MONEY LAUNDERING

Question 1

What rules and regulations in relation to money laundering are there?

Answer 1

Proceeds of Crime Act 2002

The Serious Organised Crime and Police Act 9SOPCA) 2005

The Money Laundering, Terrorist Financing and Transfer of Funds Regulation (MLR 2017)

FCA Senior Management, Systems and Controls sourcebook

industry guidance from the JOINT MONEY LAUNDERING STEERING GROUP

Question 2

How did SOPCA amend POCA?

Answer 2

IT amended POCA that criminal conduct was deemed to include anything which would have been an offence had it been done in the UK regardless of where it happened

the Secretary of State has reserved the right to prescribe certain offences as relevant criminal conduct that are legal where they occurred, but are illegal in the UK and still need to be reported.

Question 3

What are the five offences under the POCA 2002?

Answer 3

CONCEALMENT - offence to conceal or disguise criminal property

ARRANGEMENTS - where the person knows or suspects, faciliates the acquisition, retention, use or control of criminal property for another person - can be used for advising on transactions for example

ACQUISITION, USE AND POSSESSION - acquiring or having possession of criminal property

THREE OFFENCES ARE PUNISHABLE BY A FINE AND JAIL OF UP TO 14 YEARS

FAILURE TO DISCLOSE

TIPPING OFF

Question 4

What three conditions need to be satisfied for the FAILURE TO DISCLOSE?

Answer 4

• the person knows/suspects money laundering
• the information came to the person during the course of business in a regulated sector
• the person does not make the required disclosure

The offence is punishable by a fine and a jail term of up to 5 years

Question 5

TIPPING OFF DEFINITION and jail term time

Answer 5

giving another person information, knowing or suspecting that a money laundering report has been made to the authorities, when that information is likely to prejudice the investigation.

punishable by a fine and up to two years in jail - only works in the financial regulated sector

Question 6

Jail term for prejudicing an investigation?

Answer 6

Up to 5 years
Applies to regulated and non-regulated sector

Question 7

What is the test as to whether there are reasonable grounds for suspecting money laundering?

Answer 7

The Objective Test

Question 8

The Criminal Finances Act 2017

Answer 8

It amended the POCA to make provisions in connection with terrorist property and criminalising the failure to prevent tax evasion

Question 9

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

Answer 9

MLR is the transposition of the EU Directive

It introduced
RISK ASSESSMENTS

POLICIES, PROCEDURES AND CONTROLS TO MITIGATE THE RISK - firms must appoint an individual who is a member of the board of directors as the officer responsible

CUSTOMER DUE DILIGENCE - firms must obtain information such as the memorandum of association, regardless if the customer is listed on a regulated market. Firms need to identify the UBO and if not record all actions to arrive at that position.

ENHANCED DUE DILIGENCE - any situation where there may be a higher risk of ML (high risk country, PEP, complex/large/unusual transactions)

PEPS - all PEPs are subject to EDD

SIMPLIFIED DUE DILIGENCE

RELIANCE

Question 10

What was implemented into the ML and transfer of funds regulations 2017?

Answer 10

January 2020 - the legislation was amended to reflect the implementation of the 5MLD

The following was implemented

HIGH RISK FACTORS - firms must include new high risk factors for enhanced due diligence
- business relationships with firms established in high-risk third country
- transactions related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory

CDD - firms must update records on beneficial ownership of corporate clients and understand the ownership and control structure of the corporate customers

REPORTING DISCREPANCIES TO COMPANIES HOUSE - firms check CH on persons with significant control requirements before establishing a business relationship

CRYPTOASSET ACTIVITIES

Question 11

Whats contained in the JMLSG notes?

Answer 11

• firms should take a risk based and proportionate approach to ML prevention
• simplify the identity verification requirements for many customer types
• allow for greater reliance on identification verification carried out by other firms, set out the CDD measures
• set out the extent to which reliance may be placed on CDD work of other regulated firms

Senior Management of FCA regulated firms must appoint a senior member of staff who will have overall responsibility for the maintenance of the firm’s AML systems

The guidance by the JMLSG is for senior management to manage the firm’s money laundering and terrorist financing risk

Question 12

What should a firm’s AML policy statement include?

