Money Laundering

Question 1

What is money laundering?

Answer 1

Money laundering involves financial transactions where proceeds from serious crime are ‘cleaned’ so that its source is hard, if not impossible, to trace.

Question 2

What are the two key pieces of legislation relating to money laundering?

Answer 2

Proceeds of Crime Act 2002 (PoCA)

Money Laundering Regulations 2017 (MLR)

Question 3

What position must all law firms have with regards to money laundering?

Answer 3

A money laundering officer (MLRO).

Question 4

What does Regulation 18 MLR require law firms to do?

Answer 4

To take appropriate steps to identify and assess the risks of money laundering and terrorist financing to which the business is subject.

Law firms and these businesses must keep an up-to-date anti money laundering written record of all the steps they have taken, such as an AML risk assessment.

Question 5

What are the key warning signs that money laundering might be about to take place?

Answer 5

-Instructions outside your firm’s area of expertise

-Unusual retainers e.g. sham litigation

-Use of client accounts (firms should not provide a banking service

-Setting up a trust

-Property purchases which involve large sums of money

Question 6

What are some of the suspicious fact patterns that may indicate money laundering?

Answer 6

-Seller and buyer with similar names or who give the same address

-Seller and buyer both from a jurisdiction outside the UK

-Accidental ‘overpayments’ to the client account

-Monies from a third party who is not a client

-Documents which appear to show seller and buyer with similar signatures

-Clients attempting to pay large sums in cash

-Money coming from or being requested to be sent to offshore tax havens

Question 7

What are the high risk jurisdictions on the Financial Action Task Force’s list as of February 2024?

Answer 7

-North Korea

-Iran

-Myanmar

Question 8

What is a S327 PoCA direct involvement offence?

Answer 8

S327: concealing, disguising, converting or transferring criminal property or removing criminal property from the UK.

Question 9

What is a S328 PoCA direct involvement offence?

Answer 9

S328: entering into or becoming concerned in an arrangement which you know or suspect facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person.

Question 10

What is a S329 PoCA direct involvement offence?

Answer 10

S329: acquiring, using or possessing criminal property.

Question 11

Outline the ‘authorised disclosure’ defence to S327-S329 PoCA offences?

Answer 11

A disclosure to a constable, customs officer or a nominated officer by the alleged offender that property is criminal property and at least one of s338(2), (2A) or (3) has to be satisfied.

Question 12

When can an authorised disclosure be made?

Answer 12

The authorised disclosure can be made before, during or after the solicitor carries out the prohibited act.

Question 13

When does S338(2) PoCA require the authorised disclosure to be made?

Answer 13

S338(2) requires the disclosure to be before the alleged offender does the prohibited act.

Question 14

When does S338(2A) PoCA require the authorised disclosure to be made?

Answer 14

S338(2A) requires the disclosure to be made during the prohibited act AND you began to do the act at a time when, because you did not then know or suspect that property constituted or represented a person’s benefit from criminal conduct, the act was not a prohibited act, AND the disclosure is made on your own initiative and as soon as it is practicable for you to make it.

Question 15

When does S338(3) PoCA require the authorised disclosure to be made?

Answer 15

S338(3) requires the disclosure to be made after the prohibited act AND there is a good reason for the solicitor’s failure to make the disclosure before he did the act AND the disclosure is made on his own initiative and as soon as it is practicable to make it.

Question 16

What is a ‘disclosure to a nominated officer’ under S338(5) PoCA?

Answer 16

A disclosure which:
(a) is made to a person nominated by the alleged offender’s employer to receive authorised disclosures; and

(b) is made in the course of the alleged offender’s employment.

Question 17

What is the golden rule regarding money laundering?

Answer 17

If you suspect that a person you are dealing with is planning to transfer criminal property to your firm or employer’s bank account, report your concern to your MLRO.

DISCLOSE, DISCLOSE, DISCLOSE!

Question 18

Is it an offence to fail to make a disclosure to the firm’s MLRO or the NCA?

Answer 18

Yes, under S330 PoCA 2002 this is a non-direct involvement offence.

Question 19

What conditions need to be satisfied for someone to be guilty of a non-direct involvement offence under S330 PoCA?

Answer 19

(a) You know or suspect, or have reasonable grounds to know or suspect, that someone is laundering the proceeds of any criminal conduct;

(b) You receive the information in the course of business in the regulated sector; and

(c) You can identify the person who is laundering the proceeds of the whereabouts of the laundered property.

Question 20

If the MLRO makes a suspicious activity report to the NCA, in what circumstances can the MLRO/fee earner continue with the prohibited act?

Answer 20

-When authorised to do so by NCA; or

-7 working days (notice period) have passed from the disclosure to NCA during which time NCA has not refused authority to proceed; or

-The NCA refused consent during the notice period, and the moratorium period (31 days starting with day firm received notice that consent was refused) has expired.

Question 21

What is tipping off and is it an offence?

Answer 21

Tipping off is when you notify clients about any report made of information that came to you in the course of business in the regulated sector.

It is an offence under S333A PoCA.

Question 22

Is it an offence to disclose that an investigation is being contemplated or carried out?

Answer 22

Yes, this is an offence under S333A(3) PoCA if the disclosure is likely to prejudice the investigation.

