Money Laundering Flashcards
what is money laundering?
where criminals pass money through an organisation to clean it, so it has an audit trail making it look legitimate
what is terrorist financing?
Terrorist financing (TF) is an offence if any money is used, not just laundered money
what are those at risk of money launders called?
- Those at risk by money launders are called gatekeepers
what are the stages of money laundering?
3 stages of ML, a solicitor can become involved at any point:
1. Placement criminal money is introduced into the system
2. Layering the money is distanced from the criminal by passing through a number of parties or transactions
3. Integration money is returned to criminal and they are now in possession of laundered money
what are the areas of a solicitors’ work which are most at risk? How should his be dealt with?
- These are the areas of a solicitors’ work most at risk and should be addressed in the firm’s risk assessment:
o Company and trust work
o Use of client account
o Real estate
o Sham litigation
why is company and trust work a risk?
due to complicated structures
give an example of ‘use of client account’
client states they have put £x in their client account to purchase a business. The purchase then does not go ahead. The client asks if the money can be transferred to a company they own instead. If this money was from the proceeds of crime (PoC), the solicitor would have facilitated ML.
give an example of ‘real estate’
i.e. the client is due to buy a house for £500k. This is transferred to the client account to complete the purchase. The seller drops the price to £400k. The client asks for the remaining £100k to be paid to an associate in settlement of a debt. If the solicitor does and the money is from PoC, the solicitor would have facilitated ML.
give an example of sham litigation
o i.e. solicitor is instructed to issue a claim. It is not defended and default judgment is obtained, but D pays the solicitor’s firm who then transfers this to the client. This may be sham litigation to transfer illicit funds and the solicitor has assisted.
what are the main regulations?
- Main regulations = MLR 2017 (MLR)
who does MLR apply to?
- MLR applies to “relevant persons” (RP), inc. (non-exhaustive):
o Tax advisors
o Insolvency practitioners
o Trust or company service providers
o Independent legal professionals (ILP) a firm or SP who deals with financial or real property transactions
who do the regulations not apply to?
- MLR does not apply to independent legal professionals working in-house or for a public authority
if MLR applies, what must they do?
If MLR applies, the RP must:
o Conduct a ML and TF risk assessment
o Implement systems, policies, controls and to address ML and TF and apply these across the firm’s group structure
o Adopt appropriate internal controls
o Staff training
o Apply for approval
o Comply with client due diligence requirements
o Ensure record keeping and data protection systems, policies and procedures are compliant
what is the obligation under STARS?
- Under StaRs, firms must have structure in place to ensure compliance with AML legislation and identify, monitor and manage risks
re: firm risk assessment
what is the obligation?
- RPs must carry out a written RA and take appropriate steps to identify the risk of ML and TF, there will need to be a written record of the steps taken
re: firm risk assessment
what risk factors must be considered?
The following risk factors must be considered (they can consider more):
o Nature of the clients and industries they operate in
o Services delivered by the RP, particularly high risk services i.e. trust and company services, conveyance and client accounts
o Risks identified in the SRA’s RA of legal services as a whole
re: firm risk assessment
what can happen if the risk assessment is poor?
- The SRA can take enforcement action against a firm if the RA is inadequate
re: systems, controls, policies and procedures
what is the obligation?
- RPs must establish and maintain written policies, controls and procedures to manage risks identified in the RA.
re: systems, controls, policies and procedures
what must the policies etc cover?
o Risk management practices
o How the firm conducts customer due diligence
o Reporting and record keeping systems
o Monitoring, internally communicating and managing compliance
o Procedure for unusually complex or large transactions or unusual transactions with no apparent economic or legal purpose
o Procedure for new technology to assess and mitigate ML risk
o The making of disclosures under TF and PoC legislation
re: systems, controls, policies and procedures
what are the procedural requirements for the policies etc?
These must be:
o Proportionate to the size and nature of the business
o Approved by senior management
o Regularly reviewed and updated
o Communicated internally within the firm
If the RP is part of a wider group structure, they will need to make sure these apply to all subsidiaries (in and outside of the UK)
re: internal controls
what controls must be in place?
Under MLR, RPs must:
o Have a money laundering reporting officer (MLRO) and possibly a money laundering compliance officer (MLCO)
o Screen relevant employees
o Auditing functions
o Procedure for response to law enforcement
re: internal controls
who must have an MLRO?
- Firms must have an MLRO (unless they are an SP with no employees)
re: internal controls
who must have an MLCO?
- Firms only need to have an MLCO ‘where appropriate to the size and nature of the business’
o In practice, this is likely to be most firms (not inc. SPs)
re: internal controls
who can be the MLCO?
o Only “senior management” can be the MLCO
o Senior management = someone with sufficient knowledge of the firm’s ML & TF risk and with authority to take decisions
The MLRO and MLCO can be the same person
re: internal controls
what is the MLRO’s role?
they are the ‘nominated officer’ to receive TF & ML disclosures and must report suspicion of ML and TF to the NCA
