Money Laundering MCQs Flashcards
Your client, a British national, is purchasing a flat for her daughter for a price of £750,000. She is funding 50% of the purchase in cash from the sale of some shares, and 50% by a mortgage with a high street bank. You have not acted for the client before and you expect that this will be a one-off transaction for her.
Which of the following best explains the action you should take with regard to customer due diligence?
You should carry out enhanced CDD on the client because she presents a high risk of money laundering.
You should carry out standard CDD on the client and identify and verify the beneficial owner of the high street bank.
You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
You should carry out ongoing monitoring on the client because you have not acted for her before.
You should carry out simplified CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
You should carry out standard CDD on the client because there is nothing to suggest that this client presents a high risk of money laundering.
Correct. There is nothing on these facts to suggest that this client present a high risk of money laundering. The client is not from a high risk country, the transaction is not complex. She is funding 50% of the purchase through a mortgage and although 50% being funded in cash is quite a high amount, you have identified that she is funding this through the sale of some share, so there is no need to carry out enhanced CDD. For simplified CDD to apply there would need to be a reason to consider this particularly low risk, for example the client being a local authority, a listed company or other trusted party, which is not the case here. As this is a one-off transaction, it will be an occasional transaction and you should obtain standard CDD on the client before you start working for her.
Ongoing monitoring would only apply if this were an existing client and the firm had an ongoing relationship with her, which is not the case here.
There is no need to identify and verify the beneficial owner of the bank, as the bank is not your client.
A solicitor acts for a client in relation to the acquisition of a private limited company. Two days before the transaction is due to complete the solicitor suspects that his client will be using the transaction to launder money. The solicitor reports this to the nominated officer who makes a suspicious activity report to the relevant authority.
What action should the solicitor now take?
Proceed with the transaction after a period of three days if no response is received from the relevant authority.
Explain to the client that he cannot act as a suspicious activity report is pending.
Proceed with the transaction only after receiving authorisation from the relevant authority.
Explain to the client that a suspicious activity report has been made and then proceed with the transaction.
Proceed with the transaction as the solicitor has made the disclosure to the nominated officer.
Proceed with the transaction only after receiving authorisation from the relevant authority.
Correct. Once the solicitor has reported their suspicion to the nominated officer, they must wait for consent from the nominated officer or relevant authority before proceeding. If the solicitor receives no response within seven working days (not three), then the solicitor can proceed.
Note that acting on the acquisition of a private limited company falls within ‘participating in financial and real property transactions’, which falls within the definition of the ‘regulated sector’ and therefore the non-direct involvement offences apply here. If the solicitor told the client that they had made a suspicious activity report to the client they would be guilty of the offence of tipping off, s 333A PoCA.
Which of the following types of work would require your firm to carry out customer due diligence pursuant to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (‘MLR’).
Arranging for the cash purchase of a work of art for €14,500 on behalf of a new client to the firm.
Advising a UK-based client on their claim for £40,000 for personal injury following a road traffic accident
Agreeing to act as the business address for a Bermuda-based corporate client which has customers in England and wants to have an English address in case its customers need to contact it.
Advising a UK-based client being sued by a Greek company in relation to an intellectual property claim, which if the client loses, will cost the client a minimum of €10,000,000.
Advising an insurance company on their defence of a claim for £40,000 for personal injury following a road traffic accident
Agreeing to act as the business address for a Bermuda-based corporate client which has customers in England and wants to have an English address in case its customers need to contact it.
Correct. In this example the firm would be acting as a ‘trust or company service provider’ which is defined in Regulation 12(2) as including a firm ‘providing a registered office, business address, correspondence or administrative address for a company…’. A trust or company service provider falls within the definition of ‘relevant person’ under Regulation 8 and would be required to carry out customer due diligence under the MLR.
Arranging for the cash purchase of a work of art and conducting litigation work does not fall within the definition of independent legal professional or trust or company service provider in Regulation 12. While it might be good practice to carry out CDD, CDD is not required under MLR.
You are the only apprentice solicitor working in the property department of a law firm solely based in London.
Last week a new client, James, specifically asked to speak to you. James told you that he is currently living in Manchester and that his close friend, Raj, has offered to give him £750,000 in cash to help James buy his first property. This sum will cover the purchase price, together with all legal costs and disbursements.
