Money Laundering

Question 1

Internal controls

Answer 1

A firm must appoint a nominated officer to receive reports from within the firm concerning any instances of suspected money laundering and to liase with national crime agency

Question 2

Client due diligence

Answer 2

Need to obtain verification of identity of each of their clients.

Question 3

Client due diligence - Circumstances in which this needs to arise

Answer 3

1) Where client and solicitor agree to form a business relationship
2) Carrying out occasional transaction that amounts to a transfer of funds exceeding £1000
3) Carrying out an occasional transaction that amounts to £15k or more
4) Where solicitor suspects money laundering

Question 4

Client due diligence - Time

Answer 4

Verification is required as soon as possible after 1st contact and must take place before a business relationship is established or the carrying out of the transaction

Question 5

Client due diligence - If the solicitor cannot carry it out in time?

Answer 5

If the solicitor is unable to complete the client due diligence in time the solicitor cannot:
- Carry out a transaction with or for the client through a bank account
- Establish a business relationship or carry out a transaction otherwise than through a bank account
Must also terminate any existing business relationship and consider making a disclosure to NCA

Question 6

Standard due diligence - Verification on what?

Answer 6

Documents or info. of their identity and to take reasonable measures to understand the ownership and control structure of non-natural persons such as trusts and companies

Question 7

Standard due diligence - Verification on what? - Natural persons

Answer 7

Evidence of identity may be based on documents such as passports and driving licenses

Question 8

Standard due diligence - Verification on what? - Partnerships

Answer 8

Necessary to obtain info. on the constituent individuals who make up the partnership. Where partnerships are well known, reputable organisations with long histories in their industry and with substantial info. - Need to obtain their name, registered/trading address and nature of business

Question 9

Standard due diligence - Verification on what? - Company

Answer 9

Need name, company number and the registered office address and principle place of business. Unless the company is listed on a regulated market - necessary for names of board of directors or other senior persons responsible for operations

Question 10

Standard due diligence - Identity of beneficial owners

Answer 10

A solicitor must identify any beneficial owner is not the client. Their ID must also be verified

Question 11

Standard due diligence - Identity of beneficial owners - Companies

Answer 11

In the case of companies a beneficial owner is:
- Any individual who exercises ultimate control over the management of the body corporate
- Any individual who ultimately owns or controls more than 25% of shares/voting rights
- An individual who controls the body corporate

Question 12

Standard due diligence - Identity of beneficial owners - Partnerships

Answer 12

A beneficial owner is:
a) Entitled/controls +25% of the capital/profits or +25% of voting rights
b) Exercises control over management of partnership

Question 13

Standard due diligence - Identity of beneficial owners - Trust

Answer 13

Beneficial owner of a trust:
- Settlor
- Trustees
- Beneficiaries
- Where individuals benefitting from trust have not been determined - the class of persons in whose main interest trust is set up
- Any individual who has control over the trust

Question 14

Simplified due diligence

Answer 14

Permitted where a firm determines through an individual risk assessment that the business relationship/transaction presents a low risk - factors include whether the client is a company listed on a regulated market and location of the market and where a client is established and does business

Question 15

Enhanced due diligence - When it arises

Answer 15

High risk. Where:
- The case has been identified as one where there is a high risk of money laundering or terrorist financing in the firm’s risk assessment or in info. made available by SRA and law society.
- Client or counter-part is in a high-risk 3rd country
- Client has provided false or stolen ID/info. and the solicitor has decided to continue dealing with the client
- The client is a politically exposed person or a family member or close associate is
- A transaction is unusually complex or large and there is an unusual pattern

Question 16

Enhanced due diligence - What the solicitor will need to do

Answer 16

A solicitor is obliged to undertake ongoing monitoring of business relationships to ensure that the transactions are consistent with solicitor’s knowledge of the client. Need to take measures as far as possible to examine background and purpose of the transaction and consider whether it is appropriate. Need senior permission to act for the client

Question 17

Arranging - Overview

Answer 17

Most likely will be this because it’s so wide ranging. It involves the direct involvement with the proceeds if the crime.

