Money laundering Flashcards
What is money laundering?
A financial transaction in which the proceeds of crime are cleaned with legitimate channels so the source of the proceeds is harder to trace
E.g., arranging for money to be deposited in a law firm’s account and then withdrawing it from the account, the money looks like it has been legitimately sourced from the law firm’s account
What are key indicators of money laundering?
- High-risk jurisdictions
- Suspicious use of client account
- Client giving unusual instructions
- Property purchased or funded by unknown people
- Sham litigations or transactions
- Transaction related to terrorist organisation
What are Money Laundering Regulations and who do they apply to?
Anti-money laundering regulations that place obligations on in-scope firms
In-scope firms:
- conveyancing
- corporate finance work
- setting up and management of companies: company formation
- setting up and management of trusts
Out-of scope
- litigation, wills writing and general commercial advice
What are risk assessment requirements under MLR 2017?
- law firm must carry out a whole firm risk assessment - a written document setting out the AML risks the law firm facts and risk assessment for each client to inform what CDD should be done
- risks assessments are to take appropriate steps to identify and assess firm’s exposure to risk of money laundering and terrorist financing
What are the reporting requirements under MLA 2017?
- The firm must have a Money Laundering Reporting Officer (MLRO) to receive disclosures from employees as a nominated officer
- A solicitor must report to the MLRO/NO of their firm if they know, suspect or have reasonable grounds to know/suspect of money laundering
What happens after a solicitor makes a report to the MLRO?
The MLRO will review the report
- if they believe money laundering is going on, they will make a suspicious activity report to the NCA
- NCA has 7 working days to respond
- MLRO must be senior in the firm (a partner) and SRA must be informed of their appointment within 14 days
What happens after MLRO makes a suspicious activity report to NCA?
Neither the MLRO nor the fee earner take any further work unless:
- authorised by NCA; or
- 7 working days has passed during which NCA has not refused authority
- the NCA refuses and 31 days have expired
What is MLCO?
Money Laundering Compliance Officer
- a firm must have a MLCO to ensure ongoing compliance with MLRs
What screening, training and audit requirements are there for law firms under MLRs?
- a firm’s new lawyers must be screened before starting work
- firms must give training
- firms must establish an independent audit function
- SRA must approve beneficial owners of a firm (someone owning more than 25%), firm’s officers and managers and the MLRO
What are the requirements for policies, controls, procedures under MLRs?
A firm must have written policies, procedures and controls in place to ensure compliance to manage and mitigate risks
PCPs:
- must be proportionate
- must be approved by senior management
- must be reviewed regularly
- this must be documented
This means if there is a large law firm, to comply with obligations under MLRs 2017, the risk assessment of money laundering will need to be extensive and approved by appropriately senior staff
What are record keeping obligations?
- Firms must keep client due diligence records for 5 years after completion of work for a client
- Firms must keep written records of:
a) risk assessments
b) CDD records (5 years)
c) policies, controls, procedures
d) training
e) internal controls
f) record keeping
What are client identity requirements?
- Solicitors must identify the client they are working for
- CDD requirements (only applies to in-scope firms)
When must client due diligence be done?
- Establishing a business relationship
- Carrying out an occasional transaction
- Where there is an existence of a suspicion of money laundering
- Doubts about veracity of client’s ID or other documents
What are the ongoing monitoring requirements for CDD?
A law firm must continue to monitor the CDD of a client
- consistent with knowledge of the client and CDD records up to date
What is standard due diligence?
- CDD which is done on most clients
Involves
- identify the client and verify identity
- if acting for a partnership or company/LLP: identify and take reasonable steps to verify the beneficial owner (person who owns more than 25%)
What is simplified CDD?
A less extensive identification process
Used if the client is low risk:
- public authority
- individual who resides in UK/EU/US and undergoing low risk
- client is a renowned bank
- listed on LSE
- registered professional
What is enhanced CDD?
A firm makes more extensive checks to understand purpose of transaction and increase monitoring
Used where client is high risk:
- high risk of terrorist financing
- high-risk jurisdiction
- Politically Exposed Person
- client provides false ID
When must client due diligence be carried out?
First thing - before establishing a business relationship or carrying out a transaction
What is the s327 offence under POCA and what are defences available?