James has now found a suitable property in Manchester and he would like you to act for him on the purchase. James told you Raj will send the £750,000 to your firm’s client account within seven days.
Earlier today you were contacted by your firm’s accounts department regarding the sum of £7,500,000 which had arrived from Raj. You have just received an email from James apologising that his friend has made an overpayment, requesting that the sum of £6,750,000 is transferred to Raj’s solicitors in Birmingham.
Which ONE of the following statements is CORRECT?
You need to report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. You must ensure that you do not inadvertently alert James to your suspicions.
You do not need to report that matter to the MLRO at your firm but you are required to notify Raj’s solicitors in Birmingham that he may be laundering money through their bank account.
You need to report that matter immediately to the MLRO at your firm and instruct the accounts department to transfer £6,750,000 to Raj as soon as possible so that it is not considered the proceeds of crime.
You should forward the money in full (ie £7,500,000) to James to ensure that you are not involved in any money laundering offences.
You need to report the matter immediately to the MLRO at your firm and instruct the accounts department to transfer all of the money (ie £7,500,000) to Raj so that you do not alert James to your suspicions.
You need to report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. You must ensure that you do not inadvertently alert James to your suspicions.
Correct. There are a number of factors here that indicate a risk of money laundering including, it is unusual for a client to instruct a firm in London for a transaction in Manchester and to instruct a junior lawyer directly. The friend was going to give the client an unusually large sum of money in cash and then transferred an exceptionally large sum of money “in error” to the firm and claimed it was a mistake. The best course of action to take is to report your suspicions to your firm’s MLRO and not to alert the client, otherwise you could commit the offence of tipping off. If you do not report your suspicions you may be guilty of offences under sections 327, 328, 329 and 300 Proceeds of Crime Act 2002 (‘PoCA’).
You receive instructions from a client, a Russian national living in London, to set up a trust for his grandchildren. The client informs you he will deposit £500,000 into your firm’s account for the trust. A day later your accounts department informs you that the client has deposited £600,000 into the firm’s account. The client sends you an email asking you to transfer the over-payment of £100,000 to his cousin at an account registered in Russia.
What is the most appropriate action you should take?
Instruct your accounts department to send the over-payment of £100,000 to the account nominated by the client. You do not need to report your suspicions to your firm’s Money Laundering Reporting Officer or the National Crime Agency because you are not operating in the regulated sector.
Send a suspicious activity report to the National Crime Agency. Continue to work on the matter so as not to alert the client to your suspicions.
Send a suspicious activity report to the National Crime Agency. Undertake no further work on the matter until you hear back from them and ensure that you do not alert the client to your suspicions.
Instruct your accounts department to send the over-payment of £100,000 to the account nominated by the client, so as not to alert him to your suspicions, and report the matter to your firm’s Money Laundering Reporting Officer.
Report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. Undertake no further work on the matter until you hear back from the MLRO and ensure that you do not alert the client to your suspicions.
Report the matter to the Money Laundering Reporting Officer (‘MLRO’) at your firm. Undertake no further work on the matter until you hear back from the MLRO and ensure that you do not alert the client to your suspicions.
Correct. There are a number of factors here that indicate a risk of money laundering including, the significant over payment of £100,000, the request to transfer the excess to a relative and to an account in on off-shore bank account. The best course of action to take is to report your suspicions to your firm’s Money Laundering Reporting Officer (‘MLRO’) and not to alert the client, otherwise you could commit the offence of tipping off. If you do not report your suspicions you may be guilty of the direct offences under sections 327, 328, 329 and 300 Proceeds of Crime Act 2002 (‘PoCA’) which apply whether or not you are operating in the regulated sector.
Tipping off (s333A) and failure to make a disclosure (s330) are non-direct involvement offence under PoCA and apply to people working in the regulated sector. Creating, operating or managing trusts falls within the definition of ‘regulated sector’, so you would be guilty of tipping off if you alerted your client to your suspicions and failure to make a disclosure if you did not report your concerns to your firm’s MLRO. Once you have reported your suspicions to your MLRO you should avoid undertaking further work on the matter unless your MLRO is authorised to do so by the National Crime Agency or the notice period has expired.
A solicitor in a law firm has received a phone call from the managing director of a private limited company incorporated in the UK, which is a new client. The managing director wants to know why the solicitor’s firm is asking for documents to verify the identity of the company’s shareholder. The company’s shareholder lives in Russia and owns and holds the entire shareholding of the company.
