Anti-Money Laundering Flashcards
Chapter 5
What is money laundering?
Money laundering is the process by which criminals attempt to disguise the origins of their ill-gotten funds, making it appear as though the money came from a legitimate source. It often involves multiple transactions to obscure the “audit trail”.
Why are solicitors particularly vulnerable to being targeted by money launderers?
Solicitors regularly handle client money and conduct transactions, including holding funds in client accounts and managing property sales, which are ideal methods for laundering money. Criminals may also use solicitors to appear respectable.
What are the three stages of money laundering?
The three stages of money laundering are:
○ Placement: Introducing criminal funds into the financial system.
○ Layering: Distancing the money from its criminal source through multiple transactions.
○ Integration: Reintroducing the “laundered” money back into the financial system, appearing legitimate.
What are some areas of solicitors’ work that pose a particular risk for money laundering?
Areas of solicitors’ work with a high risk of money laundering include:
○ Company and trust work
○ Use of client accounts
○ Real estate transactions
○ Sham litigation
What are the key regulations governing anti-money laundering for solicitors in the UK?
The key regulations are the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. These regulations aim to disrupt serious crime by preventing criminals from reinvesting the proceeds of crime.
What is the role of the Solicitors Regulation Authority (SRA) in relation to money laundering?
The SRA has a supervisory role for anti-money laundering. They monitor compliance and carry out risk assessments across legal services. They can take action against firms with inadequate risk assessments. Firms must have SRA approval and they can be criminally liable if they act without approval.
What is a firm’s first step in complying with anti-money laundering regulations?
A firm’s first step is to conduct a risk assessment to identify and assess the risk of the firm being used for money laundering. This assessment must consider the services offered, how they are delivered, the clients, and the industries in which they operate, taking into account the SRA’s own risk assessment.
What internal controls are firms required to have in place?
Firms must establish policies, controls, and procedures to manage money laundering and terrorist financing risks. They must also appoint a Money Laundering Reporting Officer (MLRO) and, if appropriate, a Money Laundering Compliance Officer (MLCO). Additionally, they must screen employees and have an independent audit function.
What is client due diligence?
Client due diligence is the process of verifying the identity of clients. It is required before establishing a business relationship or carrying out certain transactions. This includes verifying the identity of the client and understanding their ownership/control structure.
What are the three levels of client due diligence?
The three levels of due diligence are:
○ Standard due diligence is applied to most clients and involves verifying the client’s identity through reliable sources.
○ Simplified due diligence can be used when the risk of money laundering is low.
○ Enhanced due diligence is required when there is a higher risk of money laundering, for example, when dealing with politically exposed persons (PEPs) or complex transactions.
What is a “beneficial owner” in the context of money laundering regulations?
A beneficial owner is an individual who ultimately owns or controls a client, such as through shareholdings. The definition of a beneficial owner varies depending on the type of client (company, partnership, trust).
What is a Politically Exposed Person (PEP)?
A PEP is an individual who is entrusted with prominent public functions. They pose a higher risk and require enhanced due diligence. This includes heads of state, ministers, members of parliament, and high ranking judicial figures. Family members and close associates of PEPs also require enhanced due diligence.
What other obligations do firms have in respect of money laundering?
Solicitors must provide regular training to employees on recognising and dealing with money laundering. They must also keep records of due diligence measures and transactions for at least five years. Solicitors also have obligations under the Criminal Finances Act 2017, the UK financial sanctions regime, and the Economic Crime (Transparency and Enforcement) Act 2022.
What should a solicitor do if they suspect money laundering?
Solicitors must report any suspicions of money laundering to their firm’s MLRO. The MLRO will then decide whether to make a disclosure to the National Crime Agency (NCA).
