Legal services (business)

Question 1

Stages of money laundering

Answer 1

1. Placement – money placed in financial system (eg into bank account)
2. Layering – obscuring origins of proceeds by passing them through complex transactions (eg different entities/bank accounts in diff jurisdictions)
3. Integration – provide legitimacy to funds (eg invest in property investment, gambling winnings, buying businesses)

Question 2

Money laundering - definition and nature of offences

Answer 2

= process of making large amount fo money generated by a cirminal activity appear to have come from a legitimate source

Enforcement in UK primarily handled by the National Crime Agency (NCA)

POCA applies to everyone, though certain offences (eg failure to report and tipping off) apply only to those involved in activities in regulated sector (ie regulated by financial services authority)

ML offences = predicate offences (ie assume that a criminal offence has occurred in order to generate the criminal property which is now being laundered)

Question 3

Direct involvement ML offences - concealing

Answer 3

Ie subjectively knows or suspects that they are concealing, converting, or transferring criminal property, or removing it from UK

Incl money, real property, personal property, and/or intangible property

Incl both concealing property’s nature and its source/location/ownership etc

Question 4

Direct involvement ML offences - concealing (defences)

Answer 4

1. Authorised disclosure by offender
   - to nominated officer of the form (or NCA or police) BEFORE the concealing transaction occurred
   - or if after, there was good reason for the delay
2. Privilege excuses not disclosing
   - If LLP applies, but NOT if sol KNOWS the transaction is a money laundering offence
   - If sol suspects:
   a) Suspicions correct => comms with client not privileged
   b) Suspicions not correct => comms remain privileged and non-disclosable

Question 5

Direct involvement ML offences - arrangement

Answer 5

ie if sol KNOWS or SUSPECTS they are facilitating the acquisition, retention, use, or control of criminal property by or on behalf of another person

Eg misuse/abuse of client accounts, sale/purchase or real property, creation of trusts/companies/charities, or management of trusts and companies

Exception = ordinary litigation and other dispute resolution

Defences = same as above (disclosure + privilege)

Question 6

Direct involvement ML offences - acquisition/use/possession

Answer 6

Ie having physical custody of criminal property, and knowing or suspecting it is criminal property

Defences =
1. As above (ie disclosure + privilege)
2. Adequate consideration
- Ie person paid a reasonable amount, in good faith, for an item they did not know was stolen
-Incl firm receiving funds on account (unless sol knows/suspects source)

Question 7

Indirect involvement ML offences - failure to report

Answer 7

Some professionals (incl sols) have obligations to make suspicious activity reports

To be made to firm’s nominated officer (MLRO) or directly to the NCA if there is no nominated officer available

Disclosure made ‘as soon as practicable’ (BUT short delay allowed if due to sol taking legal advice)

Test = objective - whether a reasonable person would think the activity is suspicious

Question 8

Indirect involvement ML offences - failure to report (defences)

Answer 8

1. Privilege/privileged circs
   - Ie falls within a privilege not excl by money laundering laws
2. Lack of training
   - BUT firms may be prosecuted for a breach of regs if fail to train staff
   - NOT a defence to terrorist funding charges

Question 9

Indirect involvement ML offences - tipping off

Answer 9

Two offences:
1. Disclosing to a third person/client that a suspicious activity report has been made, if that disclosure might prejudice any investigations that might be carried out
2. Disclosing an investigation to a third person/client

Exceptions:
1. Normal enquiries about instructions and retainer
2. Language included in standard terms of engagement (ie re money laundering legislation)

Question 10

Indirect involvement ML offences - tipping off (defences)

Answer 10

1. Disclosures within an undertaking or group
   Ie between employees at a firm in same undertaking, OR another legal professional in a different undertaking (within common ownership)
2. Disclosures between institutions
   - If made to another legal professional
   - disclosure relates to client/former client of both parties or a transaction involving them both, or the provision of a service involving them both
   - Disclosure is made for the purpose of preventing a ML offence
   - Both parties have equivalent professional duties of confidentiality and protection of personal data
3. Additional permitted disclosures
   - Eg made to supervisory body or for the purpose of the prevention/investigation/prosecution of a criminal offence in the UK or elsewhere
   - Or if they make disclosure to client for purpose of dissuading the client from engaging in conduct amounting to an offence