Answer 12

GUIDING PRINCIPLES
- customers identities need to be satisfactory verified before the firm accepts them
- commitment to the firm knowing its customers appropriately
- staff need adequate training

RISK MITIGATION APPROACH
- summary of the firm’s approach to assessing and managing its ML and TF risk
- allocation of responsibilities to specific persons and functions
- summary of the firm’s procedures for carrying out appropriate identification and monitoring checks
- summary of the appropriate monitoring arrangements in place to ensure the firm’s policies and procedures are being carried out

Question 13

What does Part I of the JMLSG industry guidance set out:

Answer 13

• the importance of senior management taking responsibility for effectively managing the money laundering the terrorist financing risks
• appropriate controls in the context of financial crime
• roles and responsibilities of the nominated officer
• helping a firm have confidence that it has carried out CDD obligations
• identification and reporting of suspicious activity
• record-keeping

Question 14

Chapter 1 of JMLSG

Answer 14

the importance of senior management taking responsibility for effectively managing the money laundering the terrorist financing risks

gives an overview of the context of AML/CTF in the UK and the placement of guidance in assisting the implementation of UK legal and regulatory obligations

Question 15

CHAPTER 2 Appropriate controls in the context of financial crime

Answer 15

Outlines obligations of firms under the ML Regulations to establish and maintain appropriate controls against the risk of financial crime

Question 16

CHAPTER 3 The role and responsibilities of the nominated officer and the MLRO

Answer 16

This chapter identifies the requirement that the MLRO must be of sufficient seniority within the firm, and should have adequate resources available to carry out the role. It notes the responsibilities of the nominated officer in relation to internal suspicion reports and whether a suspicious activity report (SAR) should be made.

Question 17

CHAPTER 4 ADOPTING A RISK BASED APPROACH TO THE APPLICATION OF CDD MEASURES

Answer 17

This summarises how a risk-based approach might be established, through identifying and assessing the risks faced by the firm (giving some suggested questions that senior management may ask themselves), designing and implementing controls to manage and mitigate the risks, monitoring and improving the effectiveness of the firm’s controls and recording appropriately what has been done and why.

Question 18

When can SDD be applied?

Answer 18

• listed companies
• beneficial owners of pooled accounts held by notaries
• government authorities
• community institutions
• regulated firms

Question 19

What are the three aspects of CDD?

Answer 19

• identifying the customer such as DOB, address
• obtaining information to verify their identity
• establishing the nature of the business relationship

Question 20

MLR 2017

Answer 20

• any case identified by the firm under its risk assessment to be higher risk of ML
• any transaction where a person is in a high risk country
• in respect of correspondent banking relationships
• where a transaction is complex and unusually large

Question 21

What is a PEP defined as:

Answer 21

’ an individual who is or has, at any time in the preceding year, been entrusted with a prominent public function, other than as a middle-ranking or more junior official.
Under the definition of a PEP, firms’ obligation to apply EDD measures to an individual ceases after they have left office for one year - or a longer period that might be appropriate’

It also includes a spouse/partner/children of that person/parents of that person

Question 22

Firms are expected on a risk-sensitive basis to

Answer 22

• have in place appropriate risk-management systems and procedures to determine whether a client or the beneficial owner of a client is a PEP
• obtain appropriate senior management approval for establishing and continuing a business relationship
• take adequate measures to establish the source of wealth and funds

=conduct ongoing monitoring of the business relationship

Question 23

What is the main part of the FCA’s Handbook relating to the MLRO?

Answer 23

The SYSC Sourcebook

Question 24

MLRO or NOMINATED OFFICER?

Answer 24

All firms must appoint an MLRO with responsibility for oversight of their compliance with the FCA’s rules on systems and controls

MLR 2017 requires all affected firms to appoint a nominated officer to review internal ML disclosures from staff members

Although the obligations of the MLRO under the FCA requirements are different from those of the nominated officer under POCA

Question 25

What is the FCA's principles-based approach to money laundering?

Answer 25

The SYSC requirements place obligations on firms' senior management to ensure they have in place systems and controls appropriate to the business for the prevention of money laundering Senior management needs to carry out a risk assessment - consider the nature of a firm's products and services - nature of its client base and location - ways in which these may leave the firm open to abuse by criminals

Question 26

A firm should ensue the systems and controls include appropriate

Answer 26

- appropriate training for employees - provision of information to its governing body and senior management, including a report at least annually by the firm's MLRO - documentation for risk management policies and risk profile in relation to money laundering - measures to ensure ML risk is taken into account in day-to-day operations

Question 27

What is the role of the NCA?