Concealing, disguising, converting or transferring criminal property or removing criminal property from UK
Defence:
1. authorised disclosure: disclosure is made to firm’s NO and consent is given to act
- disclosure must be made before prohibited act is done;
- or if done after, because there is a reasonable excuse
- Overseas defence - criminal conduct occurred outside the UK
- Reasonable excuse
What is s328 offence under POCA?
Entering into or becoming concerned in an arrangement that the solicitor knows or suspects facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person
Spot arranging:
1. Is there an arrangement?
2. Is there criminal property?
3. Knows or suspects
Defences:
- Authorised disclosure
- Overseas defence
- Reasonable excuse
What is s329 offence under POCA?
Acquiring, using or possessing criminal property
Example: criminal money from a client to buy a property is held by solicitor as part of transaction
Additional defence:
- adequate consideration: payment for services for a proper price or solicitor receiving money on account of costs at start of matter
What is s330 offence under POCA?
Failure to disclose to nominated officer or NCA as soon as practicable after information of money laundering comes to solicitor
- the NO then decides whether to disclose the information to NCA and if so, they submit a suspicious activity report
What is s331 offence under POCA?
Nominated officer failed to disclose to NCA
- as a result of the s330 disclosure
- fail to make required disclosure to NCA as soon as practicable
What is s333A offence under POCA?
Tipping off by a solicitor
- disclosure has been made
- an investigation into client is being contemplated
Tipping off to a client is never authorised by anyone
What is process after NO/MLRO make a SAR to NCA?
A solicitor cannot continue to act for a client until they get consent from NO/MLRO otherwse they commit an offence
How does the adequate consideration defence apply to s329 POCA?
If a solicitor receives money on account of costs and they had no idea money laundering was going on, they have a defence to s329
Does solicitor need to have any knowledge or suspicion of s327 offence?
No, it is a strict liability offence
What is a defence to tipping off (s333A POCA)?
If the defendant (solicitor) genuinely believes that telling the individual will help them to cooperate
- solicitor will not commit a s333A if they do not know or suspect that their disclosure will likely prejudice an investigation
What are the steps for standard CDD for a company?
When identifying a company or LLP for standard CDD:
- identity and verify company name, number, registered office
- identify law
- if a company, read the Articles of Association
- get full names of directors
- get proof of registration from Companies House
- identify any beneficial owner
- verify the names of the board of directors
Do not need to: identify the company secretary
Does MLRs 2017 automatically apply to all law firms?
NO - only in-scope work
Example: a sole practitioner who provides will writing services, does not need to comply with MLR as this work is not in-scope
What is required for the overseas defence to apply?
- Solicitor knows or has reasonable grounds for believing the criminal conduct that sourced the money occurred outside the UK
- Solicitor does not need to know or have reasonable grounds for believing that the conduct is not criminal in the country overseas - only the fact that it occurred overseas
Overseas defence applies to all offences (except s333A tipping off)
How do requirements under MLR interact with requirements under SRA Code of Conduct?
The rule is that only in-scope firms must conduct client due diligence under MLRs 2017.
But the SRA Code of Conduct requires that solicitors identify their clients. This means, even if a law firm’s work is not in-scope, they should still conduct standard DD
What is the customer due diligence requirements for trusts?
Customer due diligence should be carried out in relation to the trustees and also the beneficiaries 9as the beneficiaries are beneficial owners for purposes of Money Laundering Regulation)
What is the adequate consideration defence to s329 POCA?
s329 - acquiring, using, possessing criminal property
The adequate consideration defence can be used by law firms who receive money for their legal fees, even if that money is criminal money, provided that the payment is proper payment for such fees and they receive money on account of costs
But if the solicitor then transfer that money in some way, an offence under s327 is committed (unless there is a defence)
When might enhanced CDD be required for an existing client?
Where a transaction is complex OR unusually large to normal activity of the client
Enhanced due diligence where:
- transaction is complex;
- transaction is unusually large; or
- where there is an unusual pattern of transactions
What happens if after suspicious activity report is made and NCA refuse consent?
NCA refuse consent during notice period and moratorium, period (31 days starting with day firm received notice that consent was refused) has expired
- after 31 days since refusal to consent from NCA has been received - the nominated officer can consent to the solicitor proceeding with the transaction
What is an acceptable type of identity for individuals being checked for anti-money laundering purposes?
- a valid current passport
- a recent original mortgage statement from a recognised lender