Question 11

Indirect involvement ML offences - prejudicing an investigation

Answer 11

Committed when a person:
1. Knows or suspects that a ML, confiscation or civil recovery investigation is being conducted or is about to be conducted; and
2. Makes a disclosure ti any person that is likely to prejudice the investigation; OR
3. Falsifies, conceals, or destroys documents relevant to the investigation, or causes it to happen

Person making disclosure does not have to intend to prejudice an investigation

Question 12

Indirect involvement ML offences - prejudicing an investigation (defences)

Answer 12

1. Person making disclosure did not know or suspect
   - That: disclosure would be prejudicial, that docs were relevant, or did not intend to conceal any facts from the person carrying out the investigation
2. Disclosure made in connection with legal proceedings
   - Provided the disclosure is not made the intention of furthering a criminal purpose

Question 13

Customer due diligence - what is it and when must it be done

Answer 13

Incl: Verifying identity, identifying beneficial owner (if different), and obtaining info on purpose and intended nature of the business rel

Done when sol:
- Establishes business rel
- Carry out an occasional transaction (ia 15k euros or more)
- Suspect ML
- Doubts veracity or adequacy of documents

CDD records to be kept at least 5 years after the end of the rel with the client

Question 14

Financial services - general prohibition

Answer 14

Under FSMA no person may carry on regulated activity in the UK (ie activity related to financial markets) unless they are authorised or exempt from authorisation

Activities of most sols fall outside regulated activities

Question 15

Financial services - regulated activity definition

Answer 15

=

1. Specified activity
2. In relation to specified investment,
3. Which is carried out in the course of business, and
4. To which no exclusions apply

=> must be authorised under FSMA

Question 16

Financial services - specified activity

Answer 16

= ADAMS

1. Advising – on a particular investment
2. Dealing as agent – buying/selling etc investments as agent for a client
3. Arranging – making arrangements for another person to bull/sell etc a partic investment (eg a stockbroker)
4. Managing – managing assets belonging to another in circs which involve the exercise of discretion
5. Safeguarding – assets belonging to another and administering them

Question 17

Financial services - specified investments

Answer 17

= FM DIPS

1. Funeral plans
2. Mortgage contracts
3. Debentures (ie loan debt not secured by collateral)
4. Insurance contracts
5. Pension schemes
6. Shares in a company and other securities

NOTE – interests in land and some national savings products (eg premium bonds) are NOT specified investments

Question 18

Financial services - exclusion

Answer 18

1. Takeover exclusion
   - Sol can deal as an agent, arrange, or advise with respect to a client who is buying or selling 50% or more of the voting shares of a company (or else when object of the transaction otherwise may be reasonably regarded as taking control of the daily running of the company)
2. Acting as trustee, nominee, or PR (diff from dealing as agent)
3. Introducing or acting through authorised person
   - Ie if other person authorised by FSMA
   - BUT exclusion not available:
   a) For insurance contracts, or
   b) If sol received any payment or commission form authorised person or any source other than the client
4. Necessary exclusion
   - If activity may reasonably be regarded as a necessary part of providing the legal services
   - BUT:
   a) Cannot be used if activity is billed separately from main legal advice
   b) Does not apply to managing assets
   c) Does not apply if activity relates to insurance policies

Question 19

Financial services - exempt from authorisation

Answer 19

Incidental activities of members of designated professional bodies (incl SRA)

Activity must be incidental (v similar to necessary exclusion above, but also applies to insurance polices/managing assets)

Incidental =
1. Both to firm’s work as a whole and to client’ partcicular matter
2. (ie exemption could not be relied on if one of firm’s main areas of business was provision of the regulated activities)