jones (a client) on account of costs for her property purchase would be recorded by the authorised body?
Business side of the client ledger for Dr Jones’ property purchase and the client cash book.
Client side of the client ledger for Dr Jones’ property purchase and the client cash book.
Business side of the client ledger for Dr Jones’ company incorporation and the client cash book.
Client side of the client ledger for Dr Jones’ property purchase and the business account cash book.
Client side of the client ledger for Dr Jones’ property purchase and the client cash book.
Correct. See Rules 8.1(a)(i) and 8.1(c) as well as Rule 8.1(a) and SRA guidance ‘Helping you keep accurate accounting records’.