Legal System 6 - Overriding legal obligations Part 2

Question 1

What is money laundering?

Answer 1

It is a method used by criminals to make it appear as though proceeds of crime derive from a legitimate source

Question 2

What are proceeds of crime?

Answer 2

Benefits that flow from criminal activity

Question 3

How many stages are there in money laundering?

Answer 3

3

Placement
Layering
Integration

Question 4

What are the stages of money laundering?

Answer 4

Placement: money from criminal activity is introduced into the financial system

Layering: the money passes through a number of parties or transactions to distance it from criminal activity

Integration: the money is integrated back into the financial system

Question 5

What are key duties under the MLRs?

Answer 5

• maintain written risk assessment that identifies and assesses the risk of the firm being used for money laundering
• establish and maintain policies, control and procedures to mitigate and manage ML risks
• firmst must appoint an ML compliance officer (MLCO) and a ML reporting officer (MLRO). Changes in the person must be reported to the SRA
• firms must provide staff with appropriate training and maintain records of the training
• firmst must verify the identify of each of their clients (customer due diligence, CDD)

Question 6

What is customer due diligence (CDD)?

Answer 6

The measures in place to identify and verify a client so as to reduce the risk of money laundering

Question 7

When must CDD be carried out?

Answer 7

when
* forming a business relationship
* carrying out an occasional transaction that amounts at at least GBP 15,000
* suspicion of money laundering
* doubts of accuracy / adequacy of docs/information previously provided for CDD purposes

Question 8

When must CDD take place?

Answer 8

as soon as practicable

Question 9

In the scope of CDD, when the client is not an individual, the solicitor must take steps to verify the identity of…

Answer 9

any beneficial owner

Question 10

Where a client is a corporate body, in the course of CDD, solicitors must obtain…

Answer 10

• the name of the corporate body
• its company number
• its address
• the law the body is subject to

Question 11

When is simplified CDD allowed?

Answer 11

where the business relationship or transaction presents a low risk of money laundering

Question 12

What is an example of simplified due diligence?

Answer 12

The business relationship or transaction presents a low risk of money laundering.

–> The company is a well-known financial institution or company whose shares are listed on the stock market

Question 13

When is an ehanced due diligence (EDD) rquired?

Answer 13

• person from high-risk country
• politically exposed person (PEP)
• family member/known associate of a PEP
• any other situation that presents a higher risk of money laundering (e.g. never met the client in person

Question 14

What does EDD stand for?

Answer 14

Ehanced due diligence

Question 15

What does an EDD involve?

Answer 15

• examining the background and purpose of the transaction
• increased monitoring of the buiness relationship

–> typically additional seteps to verify a client’s identiy and the business transaction

Question 16

Solicitors are expected to look out for signs of money laundering

True/false

Answer 16

true

Question 17

What are typical warning signs of ML?

Answer 17

• client behaviour (e.g. avoids personal contact, refuses to provide info, etc.)
• unusual source of funding (e.g. large cash deposits)
• nusual transactions or instructions (e.g. loss-making transaction)
• unnecessary movement of moneis from/to high-risk countries

Question 18

What must a solicitor do when there are signs of money laundering?

Answer 18

The solicitor must report his concerns

Question 19

When does a solicitor have to report his concerns regarding ML?

Answer 19

when he knows or suspects ML activity

Question 20

Who does a solicitor have to report his suspicion of ML to?

Answer 20

to the firm’s nominated officer/MLRO

Question 21

What is the process when a solicitor suspects ML activity?

Answer 21

1. solicitor reports to nominated officer/MLRO
2. nominated officer/MLRO carefully considers report and determines whether he should make a Suspicous Activity Report (SAR)
3. nominated officer/MLRO must make a report to the National Crime Agency (NCA) where he knows/suspects ML activity

Question 22

What do reports on suspicion of ML need to be made?

Answer 22

as soon as is practicable

Question 23

Solicitors and nomiated officers, who fail to report suspicion or knowledge of money laundering, are likely to…

Answer 23

commit an offence under the Proceeds of Crime Act 2002

Question 24

What types of offences exist under the Proceeds of Crime Act 2002?

Answer 24

(a) direct offences
(b) indirect offences

Question 25

What direct offences exist under the Proceeds of Crime Act 2002?

Answer 25

• concealing, disguising, converting or transferring criminal property or removing it from the UK
• entering into/becoming concerned in an arranged which facilitates the acquisition, retention, use or control of criminal property by or on behalf of another
• acquire, use or have possession of criminal property

Question 26

What non-direct offences exist under the Proceeds of Crime Act 2002?

Answer 26

• failure to disclose information about money laundering (applies to both solicitors and nominated officers/MLROs)
• revealing that internal/external report on suspicion of ML has been made if this might prejudice an ensuing investigation
• revealing that an investigation into MLM is contemplated/carried out if this might prejudice the investigation

Question 27

What can a solicitor do when he wants to continue with a transaction that would otherwise be prohibited under the Proceeds of Crime Act 2002?

Answer 27

He can request consent.

If such request is granted, the solicitor has a DAML - defense against money laundering

Question 28

What is a DAML?

Answer 28

Defence against money laundering

A DAML request is made when a person or organization, typically through the MLRO, seeks consent from the National Crime Agency (NCA) to proceed with a transaction or activity that they suspect could involve money laundering.

Question 29

If the NCA does not respond to a request for consent, what are the consequences?

Answer 29

No response within 7 days = deemed consent

–> solicitor will have a DAML

Question 30

What is a reasonable excuse defence in the scope of ML?

Answer 30

intention to make an authorised disclosure was there, but “reasonable excuse” for not doing so

Question 31

What is an adequate consideration defence in the context of AML?

Answer 31

The solicitor received adequate consideration (e.g. payment) for their services

Does not apply where:
* solicitor at least suspected that this facilitates crime
* payment is disproportionately higher than work undertaken

Question 32

What is a training defence in the context of AML?

Answer 32

Solicitors of firms must receive adequate anti-money laundering training; if they lack knowledge due to insufficient training, they may not be liable for an offence.

Does not apply where there is gross negligence/suspicion

Question 33

What are privileged circumstances in the context of AML?

Answer 33

Information obtained by a solicitor is protected by legal professional privilege (LPP) if in connection with seeking/giving legal advice.

This does not apply if information is given to the solicitor with the intention of furthering a criminal purpose

Question 34

What does AML stand for?

Answer 34

anti-money laundering

Question 35

What does the defence legal overseas conduct in connection with AML refer to?

Answer 35

the criminal conduct was lawful in the country in which it was made and, if made in the UK, would not have been punishable by 12 months’ imprisonment or more