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IMC IE Chapter 5 > 5.3 - Money Laundering & Bribery > Flashcards

5.3 - Money Laundering & Bribery Flashcards

1
Q

What is money laundering?

A

The process by which criminals disguise the source of their criminal proceeds.

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2
Q

What is the legislation on Money Laundering called?

A

Proceeds of Crime Act (POCA) 2002, as amended by the Serious Organised Crime and Police Act (SOCPA) 2005.

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3
Q

What does the Proceeds of Crime Act (POCA) 2002 relate to?

A

It relates to cash generated from any illegal activity – be it drugs, fraud, forgery or tax evasion.

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4
Q

What is ‘criminal property’?

A

Property that has arisen from ‘criminal activity’.

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5
Q

Criminal activity is any conduct which:

A
  • Is an offence in the UK
  • Would constitute an offence if it had taken place in the UK. However, there is now a defence introduced by Serious Organised Crime and Police Act (SOCPA) where the relevant criminal conduct occurred outside the UK in a country where it was not at the time unlawful.
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6
Q

Who determines the scope of ‘relevant criminal conduct’ in relation to money laundering?

A

The Secretary of State.

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7
Q

List the 3 stages of money laundering in order.

A
  1. Placement
  2. Layering
  3. Integration
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8
Q

Explain the placement stage of money laundering.

A

Placement involves the physical disposal of the illegal cash proceeds as a result of a criminal activity. For instance, an investor with illicit proceeds deposits £100,000 into a bank account.

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9
Q

Explain the layering stage of money laundering.

A

Layering is the activity that separates the cash proceeds from their illegal source. For example, the criminal now draws a cheque to buy a range of investments (possibly through an authorised firm).

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10
Q

Explain the integration stage of money laundering.

A

The third and final stage is integration. This stage is an attempt to lose the audit trail even further by re- investing cash proceeds from a seemingly legitimate source back into the financial system. For example, the investments purchased in the layering stage are now sold and the proceeds are reinvested into a business and/or property and real estate.

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11
Q

What must firms maintain incase something suspicious arises?

A

Firms must maintain a sufficient audit trail of records and documents so that it can be used by the authorities should a suspicious chain of events come to light.

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12
Q

Who must each firm appoint to fight money laundering?

A

Each firm, no matter how small, must appoint a Money Laundering Reporting Officer (MLRO) to whom suspicions should be reported.

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13
Q

What is the relevant authority the MLRO will speak to if necessary?

A

National Crime Agency (NCA), formerly known as SOCA.

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14
Q

What are the conditions required to be a MLRO?

A
  1. A senior member of the firm (A MLRO is a required controlled function with approved person status)
  2. Expected to be based in the UK
  3. Be sufficiently independent
  4. Have sufficient resources at his/her disposal
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15
Q

List the two major differences between the use of criminal and terrorist funds.

A

1) Terrorism can be funded from legitimate funds. It is therefore difficult to identify precisely when the funds become terrorist assets.
2) Only a small amount may be required to commit an act of terrorism, so tracking funds can be difficult. Specific obligations to combat terrorist financing are set out in the Terrorism Act 2000.

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16
Q

Who is the Money Laundering Regulations (MLR) issued and approved by?

A

The Money Laundering Regulations (MLR) is issued by the Treasury and approved by Parliament.

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17
Q

What does the Money Laundering Regulations (MLR) contain?

A

It lists detailed procedures on what a firm should do to protect itself against money laundering. They are based on and implement the EU’s Money Laundering Directive (MLD).

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18
Q

Does money laundering always have to take place for something to count as a breach of the regulation?

A

A breach of the Regulations can be committed whether or not any money laundering actually takes place.

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19
Q

What is the maximum penalty for breaching the money laundering regulation?

A

A two-year jail sentence and an unlimited fine.

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20
Q

List the 5 categories of financial institutions which the money laundering regulations apply to.

A

1) Banks, building societies and other credit institutions
2) Individuals and firms engaging in investment business within the meaning of the FSMA 2000
3) Insurance companies covered by the EU Life Directives, including the life business of Lloyd’s of London
4) Bureau de change, cheque encashment centres and money transmission services
5) Other relevant businesses including lawyers, casinos, estate agents and dealers in high value goods

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21
Q

What is meant by a risk-based approach to identifying clients and performing customer due diligence?

A

Where there is greater risk of money laundering, there needs to be enhanced due diligence. Where there is less risk of money laundering, simplified due diligence can be used.

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22
Q

What is meant by the term ‘simplified due diligence’?

A

Identification procedures can be simplified in certain circumstances.

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23
Q

What is meant by the term ‘enhanced due diligence’?

