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
