Financial Crime Flashcards
Money Laundering and POCA
Disguising the source of their proceeds of crime. Secondary objectives include providing a safe haven for those proceeds and providing financial return using legitimate business
POCA 2002 replaced all previous ML legislation, and introduced the offence of failing to be suspicious of ML on top of the original failure to report ML (MLR 2017 more recently came into effect)
(Members of staff who have not been fully trained in regulations are let off the failure of suspicion)
Laundering Process (three stages)
Placement: physical injection of criminally obtained cash proceeds
Layering: complex layers of transactions to disguise audit trail to separate from criminal source
Integration: place the laundered proceeds back into the economy in a way which appears to be legitimate investment funds
Placement stage will usually involve banks and building societies, whilst investment firms may find they are used in Stages 2 and 3
MLR 2017
A risk based approach to implement the EU’s 4th Directive on ML
Four questions regarding ML and TF risks, steps to reduce risks, and policies and procedures which are appropriate.
Customer Due Diligence (CDD) - Objectives , SDD
There is an obligation for firms to pursue CDD, verifying identity of customer, basis of relationship and ‘beneficial owner’.
If beneficial owner is not the customer, steps must be taken to verify their identity
Simplified DD (SDD) regulation provides that certain rules do not need to be applied to certain customers or products. A Relevant Person must decide risk factors to see if SDD is appropriate
Enhanced Due Diligence (EDD)
- Business conducted non-face-to-face
- Banking relationship
- Situation presents higher risk of ML or TF
- Customer is a PEP
Also some high risk jurisdictions have a ‘black list’ where EDD necessary
Politically Exposed Person (PEP)
A person who discharges prominent public functions (or immediate family members and known close associates)
Firms are obliged to have procedures to ascertain whether an individual is a PEP
PEPs must be approved by senior management and have ongoing monitoring procedures
Nominated Officer (money laundering)
Firms must appoint:
Money Laundering Reporting Officer (MLRO)
Anti-money Laundering Compliance Officer (ALCO)
Can be the same person and known as the Nominated Officer and must report suspicious transactions to the National Crime Agency (NCA).
Joint Money Laundering Steering Groups (JMLSG)
JMLSG is made up of leading UK trade associations in financial services industry.
Its aim is to promote good practice in countering ML and give assistance in interpreting ML regulation
5 Offences under UK ML legislation
- Assistance (max 14 years)
- Tipping off (max 5 years)
- Failure to Report (max 5 years)
(e. g. report or report suspicion of) - Failure to Comply (max 2 years)
(e. g. implementation of ID procedures) - False or Misleading Statement (max 2 years)
Insider Dealing - Definition, NPI, Legislation
The dealing of a public company’s stock or other securities (bonds / stock options) by individuals with access to material non-public information about the company
NPI is price-sensitive info of a specific and precise nature, which would effect price if released to public
CJA 1993 covers 3 ID offences:
- Dealing while in possession of insider information
- Encouraging another to deal
- Disclosing information to another other than proper performance of ones duties
Defences to Insider Dealing
- Passed on info in the proper performance of his duties
- Market maker acted genuinely for that business
- Deal was not done to make a profit or avoid loss
- New issue was stabilised by FCA stabilisation rules
- Relatively basic information regarding issue, acquirement or disposal of a security (e.g. Predator company purchasing shares in target before announcing bid)
Chinese Walls
An information barrier between different divisions of a firm to avoid CoI
Conviction of ID
Summary Conviction (magistrates court) - fine not exceeding statutory maximum, 6 months, or both
Conviction or Indictment (crown court) - fine, 7 years, or both
FCA has powers to compel documents or interviews, with failure to comply treated as contempt of court. It also has powers similar to police, by entering premises by warrant
Market Abuse - Definition
The behaviour must relate to a ‘qualifying investment’
(security, right or interest)
traded on a ‘prescribed market’ (a recognised investment exchange in UK or EEA)
Market Abuse - examples of behaviour
Insider Dealing (dealing with II) Unlawful Disclosure (sharing II) Manipulating Transactions Manipulating Devices Dissemination