A

A firm should carry out identification checks, even on those persons where it is not usually required to do so, if:

  • Business is conducted on a non-face to face basis
  • A situation presents a higher risk of money laundering or terrorist financing
  • The customer is a politically exposed person (PEP)
  • The transaction involves a high-risk jurisdiction on the Money Laundering Regulations ‘black list’.
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24
Q

Does enhanced due diligence only apply to a politically exposed person (PEP)?

A

No! The enhanced due diligence applies to PEPs, their families and associates.

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25
Q

What are the 3 things the Money Laundering Regulations (MLR) state a firm must have in place?

A

1) A requirement that all PEP relationships must be approved by senior management
2) Adequate measures to establish source of funds and source of wealth
3) Enhanced ongoing monitoring procedures

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26
Q

Which objective is given to the FCA as part of FSMA 2000?

A

FSMA 2000 sets the FCA the objective of protecting the integrity of the markets, of which combatting money laundering is a part.

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27
Q

Which FCA booklet The FCA sets out general provisions for money laundering procedures?

A

Senior Management Arrangements, Systems and Controls (SYSC)

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28
Q

What has the FCA created to supplement the general provisions for money laundering procedures in Senior Management Arrangements, Systems and Controls (SYSC)?

A

To supplement this, the FCA have also produced a regulatory guide called “Financial Crime: A guide to firms” and also emphasises the guidance available from the Joint Money Laundering Steering Group. These guidance notes are considered when the FCA is assessing whether a firm has met the appropriate requirements in the systems and controls of the firm for mitigating money laundering and the terrorist financing risk.

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29
Q

What does the Joint Money Laundering Steering Group (JMLSG) do?

A

The Joint Money Laundering Steering Group (JMLSG) produces Guidance Notes for financial institutions on fulfilling their duties in relation to money laundering and money laundering for terrorist activities. In particular, the Joint Money Laundering Steering Group (JMLSG) set out the standards expected in relation to senior management’s responsibility to control risks that could lead to the firm furthering financial crime. To do this the firm should adopt a risk- based approach.

30
Q

Who is The Joint Money Laundering Steering Group (JMLSG) made up of?

A

Leading trade associations in the financial services sector (such as the British Bankers’ Association).

31
Q

List the 4 elements of a risk-based approach.

A

1) Senior management roles should include an MLRO and a senior manager responsible for the direction and oversight of anti-money laundering (AML) and combating the financing of terrorism (CFT).
2) Adequate documentation should be produced, including the policy and procedures of the firm to implement anti-money laundering (AML) and combating the financing of terrorism (CFT).
3) This documentation must include a named employee responsible for its implementation and an assessment of the firm’s risks. These documents must be specific to the firm’s business and customer risks – a generic document is not adequate.
4) As part of the risk-based approach, the Joint Money Laundering Steering Group (JMLSG) also identifies low risk clients. These are clients with a regular income, clients who have had a long-term active relationship with the firm and clients who have court approval; for example, the executors of a will.

32
Q

Is it mandatory for firms to apply the Joint Money Laundering Steering Group’s (JMLSG) Guidance Notes?

A

No! Application of the Guidance Notes is not mandatory, and failing to comply with them does not mean that a breach of the Regulations or the FCA rules has occurred. However, they do provide a good indication of the behaviour expected of financial sector firms and are a safe harbour in respect of the Regulations.

33
Q

What do the Proceeds of Crime Act (POCA) 2002 and the Terrorism Act 2000 require courts to take account of?

A

Proceeds of Crime Act (POCA) 2002 and the Terrorism Act 2000 also require the courts to take account of Guidance that has been approved by HM Treasury when considering whether a person within the financial sector has committed an offence of not reporting.

34
Q

Which government body approved The Joint Money Laundering Steering (JMLSG) Guidance Notes?

A

Treasury.

35
Q

What does the money laundering regulation require firms to do?

A

Set up appropriate internal controls and institute a programme of staff training.

36
Q

A MRLO must be ___________ to act as an internal and external point of contact for matters arising in relation to money laundering. What is the missing word?

A

Appointed.

37
Q

What happens once a member of staff has reported his or her suspicions to the firm’s MLRO?

A

He or she has discharged his or her statutory duty and cannot face any criminal liability in respect of the reported transaction.

38
Q

Staff must be trained to recognise suspicious transactions. What counts as a suspicious transaction?

A

Transactions which are unusual in size or in timing for the investor, the security or the market.

39
Q

What should firms do to facilitate staff training?

A

Firms should set out detailed training schedules on anti-money laundering (AML) awareness for employees.

40
Q

What are firms required to do as part of customer due diligence (CDD)?