Which of the following responses best explains the advice the solicitor should give to the managing director?
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives in Russia.
The structure of the company and the way the shares are held by the shareholder may raise issues about tax evasion.
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.
The solicitor is considering making a suspicious activity report to the firm’s nominated officer.
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder lives outside the UK.
The solicitor is under an obligation to identify and verify the identity of the company’s shareholder because the shareholder owns more than 25% of the shares.
Correct: If your client is a company, you are required to identify and verify the identity of the ‘beneficial owner’ of the company, and beneficial owner is the person who ultimately owns or controls more than 25% of the shares or voting rights in the company.
Question 1
A solicitor is instructed by a client in a family case. The client tells the solicitor that their
marriage has broken down, but their spouse will not defend the divorce and has already
agreed to the matrimonial home and all other family assets being transferred to the client.
The client instructs the solicitor to commence divorce proceedings and deal with the transfer
of the assets in accordance with the agreement.
The client is known to the solicitor because they are both members of a local gym. The
solicitor knows that the client has told others at the gym that their spouse is under criminal
investigation for tax fraud.
Which of the following best explains the steps that the solicitor should take with regard
to due diligence?
A The solicitor should carry out enhanced due diligence because there is a high risk of
money laundering.
B The solicitor should carry out standard due diligence because the client has not
personally been involved in any criminal activity.
C The solicitor should carry out standard due diligence because the client is a private
individual.
D The solicitor should carry out simplified due diligence because family work presents a
low risk of money laundering.
E The solicitor does not need to carry out any due diligence because the client is already
known to the solicitor.
Answer
Option A is correct. Due diligence is required irrespective of the fact that the solicitor has
some personal knowledge of the client (option E therefore is wrong). Simplified due diligence
is based on an assessment of the individual facts of the case, not on the type of work involved
(option D is wrong). Options B and C do not represent the best answers because while
normally standard due diligence would be appropriate, here the facts suggest a high risk of
money laundering and so enhanced due diligence is required. The criminal investigation is
relevant (even though the client is not the subject) and the willingness of the spouse to transfer
all the assets to the client is unusual. The risk here is that the divorce is a sham and that the
spouse is seeking to distance themselves from assets purchased with the proceeds of crime by
transferring those assets to the complicit client.
Question 2
A solicitor is instructed by a client in the purchase of a property. At the first meeting, in
accordance with the firm’s client due diligence policy, the solicitor asks to see the client’s
passport. The client explains that they have just had to send the passport off for renewal
and does not expect their new passport to arrive for several weeks. The client produces a
bank statement showing the client’s name and address and promises to bring in a photo
card driving licence tomorrow.
The following day, the client says that they cannot find their driving licence. Instead the
client produces a letter from the client’s neighbour stating that they have known the
client for two years and confirming the client’s full name. The client then says that, as a
demonstration of goodwill, the client will provide the solicitor with the full purchase price of
the property in cash later that day.
Which of the following best explains what the solicitor should do?
A Proceed and complete the purchase because the bank statement contains the client’s
name and address.
B Refuse to act because the solicitor does not have sufficient verification of the client’s
identity.
C Agree to undertake the initial steps in the purchase pending receipt of the new
passport because there is little risk of money laundering.
D Proceed and complete the purchase because the letter is independent verification of
the client’s identity.
E Agree to undertake the initial steps in the purchase pending speaking to the neighbour
direct.
Answer
Option B is correct. As a general rule verification should be obtained at first contact.
Verification must be obtained from a reliable source which is independent from the client.
The letter would not fall within this description (meaning that option D is wrong), even if the
contents are confirmed face to face (option E is wrong), as the neighbour is a personal friend
and may have been duped by the client. Good practice dictates that verification should
be based on at least one government document. A bank statement might be sufficient in
combination with a government document, but not in isolation; accordingly, option A is not
the best answer. It is possible to delay verification if, inter alia, there is little risk of money
laundering. That cannot be the case here given the client’s inability to produce suitable
documentation and the cash payment proposal. The solicitor should refuse to act in these
circumstances. Accordingly, option C is wrong.