Question 23

What are the penalties for offences under PoCA?

Answer 23

Imprisonment or a fine or both.

Question 24

When did the Money Laundering Regulations (MLR) 2017 come into force and what is their aim?

Answer 24

Came into force on 26 June 2017.

The MLR requires organisations to get themselves in a position to identify potential money laundering and report it as necessary.

MLR is designed to ensure that organisations establish procedures to forestall and prevent operations relating to money laundering.

Question 25

What is customer due diligence under the MLR?

Answer 25

The process of identifying and verifying the identity of clients and carrying out ongoing monitoring.

Question 26

When must a person to whom MLR applies take customer due diligence measures?

Answer 26

-Establishing a business relationship

-Carrying out an occasional transaction

-Suspects money laundering or terrorist financing

-Has doubts about the veracity or adequacy of the identification documents, data or information previously provided

Question 27

What is standard due diligence under Regulation 28 MLR?

Answer 27

-Identify the client and verify their identity on the basis of documents/data from a reliable and independent source

-Where the client is a company, identify its name, company number, the address of its registered office, the law to which it is subject, constitutional documents, directors names and beneficial owners

-Ongoing monitoring of the business relationship

Question 28

Where a client is beneficially owned by another person, do you need to carry out CDD on the beneficial owner?

Answer 28

Yes, Regulation 28(4) MLR requires you to carry out CDD on the beneficial owner and take measures to understand the ownership and control structure of the person, trust or arrangement.

Question 29

What type of CDD should be carried out where there is a higher risk of money laundering?

Answer 29

Enhanced CDD.

Question 30

In what circumstances should enhanced CDD and enhanced ongoing monitoring be carried out?

Answer 30

Regulation 33(1) MLR:

(a) in any case where there is a high risk of money laundering or terrorist financing;

(b) in any transaction or business relationship with a person established in a high-risk third country;

(c) in relation to correspondent relationships;

(d) if a relevant person has determined that a customer or potential customer is a PEP, or a family member or known close associate of a PEP

(e) in any case where a customer has provided false or stolen identification documentation or information on establishing a relationship;

(f) in any case where:
(i) a transaction is complex,
(ii) the transaction is unusually large, or
(iii) there is an unusual pattern of transactions

(g) in any other case which by its nature can present a higher risk of money laundering and terrorist financing

Question 31

What level of enhanced CDD should be carried out?

Answer 31

-Examining the background and purpose of the transaction

-Increasing the degree and nature of monitoring of the relevant relationship

-Getting additional independent reliable resources to verify information

-Taking additional measures to understand the background and financial situation of the customer

-Taking further steps to be satisfied the transaction is consistent with the purpose and intended nature of the relationship

Question 32

What is simplified CDD and when can it be carried out?

Answer 32

Under Regulation 37(1), a relevant person may conduct simplified CDD if it determines there is a low degree of risk of money laundering or terrorist financing having taken into account the risk assessment and risk factors.

Question 33

Is ongoing monitoring required with simplified CDD?

Answer 33

Yes, this still must be carried out in order to detect any unusual/suspicious transactions.

Question 34

What does ongoing monitoring consist of?

Answer 34

Scrutiny of transactions and undertaking reviews of existing records and keeping documents or information up to date.

Question 35

When should CDD be carried out?

Answer 35

CDD should take place before the establishment of the relationship/carrying out of the transaction, but it can be carried out during establishment of the business relationship where there is a low risk of money laundering.

Question 36

Can a second solicitor rely on the CDD undertaken by another solicitor?

Answer 36

Yes, if the second solicitor obtains all the information needed to satisfy the MLR and they must enter into a written agreement with the first solicitor which enables the second solicitor to obtain from the second solicitor any identification/verification data or relevant information immediately.

Question 37

Does the first solicitor remain liable even if they rely on another person’s CDD?

Answer 37

Yes, the first solicitor remains liable for the client not being properly checked for money laundering purposes.

Question 38

What evidence would demonstrate compliance with CDD requirements for natural persons?

Answer 38

Producing a valid passport or photocard ID should enable most clients to meet the AML identification requirements.

More firms are using electronic data service providers which have access to databases such as the electoral roll and DVLA.

Question 39

What evidence would demonstrate compliance with CDD requirements for partnerships?

Answer 39

Obtaining and verifying the name, registered address, trading address and name of business would be sufficient.

Smaller partnerships should have private checks done on the individual partners.

Question 40

What evidence would demonstrate compliance with CDD requirements for companies?

Answer 40

Regulation 28(3) MLR 2017 requires that, in all case, if a client is a corporate body, you must obtain and verify its name, company number, registered officer address and principal place of business if different.

Question 41

What evidence would demonstrate compliance with CDD requirements for UK listed public companies?

Answer 41

Only need to carry out simplified CDD for example by obtaining copy of the dated page of the website of the relevant stock exchange by showing the listing, and verifying it by a search of the company registry.

Question 42

What evidence would demonstrate compliance with CDD requirements for UK private and unlisted companies?

Answer 42

Identify the name, registered number and address of registered office and verify it by a search of the company registry. Also take reasonable measures to determine and verify names of the board of directors and the law to which the company is subject.