Money laundering

Question 1

Which are the three acknowledged phases to money laundering?

Answer 1

1. placement (cash generated from crime being placed in the financial system)
2. layering (once in the financial system, passing the money through complex transactions. often involving different companies such as trusts in multiple jurisdictions)
3. Integration (once the origin is obscured, the criminals invest in legitimate assets and businesses e.g using a solicitor to set up a company. This is the most difficult stage to detect)

Question 2

Define criminal property?

Answer 2

Property which constitutes a person’s benefit from criminal conduct and the alleged offender either knows or suspects that the property represents the proceeds of crime.

There is no requirement for the suspicion to be clear, on reasonable ground or firmly grounded on specific facts, but there must be a degree of satisfaction, at least extending beyond speculation.

Question 3

Define the conclusion in Shah v HSBC

Answer 3

“obligation to report arises when there is a suspicion of money laundering. There is no need for extensive investigation as to the accuracy of the suspicion. Note that there has to be a suspicion of money laundering rather than a general suspicion that the transaction is “fishy””

Question 4

What are the possible defenses to a principle offence?

Answer 4

1. no knowledge or suspicion that the property is criminal property. The defence is not available if the value of the property of work is significantly less than the money received. e.g. buying a house or car, which constitutes the proceed of crime.

Question 5

Define the concept of “regulated sector”

Answer 5

The relevant act applies to all persons, certain failure to report offences only apply to persons that are engaged in activities in the regulated sector.

Relevant for solicitors:

1. legal advice about tax affairs of another person.
2. legal or notarial services by solicitor involving the participation in financial or real property transactions (Excluding litigation)
   (a) buying/selling real property or business entities
   (b) managing of client money, securities or other assets
   (c) opening of bank, savings or securities accounts
   (d) creation or management of companies
   (e) creation, operation or management of trust, companies or similar

Question 6

Describe the first ancillary offence of “failure to disclose”

Answer 6

(a) Failure to disclose to a nominated officer or the NCA,
(b) as soon as practically possible after it comes to your attention
(c) Knowledge or suspicion of money laundering
(d) where you acquire such knowledge or suspicion in the course of your business
(e) in the regulated sector
(f) where you can identify the person engaged or the relevant property.

The offence will be made out where it can be showed that you had objectively speaking reasonable grounds to suspect that a client was engaged in money laundering.

If a solicitor does not report he can defend by:

1. having a reasonable excuse for not reporting
2. he is a professional legal adviser and the information came to them in “privileged circumstances”
3. he has no actual knowledge or suspicion and have not received any training from his firm.

Question 7

Which are the ancillary offences?

Answer 7

1. failure to disclose

2.

Question 8

What is the difference between “privileged circumstances” (which is a defense for a solicitor not to report money laundering) and “legal professional privilege (which is not a defense)

Answer 8

Privileged circumstances - cover communications given by a solicitor to his client or any third party in connection with actual or contemplated legal proceedings. Provided such communication are not made with the intention of furthering a criminal purpose.

Legal professional privilege - e.g where a solicitor communicates with a client the view to him providing legal advice on the clients position. The reasonable excuse defense will apply if the solicitor forms a genuine but mistaken belief that this exemption applies

Question 9

What is the penalty of failure to disclose money laundering?

Answer 9

5 years in prison and/or fine

Question 10

Define “tipping off”?

Answer 10

It’s officially called “disclosing a suspicious activity report”

It is an offence to disclose to a third person that a suspicious activity report has been made by any person to the police, HMRC, NCA or a Nominated Officer , where such a disclosure might prejudice any investigation that might be carried out as a result of the SAR .

Question 11

What conditions needs to be met in order to commit the offence of tipping off?

Answer 11

1. a disclosure has already been made to the NCA or to a nominated officer; and
2. you know or suspect that, by disclosing the information, you are likely to prejudice any investigation related to the SAR. Therefore, no offence will be committed if you did not know or suspect that the disclosure was likely to prejudice any investigation; and
3. the information upon which the disclosure is based came to you in the course of business in the regulated sector.

It is a defense to “tip-off if the purpose was to discouraging the client to engage in the alleged activity.

Question 12

What conditions need to be met in order to commit the offence of “disclosing an investigation”?

Answer 12

It is an offence to disclose that an investigation info money laundering is being contemplated or underway, provided:
1/ the disclosure is likely to prejudice the investigation
2. the information in which the the disclosure is made came to you in the course of a business in the regulated sector.

Question 13

What is the penalty of tipping off?

Answer 13

2 years in prison and/or fine. Note that you can commit this offence even when you are unaware that a suspicious activity report has been submitted.

Question 14

What are the exemptions to the offence of tipping off?