Question 1
A solicitor is instructed on the purchase of company shares. The solicitor discovers that a
colleague in the firm has been instructed by the same client in respect of an investigation
by the French tax authorities into certain of the client’s business activities in France which
are alleged to amount to tax fraud. The solicitor makes an authorised disclosure to the
firm’s nominated officer. The nominated officer does not go on to make a suspicious activity
report to the National Crime Agency. Forty- eight hours later, having heard nothing from the
nominated officer, the solicitor buys the shares on the client’s behalf.
Is the solicitor likely to have committed the offence of ‘arranging’ under s 328 Proceeds
of Crime Act 2002?
A Yes, because a suspicious activity report has not been made to the National Crime
Agency.
B Yes, because the solicitor did not have appropriate consent to proceed with the
purchase of the shares.
C No, because the solicitor made an authorised disclosure to the firm’s nominated officer.
D No, because the client has not yet been convicted of any criminal offence.
E No, because any criminal conduct took place outside the UK.
Answer
Option B is the best answer. An authorised disclosure was required to prevent falling foul
of s 328 despite the fact that the alleged criminal activity took place outside the UK (fraud
is a criminal offence in France) and despite the lack of a conviction (suspicion is all that is
required). However, the making of an authorised disclosure is not a sufficient defence in itself.
Having made the disclosure the solicitor will still have committed the offence by proceeding
with the purchase without consent. The duty to make a suspicious activity report lies with the
nominated officer and a failure to make the report has no relevance to the solicitor’s liability
under s 328.
Question 2
A junior solicitor, who works for a firm in Newcastle, is instructed on the purchase of a
residential property by a client who lives in Southampton. The client provides the solicitor
with the purchase price of the property in cash. The client then pulls out of the purchase
and asks the solicitor to return the purchase money to the client by cheque.
Which of the following best describes how the solicitor should respond?
A Inform their head of department about the client’s request.
B Do nothing.
C Tell the firm’s nominated officer that there is a suspicion of money laundering.
D Make a full file note of the client’s request.
E Send the cheque.
Answer
Option C is correct. There are reasonable grounds for suspecting that the client is engaged
in money laundering (geographical distance between solicitor and client and the use of
cash). The solicitor will commit the failure to disclose offence under s 330 if they do not make
a relevant disclosure. The solicitor should therefore inform the firm’s nominated officer giving
details of their suspicions. Option B is wrong as doing nothing is not an option in this case.
Neither option A nor D is the best answer because, while making a file note and informing
the head of department are good ideas they will not save the solicitor from committing the
offence. Finally, option E is wrong. By sending the cheque the solicitor is likely to commit other
offences (eg arranging under s 328).
Question 3
A partner in a firm is acting for a client in the purchase of a business. The firm receives a
telephone call from the client’s wife. The partner, who is in a meeting, asks a junior solicitor
to take the call. In doing so the partner says that the client has given permission for any
information about the purchase to be discussed with his wife.
The solicitor takes the call. The client’s wife asks for an update on the progress of the
purchase. On checking the file, the solicitor tells the client’s wife that the client provided
the money for the purchase in cash and the partner has concerns that the client may have
obtained some of the money as a result of tax fraud and that consequently the purchase is
on hold whilst the firm considers making a suspicious activity report to the National Crime
Agency.
Which of the following best explains whether the solicitor has committed a ‘tipping off’
offence under s 333A Proceeds of Crime Act 2002?
A An offence has not been committed because the disclosure was authorised by the
partner.
B An offence has not been committed because the solicitor did not intend to prejudice an
investigation.
C An offence has not been committed because the disclosure was not made to the client.
D An offence has been committed because there is strong evidence that the client has
been engaged in money laundering.
E An offence has been committed because the disclosure is likely to prejudice any
investigation into money laundering.
Answer
Option E is correct. A key element of the offence is that the disclosure is likely to prejudice
an investigation. Making the disclosure to the client’s wife is highly likely to prejudice the
investigation. However, the solicitor does not need to have intended this outcome (option B
therefore is wrong). A tipping off offence under s 333A(3) does not depend on the strength of
evidence of money laundering (option D is wrong); even the contemplation of an investigation
is sufficient. Tipping off offences can be committed where a disclosure is made to any person,
meaning that option C is wrong. Finally, option A is wrong as there is no scope for the tipping
off to be authorised, and in any event the partner authorised the conversation taking place,
not its content.
