Professional Conduct: Money Laundering

Question 2

What are three warning signs that money laundering might be taking place?

Answer 2

Instructions outside the firm’s expertise; use of client accounts for unexplained deposits and withdrawals; large cash payments from clients

Question 3

Name three suspicious fact patterns indicating potential money laundering.

Answer 3

Seller and buyer with same address or similar names; funds arriving from a third party not the client; large overpayments with requests to forward the excess

Question 4

What is the role of FATF in money laundering prevention?

Answer 4

The Financial Action Task Force identifies high-risk jurisdictions and publishes lists of countries with heightened money laundering risk

Question 5

As of January 2020, name two high-risk jurisdictions under FATF or EU lists.

Answer 5

Iran and Democratic People’s Republic of Korea

Question 6

What is a direct involvement offence under the Proceeds of Crime Act (PoCA) 2002?

Answer 6

An offence in which someone conceals, disguises, converts, transfers, or removes criminal property (s 327), arranges to facilitate the acquisition/retention/use of criminal property (s 328), or acquires/uses/possesses criminal property (s 329)

Question 7

Under s 327 PoCA, what conduct is prohibited?

Answer 7

Concealing, disguising, converting, transferring criminal property, or removing criminal property from the UK

Question 8

What does s 328 PoCA prohibit?

Answer 8

Entering into or being concerned in an arrangement that facilitates acquisition, retention, use, or control of criminal property

Question 9

What does s 329 PoCA prohibit?

Answer 9

Acquiring, using, or possessing criminal property

Question 10

What defence is available to someone accused of a direct involvement offence under PoCA?

Answer 10

Making an authorised disclosure to a nominated officer (MLRO) under s 338 before, during, or after the prohibited act

Question 11

When does s 338(2) PoCA allow a defence?

Answer 11

When the disclosure is made before committing the prohibited act and appropriate consent is obtained

Question 12

When does s 338(2A) PoCA allow a defence?

Answer 12

When disclosure is made during the act if the person began without knowledge/suspicion and discloses on their own initiative as soon as practicable

Question 13

When does s 338(3) PoCA allow a defence?

Answer 13

When disclosure is made after the act with a good reason for delay, on the person’s own initiative as soon as practicable

Question 14

What is the non-direct involvement offence under PoCA for regulated sector workers?

Answer 14

Failing to disclose knowledge or suspicion of money laundering to the firm’s MLRO or to the NCA (s 330)

Question 15

What must a disclosure under s 330 PoCA contain?

Answer 15

Identity of the suspect, whereabouts of laundered property (if known), and the information on which suspicion is based

Question 16

What is tipping off under PoCA?

Answer 16

An offence under s 333A to inform a client or third party that a money laundering report or investigation has been or will be made, if likely to prejudice investigations

Question 17

How long must a person wait after disclosure to the NCA before proceeding with a transaction?

Answer 17

Seven working days after SAR submission or until consent is refused and any subsequent 31-day moratorium expires

Question 18

Define ‘regulated sector’ in PoCA Schedule 9 for solicitors.

Answer 18

Participating in financial and real property transactions, managing client money, securities or other assets, opening/managing accounts, organizing company contributions, creating/operating trusts or similar structures

Question 19

When must customer due diligence (CDD) be conducted under the Money Laundering Regulations (MLR) 2017?

Answer 19

When establishing a business relationship, carrying out an occasional transaction, suspecting money laundering/terrorist financing, or doubting the veracity of previously obtained client information (Reg 27)

Question 20

Who is an ‘independent legal professional’ under MLR 2017?

Answer 20

A firm or sole practitioner providing legal/notarial services when participating in transactions involving real property, client money, bank accounts, company formation, or trust creation/management (Reg 12)

Question 21

Who is a ‘trust or company service provider’ under MLR 2017?

Answer 21

A firm or sole practitioner forming companies; acting/arranging for someone to act as company director/partner/trustee; providing registered office or administrative addresses; acting as nominee shareholder (Reg 12)

Question 22

What is a ‘business relationship’ under the MLR?

Answer 22

An ongoing relationship expected at the time of first contact, indicating future transactions (Reg 4)

Question 23

When does an ‘occasional transaction’ trigger CDD under MLR?

Answer 23

When not part of a business relationship and exceeds €1,000 in a single operation or linked operations (Reg 3, 27(1)(b))

Question 24

What are the four standard CDD measures under MLR Regulation 28?

Answer 24

Identify and verify the client; identify beneficial owner and verify identity; understand ownership and control structure; conduct ongoing monitoring of the business relationship

Question 25

What information must be obtained for a corporate client under Regulation 28(3) MLR?

Answer 25

Company name, registration number, address of registered office and principal place of business, law governing the company, constitution, names of directors/senior management

Question 26

How is 'beneficial owner' defined under Regulation 5 MLR?