A

Firms are obliged to verify the identity of new clients as part of customer due diligence (CDD).

41
Q

Business must not proceed unless…

A

Unless satisfactory evidence of identity is obtained in a timely manner, the business must not proceed (unless a report has been made to National Crime Agency).

42
Q

List 3 instances where firms are required to carry out identification procedures on new customers.

A
  1. Where a new business relationship is to be established
  2. Where the value of the transaction exceeds €7,500
  3. Where there are suspicions
43
Q

What 5 things must a firm do when they are suspicious of a client’s identity?

A
  1. Identify the customer and verify the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source.
  2. Identify the beneficial owner and take adequate measures on a risk-sensitive basis to verify their identity, so that the firm is satisfied that it knows who the beneficial owner is.
  3. Obtain information on the purpose and intended nature of the business relationship.
  4. Keep the documents, etc. obtained for the purpose of applying customer due diligence (CDD) up to date.
  5. Conduct ongoing monitoring of the business relationship.
44
Q

Under the money laundering regulations how soon should employees report suspicious transactions and who should they report to?

A

Transactions as soon as possible to the MLRO, who will in turn refer the matter to the National Crime Agency.

45
Q

What further obligation does an employee have once they have reported their suspicion?

A

None! Once an employee has reported his or her suspicion he or she has no further reporting obligation.

46
Q

List 8 examples of when a firm may be suspicious of the motives of a new/existing client.

A
  1. A reluctance of a new client to provide identification documents
  2. The unnecessary use of a third party to act as an intermediary
  3. Continual patterns of unusual trading
  4. A request for non-market price transactions
  5. The constant use and transfer of bearer securities
  6. An introduction from a suspicious party or jurisdiction
  7. Where the client has no obvious reason to use the firm’s services
  8. Unusual and/or frequent payment to third parties
47
Q

How long and from when must a firm keep evidence of identity records and transaction records?

A
  • Evidence of identity: Maintained for five years from the end of the firm’s relationship with the client
  • Transaction records: Maintained for five years from the date when the transaction was completed
48
Q

Which firm records in relation to the money laundering legislation should be kept for 5 years?

A

Records of the following should also be kept for five years:

  • The dates when anti-money laundering training was given, the nature of the training and the names of the staff who received training
  • Reports made by the MLRO to National Crime Agency, consideration of those reports and any action taken as a consequence.
49
Q

What does the Proceeds of Crime Act (POCA) 2002, as amended by the Serious Organised Crime and Police Act (SOCPA) 2005, define?

A

Money laundering offences and defences.

50
Q

What is an offence under the Proceeds of Crime Act (2002)?

A

It is an offence for any person to acquire or possess criminal property, or to assist another person engaging in or benefiting from criminal conduct.

51
Q

What does the term ‘criminal conduct’ include?

A

The term ‘criminal conduct’ includes any conduct (wherever it takes place) that would constitute a criminal offence if committed in the UK. This not only includes serious criminal conduct, e.g. drug trafficking offences, terrorist activity, corruption, tax evasion, burglary and theft, fraud, forgery, counterfeiting, product piracy, illegal deposit taking, blackmail and extortion, but also any other offence regardless of size.

52
Q

What does the term ‘criminal conduct’ include?

A

The term ‘criminal conduct’ includes any conduct (wherever it takes place) that would constitute a criminal offence if committed in the UK. This not only includes serious criminal conduct, e.g. drug trafficking offences, terrorist activity, corruption, tax evasion, burglary and theft, fraud, forgery, counterfeiting, product piracy, illegal deposit taking, blackmail and extortion, but also any other offence regardless of size.

53
Q

When is there a defence against criminal conduct?

A

When knowledge or suspicion of the offence is reported to the National Crime Agency (NCA) before the prohibited act is carried out, or as soon afterwards as reasonably practicable.

54
Q

What is a criminal offence for any person within the regulated financial sector (i.e. anyone who falls within the scope of the Money Laundering Regulations)?

A

It is a criminal offence for any person within the regulated financial sector (i.e. anyone who falls within the scope of the Money Laundering Regulations) not to report his or her knowledge or suspicion that money laundering is taking place.

55
Q

The Proceeds of Crime Act (POCA) 2002, as amended by the Serious Organised Crime and Police Act (SOCPA) 2005 introduces which new requirement?

A

The Act introduces a new requirement to report as soon as reasonably practicable where there are ‘reasonable grounds’ to know or suspect that money laundering is taking place. This places an objective test of suspicion on the regulated financial sector. If a report of a suspicion is not reported as soon as reasonably practicable, a criminal offence is committed.