Answer 27

It is a UK enforcement agency which is responsible for tackling organised crime defending the UK's borders, fighting fraud, cyber crime and protecting young people/children. Led by a senior chief constable and is accountable to the Home Secretary The NCA produces and maintains the national threat picture in relation to serious, organised and complex crime, which all other agencies work to. Using this agreed intelligence picture, the NCA tasks and coordinates the police and other law enforcement agencies, underpinned by a new strategic policing requirement.

Question 28

Difference between cyber crimes and cyber enabled crimes

Answer 28

Crimes committed - in full or in part through the use of ICT devices PURE CYBERCRIMES - when a criminal act can only be committed through the use of computers or other ICT devices. The devices are both the tool for committing the crime and target of the crime. Using malware/phishing campaigns CYBER ENABLED CRIMES - those committed without ICT devices, but changed by the use of ICT in terms of scale and reach. ONLINE FRAUD/THEFT

Question 29

THE FCA FINANCIAL CRIME GUIDE

Answer 29

It gives practical examples in which firms may comply with applicable rules and requirements Divided into following sections: - financial crime systems and controls - money laundering and terrorist financing - fraud - data security - bribery and corruption - sanctions and asset freezes - insider dealing and market manipulation

Question 30

Anti-Money Laundering and Counter the Financing of Terrorism – Supervision Report 2020–22

Answer 30

As part of HM Treasury's oversight of the UK regime, it has a legal obligation to conduct a review of the MLRs and OPBAs regulations - set out in Action 33 of the Economic Crime Plan The FCA is looking to develop a - revised set of priority metrics with the aim of providing clearer feedback on the overall effectiveness of the MLRs in achieving their objectives - committing to consulting with supervisors and industry on future potential amendments to the MLRs to ensure changes taken by the Government are responding to risks and issues within the sectors

Question 31

Define Terrorism

Answer 31

use or threat of action when it: - involves serious violence against a person - endangers a persons life - creates serious risk to the health/safety of the public - designed to interfere with an electronic system - to influence or intimidate the public - advancing a political, religious or ideological cause

Question 32

Outline Section 7 of the COUNTER-TERRORISM ACT

Answer 32

became law November 2008 Section 7 gives powers to the Treasury to issue directions on: - counter-measures should be applied to a country - The Treasury reasonably believes that ML/terrorist financing activities are being carried on in the country, by its government or by persons resident or incorporated there, which pose a significant threat to the UK’s national interests - the Treasury believe the country is developing or producing nuclear weapons

Question 33

Difference between ML and TF

Answer 33

Only small amounts of money are required to commit terrorist acts If legitimate funds are used to fund terrorist activities, it is hard to identify when it becomes terrorist funds

Question 34

The UK's Economic Crime Act 2022

Answer 34

Came into effect on 15 March 2022 It included requirements for a public register of overseas entities. There are a number of threshold tests. Failure to register, or submitting false information, will constitute a criminal offence and will prevent individuals and/or companies entering into property transactions. The penalty will constitute a criminal offence for both the entity and every responsible officer – which could lead to a fine or five years in jail. There is a compliance requirement to submit an annual confirmation statement and confirmation the beneficial owners have not changed The Act tightened the regime and requirements for ‘unexplained wealth orders’; the increased scope includes company directors and owners of property held both in trusts and offshore. Information for overseas entities and its beneficial owner will include corporates, the country of incorporation

Question 35

ECONOMIC CRIME AND TRANSPARENCY BILL

Answer 35

Uk government wants to bring in 'failure to prevent fraud' - may come in by the end of 2024 Will shift organisations being victims of fraud to instead making it easier to prosecute companies of fraud committed by employees or third parties There will be a defence of ‘reasonable procedures’ to prevent fraud, meaning it will require organisations to review and enhance their anti-fraud systems and controls to cover fraud committed for their benefit by employees or agents. Will apply to all 'large' bodies - corporate or partnership - more than 250 employees - more than £36 million turnover - more than £18 million in assets It wants to capture the fraud and false accounting offences which the government considers most likely to be as relevant to large corporations