Money Laundering Flashcards
what is money laundering?
financial transactions where the proceeds of crimes are disguised and converted so that the source is harder to trace but the wrongdoer is still in control of the funds (directly or indirectly)
what are the requirements on firms in relation to money laundering? (5)
firms must:
- take appropriate steps to identify and assess the risk of money laundering
- keep an updated Anti Money Laundering risk assessment document
- have policies and procedures obliging those in the firm who know or suspect ML to comply with reporting obligations (‘know your client’ policy)
- a firm must have a Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA)
- COLP, COFA, and managers / partners are responsible for ensuring the firm takes steps required to comply with ML legislation and ensure an offence is not committed
how can a solicitor be at risk for money laundering? (5)
- client depositing cash in firm account for onward transmission to a third party
- client acquiring property, investing in business, or buying an asset using proceeds of a crime
- setting up structures intended to be used for laundering e.g., complex trust structures
- client using firm account to mix clean and dirty cash to disguise the audit trail
- depositing cash without solicitor or firm knowing
what are warning signs for money laundering?
high risk of ML = suspicious attribute (eg, jurisdiction) + suspicious activity (eg, buying property in high risk jurisdiction)
eg:
- seller and buyer with similar names or who give same address
- seller and buyer both from a jurisdiction outside UK
- ‘mistakes’ regarding an overpayment to your client account
- monies arriving from a third party who is not your client
- your client asking you to send monies to an unknown third party
- documents appear to show a seller and a buyer with similar signatures
- clients attempting to pay large sums in cash
- offshore vehicles being made parties to a deal
- money coming from or being requested to be sent to offshore tax havens
- dispute ended too early (‘sham’) and large sum of cash deposited
- Abrupt change of instructions
- Instructions for a quick transaction
- large payments by client from private funds when the client has low income
- setting up a trust with a complex structure or using a high risk jurisdiction
where are money laundering offences found?
Proceeds of Crime Act 2002 offences:
1. direct involvement offences
2. non-direct involvement offences
Offences are punishable by imprisonment, fine, or both
direct involvement offences - what are they and who do they apply to?
OFFENCES (apply to everyone) =
1- concealing, disguising, converting, transferring, or removing criminal property from the UK
2- Involving yourself in arrangement which you know, or suspect facilitates the acquisition, retention, use or control of criminal property
3- acquiring, using, or possessing criminal property
what is the defence to direct involvement offences?
DEFENCES = authorised disclosure to the Money Laundering Reporting Officer (MLRO) + get consent
1- disclose BEFORE alleged offender does prohibited act (eg, before solicitor accepts money)
2- disclose DURING prohibited act ONLY if solicitor did not know or suspect while doing the act AND disclose is made ASAP and voluntarily
3- disclose AFTER ONLY if there is a good reason for failing to disclose before AND disclosure is ASAP and voluntary
4- you disclosed and got appropriate consent
5- if criminal conduct illegal in UK took place in a country it was not illegal in
non-direct involvement offences - what are they and who do they apply to
non-direct involvement offences:
1- failing to disclose
2- tipping off
apply to people in REGULATED SECTOR = includes firms providing legal services
what is the non-direct offence of failing to disclose?
offence = fail to disclose to a firm’s MLRO or National Crime Agency (NCA) if:
- you know or suspect, or have reasonable grounds to know or suspect, that someone is laundering the proceeds of any criminal conduct,
- you receive the information in the course of business in the regulated sector; and
- you can identify the person who is laundering the proceeds of criminal conduct OR the whereabouts of the laundered property OR that the information referred to in (b) above will or may assist in identifying the person referred to at (a) above.
what must disclosure to MLRO contain? (3)
- the identity of the person who you know/suspect is laundering proceeds of criminal conduct, AND
- the whereabouts of the laundered property if you know it, AND
- the information on which your knowledge/suspicion is based
After disclosing your suspicion to a MLRO, how long must you wait before you can take further action?
If you report to MLRO, you must wait to receive appropriate consent from MLRO before proceeding.
MLRO decides if there are reasonable grounds to suspect money laundering. If so, they will report the concern to the NCA.
If MLRO decides to report it to the NCA, the prohibited act must not be taken UNLESS:
- authorised to do so by NCA; or
- 7 WORKING DAYS (notice period) has passed from disclosure to NCA during which the NCA has not refused authority to proceed, or
- NCA refused consent during the notice period and the moratorium period expired - 31 DAYS starting with the day the firm received notice that consent was refused
what is tipping off?
Non-direct offence under PCA = informing a person suspected of money laundering of a disclosure made against them, or an investigation is contemplated or conducted
when must customer due diligence be carried out?
MLR require regulated businesses to identify and verify the identity of their clients
must be carried out =
- When you establish a business relationship,
- carry out an occasional (one-off) transaction,
- suspect money laundering or
- doubt the veracity or adequacy of identification documents
+ ongoing monitoring of existing clients
can you rely on third party’s CDD?
- You MAY rely on the CDD carried out by a third party, but you remain liable if the third party fails to comply with MLR
- you must enter into an agreement with the entity whose CDD you rely on that allows you to obtain ID and verification data from them
- third party must be = another solicitor, FSMA authorised, auditor, insolvency practitioner, tax adviser
when should standard CDD be carried out? what does it involve? (5)
Carry out if there is nothing to suggest the client presents a high risk of money laundering
- Identify the customer and verify their identity using documents/data received from a reliable and independent source
- Obtain information on the purpose and intended nature of the business relationship or transaction
- If client is a company = identify its name, company number, address of registered office and principal place of business, the law to which it is subject, its constitutional documents, directors and senior management
- Identify the “beneficial owner” (who controls company, PSC, beneficiaries of a trust) and carry out CDD on them. You must also take measures to understand the ownership and control structure of the person, trust, or arrangement
- Ongoing monitoring of the business relationship, e.g., ensuring any documentation/data/information held is up to date