Answer 14

No offence is committed:

1. when a disclosure is made by an employee, officer or partner to another such individual within the same undertaking or group.
2. where disclosure between EU-based (or equivalent) credit/financial institutions which belong to the same group
   3.where disclosure is between professional advisers (legal, auditing, tax adviser) in different undertaking under the same ownership, management or control or where both professionals are acting for the same client.
   4.

Question 15

Which relevant business fall within the scope of the money laundering regulations?

Answer 15

1. regulated activities (RAO)
2. acting for a client in a real estate or financial transaction,
3. acting as an insolvency practitioner
4. performance of financial services

Question 16

Which relevant business fall outside the scope of the money laundering regulations?

Answer 16

1. payment on account of costs to a solicitor or payment of a solicitor’s bill
2. provision of legal advice
3. conducting litigation or ADR
4. will drafting
5. publicly funded work

Question 17

What are the main requirements of the money laundering regulations?

Answer 17

Every firm must have systems in palce to ensure that all members of staff:

1. comply with procedures for identification, record-keeping and internal reporting;
2. are aware of POCA (proceeds crime act) and the MLR;
3. are given adequate training as to the firm’s appropriate procedures to identify, prevent and report suspicions of money laundering.

Question 18

What are the penalties for not complying with money laundering regulations?

Answer 18

Up to 2 years in prison and/or fine. This applying notwithstanding if money laundering has taken place.

Question 19

When do you have to do CDD?

Answer 19

1. before establishing the business relationship
2. carrying out an “occasional transaction” which is not part of a business relationship (more than 1.000 Euro and 15.000 if in several transactions)
3. money laundering or terrorist financing suspected
4. the veracity or adequacy of documents/information is doubted

Question 20

What is FATF

Answer 20

Financial Action Task Force on Money Laundering, is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering.

Question 21

Tell me more about POCA

Answer 21

Proceeds of Crime Act applies to all persons, although certain failures to report offences only apply to persons who are engaged in activities in the regulated sector.

Question 22

What are the principals Money Laundering Offences?

Answer 22

1. Concealing, disguising, converting, transferring or removal from the UK of criminal property,
2. Acquiring, using or having possession of criminal property,
3. Entering into or becoming concerned in an arrangement which a person knows or even suspects facilitates the acquisition, retention, use or control of criminal property.

Question 23

What is an authorized disclosure?

Answer 23

A lawyer who suspects that he might commit one of the primary money laundering offences by fulfilling his client’s instructions will have a defence if he reports the matter to the relevant UK authority. An authorised disclosure is a defence if it is made BEFORE the prohibited act occurs.

The disclosure can be made to a constable, customs officer or a nominated officer such as the MLRO. If the MLRO agrees with the suspicion, she will make an external disclosure to the National Crime Agency (NCA)

Question 24

Can I get in trouble if I am in breach of my obligation as a solicitor to my clients?

Answer 24

If a disclosure in authorised, it does not breach rules that apply to solicitors such as:

1. acting with integrity
2. not allowing your independence to be compromised
3. acting in the client’s best interests
4. providing a proper standard of service and maintaining public interests
5. providing a proper standard of service and maintaining public trust
6. confidentiality

Solicitors are protected form civil liability for making an authorised disclosure in good faith.

Question 25

Can a solicitor firm rely on a financial institution’s identification checks?

Answer 25

The MLR require a solicitor to conduct CDD when participating in financial or real property transactions. This usually contains passport copy and 2 utility bills. However, the solicitor can rely on the introduction company having undertaken the necessary identification processes, provided the company has confirmed in writing that it operates procedures for client identification and that the client in question has been identified. Responsibility in event of failure still lays with the solicitor.

Question 26

When does the Privilege Circumstances reporting exception apply?

Answer 26

For the privileged circumstances to apply for legal advice, the following conditions need to exist:

1. There needs to be a confidential communication (written or oral) between the professional adviser and his client, or a representative of the client, in which the client seeks or the professional adviser gives legal advice
2. That communication must take place within the confines of a professional relationship between them, including an initial meeting which does not progress to a business relationship.
   The communication must relate to legal advice (i.e. advice concerning the rights, liabilities and obligations or remedies of the client under the law)

The privilege reporting exception does not apply to information or any other matter which is communicated or given with the intention of furthering a criminal purpose e.g. fraud

Question 27

What if you have a reasoned belief that that advice given by you will be used in money laundering?

Answer 27

When you suspect that you are being used to facilitate criminal activity, the crime/fraud exception applies. This means that the information that caused you suspicion - which was given to you in privileged circumstances”, as it was communicated to you by person seeking legal advice - is not protected by normal “privileged circumstances requirement or legal professional privilege that would ordinarily prevent a disclosure. You can therefore consider withdrawing from the transaction, as if you proceed you are likely to commit a money laundering offence or “arranging”. You should consider reporting to.