56
Q

Define the conditions around the additional offence of not reporting which has also been introduced for Money Laundering Reporting Officers (MLROs).

A

The offence applies where an MLRO who has received an internal report does not make a report to the National Crime Agency (NCA) as soon as is practicable after the internal report was received.

57
Q

What is a criminal offence in regards to suspicious behaviour?

A

It is a criminal offence to fail to be suspicious of behaviour that would ordinarily give rise to such suspicion.

58
Q

List 2 instances in which Members of staff within the regulated financial sector are provided with a defence against criminal conduct in relation to money laundering?

A
  1. If their employer has not provided them with the training required under the Regulations to recognise and report suspicions.
  2. If they have a reasonable excuse for not reporting their suspicion.
59
Q

What determines whether an excuse not to report a suspicion is reasonable?

A

Whether an excuse not to report a suspicion is reasonable will depend on the circumstances of the particular case. However, the burden of proof is that the person must demonstrate that he or she did have a reasonable excuse for not reporting their suspicion.

60
Q

Is it a breach of confidentiality to the client if an individual reports his or her suspicions regarding money laundering?

A

No! If an individual reports his or her suspicions regarding money laundering, he or she will not be in breach of any duty of confidentiality owed to a client.

61
Q

When does a person commit an offence in regards to “tipping off”?

A

A person commits an offence if he or she makes a disclosure which is likely to prejudice any investigation which might be conducted.
This includes disclosure to any third party no matter how small the crime may be.

62
Q

What is a defence against a charge of “tipping off”?

A

It is a defence against this charge that a person can prove that they neither knew nor suspected that the disclosure would prejudice an investigation. Note that the burden of proof lies with the individual charged with the offence of tipping-off.

63
Q

List the 5 maximum prison terms which can be accompanied by an unlimited fine under POCA 2002.

A

1) Concealing, acquiring, possessing and assisting: 14 years
2) Failure to report: 5 years
3) Tipping off: 2 years
4) False or misleading statements (deemed deliberate or reckless): 2 years
5) Failure to comply with the Money Laundering Regulations: 2 years

64
Q

What powers does FSMA 2000 grants the FCA under POCA 2002?

A

FSMA 2000 grants the FCA the power to reprimand, fine and prosecute for money laundering offences under POCA 2002.

65
Q

When did the UK Bribery Act 2010 come into force and what did it replace?

A

The Bribery Act 2010 came into force in July 2011 and replaced the old laws on bribery with a more stringent set of anti-bribery rules.

66
Q

List 4 things under the UK Bribery Act 2010 which are an offence. Also define what is meant by ‘relevant function or activity’.

A

Under the act, it is an offence to:

  1. Pay bribes – it is illegal to give/offer a financial, or other, advantage with the intention of inducing a person to perform ‘a relevant function or activity’ improperly
  2. Receive bribes – it is illegal to receive a financial, or other, advantage in order to encourage the performance of ‘a relevant function or activity improperly
  3. To bribe foreign officials
  4. Fail as an organisation to prevent bribery
    ‘Relevant function or activity’ includes any function of a public nature and any activity connected with a business.
67
Q

What significant change to the previous laws have been made by the UK Anti Bribery Act 2010?

A

Under previous laws it was unlikely for a company to be found guilty of bribery unless collusion of senior management could be proved. Therefore this is a significant change to previous legislation and a company could be found guilty without proven knowledge of the activity, but simply a lack of adequate prevention procedures. The government has published illustrative guidance on what amounts to ‘adequate procedures’.

68
Q

What are the penalties for individuals and companies which breach the Anti Bribery 2010 Act?

A
  • Individual – maximum jail sentence is ten years (increased from seven under this Act)
  • Company – unlimited fine
69
Q

What 4 things does the Criminal Finances Act 2017 target?

A
  1. Money laundering
  2. Terrorist financing
  3. Corruption
  4. Tax evasion
70
Q

How does the UK Criminal Finances Act 2017 make identification and seizure of criminal property and funds easier?

A

It does this by improving the ability to investigate the proceeds of crime. This can be done, for example, through:

  1. Unexplained wealth orders
  2. Further information orders
  3. Applications to PEPs for information
71
Q

The Criminal Finances Act 2017 introduced Super Suspicious Activity Reports (SARs). How are these reports submitted and what do these reports do?

A

Super SARs are submitted as a joint report from multiple regulated sources. They improve civil powers to recover proceeds of crime and also extend anti-money laundering laws to include potential terrorist funding.

72
Q

What do the new corporate tax offences in the Criminal Finances Act do?

A

They prevent the facilitation of tax evasion, by extending liability for tax evasion by employees to the employer of those staff.

IMC IE Chapter 5 (3 decks)

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