Question 18

Arranging - When will a person commit an offence

Answer 18

A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or SUSPECTS facilitates acquisition, retention, use or control of criminal property by or on behalf of another person. Encompasses virtually any act

Question 19

Arranging - Threshold

Answer 19

The threshold is suspicion - all that is requires is that there is a possibility which is more than fanciful.

Question 20

Arranging - Defence

Answer 20

Making an authorised disclosure can be used as a defence. Must be made to a constable of her majesty’s revenue and customs or a nominated officer. MUST make one as soon as is practically possible prior to transaction taking place and consent of nominated officer. Disclosure must be made whilst act is ongoing. If you’re making disclosure after the act must have good reason for failure to disclose

Question 21

Arranging - Nominated officer’s responsibility

Answer 21

They have the responsibility to report concerns about money laundering to the national crime agency - suspicious activity report.

Question 22

Arranging - Consent of nominated officer

Answer 22

Unable to give consent until one of these is met:
- The nominated officer having made a disclosure to the NCA receives the consent of the NCA
- The nominated officer having made a disclosure to the NCA hears nothing for 7 working days

Question 23

Acquisition, use or possession - Overview

Answer 23

If they acquire, use or have possession of criminal property. Used to prosecute those who had no involvement with the original crime but have enjoyed the benefit. E.g a solicitor receives money for costs for work carried out for a client charged with a criminal offence and there is a possibility that the money in Q. is criminal property

Question 24

Acquisition, use or possession - Authorised disclosure

Answer 24

Making an authorised disclosure can be used as a defence. Must be made to a constable of her majesty’s revenue and customs or a nominated officer. MUST make one as soon as is practically possible prior to transaction taking place and consent of nominated officer. Disclosure must be made whilst act is ongoing. If you’re making disclosure after the act must have good reason for failure to disclose

Question 25

Acquisition, use or possession - Adequate consideration defence

Answer 25

Offence will not be committed if there was adequate consideration for acquiring using and possessing the criminal property unless the individual knew or suspected that those goods or services might help to carry out criminal conduct. However, fees charged must be reasonable and the defence is not available if the value of the work is significantly less than the money received

Question 26

Concealing - Overview

Answer 26

Offence to conceal, disguise, convert or transfer criminal property or remove it from England

Question 27

Failure to disclose - When will a person commit an offence

Answer 27

• He knows or suspects or has reasonable grounds to know or suspects that a person id engaged in money laundering
• The info. comes to him in the course of a business in the regulated sector
• The info. may assist in identifying the money launderer or the location of any laundered property
• He does not make a disclosure as soon as is practicable

Question 28

Failure to disclose - Objective test

Answer 28

A solicitor will commit this offence even where the solicitor genuinely did not know or suspect that a person was engaged in money laundering. The court will consider based on info. available to the solicitor at the time whether the solicitor should have known or suspected that money laundering was occurring.

Question 29

Failure to disclose - Protected communications

Answer 29

Communications will be protected from disclosure if they fall within advice privilege or litigation privilege. E.g communications for the purpose of seeking legal advice and communications for the purpose of litigation

Question 30

Failure to disclose - Nominated officier

Answer 30

A nominated officer will commit an offence if they know or suspect or have reasonable grounds to know or suspect money laundering as a consequence of their role as person nominated to receive disclosures and fail to make the necessary disclosure to the NCA as soon as practical

Question 31

Tipping off

Answer 31

Altering someone suspected of money laundering to the fact that an investigation has started or is anticipated. 2 aspects:
1) Disclosing a disclosure
2) Disclosing an investigation

Question 32

Tipping off - Defence

Answer 32

Defence is disclosure is made to dissuade client from engaging in the act