Question 29
A solicitor acts for a client in relation to the acquisition of a private limited company. Two days before the transaction is due to complete the solicitor suspects that his client will be using the transaction to launder money. The solicitor reports this to the nominated officer who makes a suspicious activity report to the relevant authority.
What action should the solicitor now take?
A. Proceed with the transaction as the solicitor has made the disclosure to the nominated officer.
B. Proceed with the transaction only after receiving authorisation to do so from the nominated officer.
C. Proceed with the transaction after a period of three working days if no response is received from the relevant authority.
D. Explain to the client that the solicitor cannot proceed with the transaction as a suspicious activity report has been made.
E. Explain to the client that a suspicious activity report has been made and then proceed with the transaction.
B - Proceed with the transaction only after receiving authorisation to do so from the nominated officer.
A solicitor working in a large firm becomes aware that a client whom she is representing in the purchase of a property is involved in money laundering.
She makes a disclosure to the nominated officer at the firm. The nominated officer considers the information provided with the disclosure and agrees that there is evidence of money laundering.
To whom must the nominated officer report the evidence of money laundering?
A. The National Crime Agency.
B. The Law Society.
C. The Solicitors Regulation Authority.
D. The Financial Conduct Authority.
E. The solicitor acting for the seller of the property.
A - The National Crime Agency.
A potential new client has been referred to you by one of the firm’s longest-standing and most trusted clients. You meet the man at your offices, and he explains that he would like you to act for him on the purchase of a property in London. The seller is the man’s cousin. The man is buying the property at a discount with cash. He wants to complete the transaction within the next few days. He asks for your client account details to transfer the purchase funds.
Which of the following statements best describes what you should do?
Select one alternative:
Accept the monies into the firm’s client account and proceed with the transaction because the man was referred to you by a trusted client.
Do not accept the monies into the firm’s client account and make an authorised disclosure to your firm’s Money Laundering Reporting Officer without alerting the man to your concerns.
Accept the monies into the firm’s client account but, before proceeding further, advise the man of your concerns and ask him for evidence of the source of the funds.
Accept the monies into the firm’s client account and make an authorised disclosure to your firm’s Money Laundering Reporting Officer without alerting the man to your concerns.
Do not accept the monies into the firm’s client account and make an authorised disclosure to the Solicitors’ Regulation Authority without alerting the man to your concerns.
Do not accept the monies into the firm’s client account and make an authorised disclosure to your firm’s Money Laundering Reporting Officer without alerting the man to your concerns.
These are suspicious facts raising a concern about money laundering as the man is buying property quickly, in cash from a relative. You should not accept monies on account in these circumstances nor should you alert the man of your concerns to avoid the risk of “tipping off” under s 333A. This course of action accords with s 327-329 and the firm will have a defence if it makes an authorised disclosure to the MLRO/Police under s 338 PoCA. The SRA is not the appropriate body to report money laundering concerns to. The referral from a trusted client is no defence to money laundering offences.
You are acting for an individual in relation to the acquisition of a property. Prior to completion, the individual sends you a large overpayment to your firm’s client account. You have a concern about money laundering, so you report the overpayment to your firm’s Money Laundering Reporting Officer who makes a suspicious activity report to the NCA.
Which of the following options best describes the circumstances in which you can proceed with the transaction?
Select one alternative:
You can proceed with the transaction as soon as the suspicious activity report has been made.
You can proceed with the transaction provided you are authorised to do so by the Money Laundering Reporting Officer.
You can proceed with the transaction provided you notify the individual that a suspicious activity report has been made.
You can proceed with the transaction provided 5 working days has passed from the disclosure to the NCA and the NCA has not refused authority to proceed.
You can proceed with the transaction provided your firm is authorised to do by the NCA
You can proceed with the transaction provided your firm is authorised to do by the NCA
This question is about understanding what steps a solicitor can take once a suspicious activity report has been made by the firm’s MRLO to the NCA. If the MLRO makes a suspicious activity report to the NCA, you cannot proceed until the NCA provides authorisation, the MLRO cannot authorise you to proceed once an SAR has been made to the NCA. The correct notice period is 7 working days, not 5. You also need to be aware of the offence of ‘tipping off’ when acting in a transaction in the regulated sector (which this is). This was covered in the element on ‘ML offences under the PoCA’.