Answer 26

An individual owning/controlling >25% of shares or voting rights, or otherwise exercising control over management of a corporate client, trust, or arrangement

Question 27

When must enhanced CDD be applied under MLR Regulation 33?

Answer 27

In high-risk scenarios: high-risk jurisdictions, high-risk transactions, PEPs or their associates, false/stolen IDs, complex/unusual/large transactions lacking economic purpose, or any other higher-risk cases

Question 28

Name two enhanced CDD measures required by Regulation 33 MLR.

Answer 28

Obtaining additional information on client and beneficial owner; increasing monitoring frequency and scrutinizing transactions for consistency with client’s profile

Question 29

When may a firm use simplified CDD under Regulation 37 MLR?

Answer 29

When an internal risk assessment shows low risk of money laundering/terrorist financing, considering risk factors in Regulation 37(3)

Question 30

What risk factors allow simplified CDD under Regulation 37 MLR?

Answer 30

Client risk factors (e.g., residents in low-risk jurisdictions, listed companies); product/service/transaction risk factors (e.g., low-premium life insurance, regulated pension schemes)

Question 31

What constitutes ongoing monitoring under Regulation 28(11) MLR?

Answer 31

Scrutiny of transactions throughout relationship to ensure consistency with firm’s knowledge of client and business, and updating client information as needed

Question 32

When can identity verification be deferred under Regulation 30(3) MLR?

Answer 32

During establishment of a business relationship if interrupting business is impractical and there is little ML/TF risk

Question 33

Under Regulation 39 MLR, when may a firm rely on another person’s CDD?

Answer 33

If a written agreement exists to obtain relevant CDD data/documents on request within two working days and the third party is a regulated entity permitted by Regulation 37

Question 34

What categories of persons can firms rely on for third-party CDD under MLR?

Answer 34

Credit/financial institutions, auditors, insolvency practitioners, external accountants/tax advisers, independent legal professionals

Question 35

What is one requirement for ongoing monitoring under Regulation 33(5)(d) MLR when enhanced CDD is applied?

Answer 35

Increase frequency and depth of monitoring to detect whether transactions appear suspicious

Question 36

Name two examples of evidence to verify identity of a UK natural person under AMLG.

Answer 36

Current signed passport; current photocard driving licence

Question 37

What additional checks are recommended for UK natural persons beyond government ID under AMLG?

Answer 37

Electronic verification via reputable data service providers using electoral roll, Companies House, credit reference, Passport Office, or DVLA databases

Question 38

What evidence can satisfy CDD for a UK partnership under AMLG?

Answer 38

Partnership name, registered/trading address, and name of business; identify individuals running the partnership as if they were private persons

Question 39

What evidence can satisfy CDD for a UK private or unlisted company under AMLG?

Answer 39

Certificate of incorporation; filed audited accounts; director details from Companies House; verification of constitution, ownership, and management

Question 40

What evidence can satisfy CDD for a UK listed public company under AMLG?

Answer 40

Dated screenshot of stock exchange website showing listing; reputable newspaper clipping of listing; registry search confirming listing status

Question 41

What is the minimal CDD required for a UK listed public company under MLR?

Answer 41

Simplified CDD: verify company existence via exchange listing or registry search, and identify beneficial ownership if necessary

Question 42

What must a firm’s MLRO do upon receiving a disclosure under PoCA?

Answer 42

Decide whether to submit a SAR to the NCA and, if submitted, impose a moratorium preventing prohibited acts until consent or refusal and any subsequent waiting period have passed

Question 43

What should a solicitor do when suspicious funds are received in the client account?

Answer 43

Follow the golden rule: report concerns immediately to the MLRO and make an authorised disclosure rather than proceeding with transactions

Question 44

What penalty can be imposed for offences under PoCA for direct involvement?

Answer 44

On summary conviction: up to six months’ imprisonment or statutory maximum fine; on indictment: up to 14 years’ imprisonment, a fine, or both

Question 45

What penalty can be imposed for non-direct involvement offences (failure to disclose or tipping off) under PoCA?

Answer 45

On summary conviction: up to six months’ imprisonment or statutory maximum fine; on indictment: up to five years’ imprisonment, a fine, or both

Question 46

What key concept distinguishes 'enhanced' from 'simplified' CDD under MLR?

Answer 46

Enhanced CDD is applied in higher-risk scenarios requiring additional verification and monitoring; simplified CDD is allowed when risk is assessed as low, allowing reduced procedures

Question 47

What documents must be retained by a third party when a firm relies on its CDD under Regulation 39 MLR?

Answer 47

Copies of identification and verification data and any other relevant customer documents for a specified period, as required by the written agreement

Question 48

What are two purposes of ongoing monitoring under MLR beyond initial CDD?

Answer 48

Detect unusual or suspicious transactions and keep client documentation and information up to date

Question 49

What does MLR require firms to understand about a corporate client’s ownership structure?

Answer 49

Identify and verify beneficial owners holding >25% share/voting rights, and understand how control flows through legal entities or arrangements