Proceeds of Crime Act 2002

Question 1

Which act governs the offences relating to money laundering/ terrorist financing?

Answer 1

The Proceeds of Crime Act 2002 (POCA 2002).

Question 2

List the offences under POCA 2002.

Answer 2

1) Arranging (s328);
2) Acquisition, use or possession (s329);
3) Concealing (s327)
4) Failure to disclose (s330)
5) Failure to disclose (nominated officers) (s331)
6) Tipping off (s333A)
7) Prejudicing an investigation (s342)

Question 3

Define the offence of Arranging under s328 of POCA 2002.

Answer 3

A person commits the offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.

Question 4

Do the funds in question have to pass through the hands of the person concerned with the arrangement (ie the solicitor) to be found guilty of the offence of arranging?

Answer 4

No.

Question 5

Define criminal property for the purposes of the POCA 2002 offences.

Answer 5

• S340 defines criminal property as a person’s direct or indirect benefit from criminal conduct.
• Therefore it includes profits made from the original crime swell as the stolen property itself (for example).
• To be criminal property, the suspect must know or suspect the property constitutes or represents a benefit from criminal conduct.
• Criminal conduct is defined to include any offence committed within UK (eg fraud, robbery etc). Criminal conduct committed abroad is also criminal conduct, if the offence would have been criminal if it occurred in the UK.
• There must have been an initial criminal offence committed for property to become criminal.

Question 5

Explain the ‘know or suspect’ element of the offence of arranging (and other offences in POCA 2002).

Answer 5

• To commit offence of arranging suspect my know or suspect.
• This is low threshold so a mere suspicion is sufficient. It is a subjective test.
• A vague feeling would not suffice, so the suspicion need not be strong but must be more than fanciful.

Question 6

Explain whether litigation falls within the scope of the offence of arranging.

Answer 6

• Litigation is excluded from the scope.
• As such, dividing assets in accordance with a court order/ judgment (eg arising from divorce) does not constitute arranging.
• Involvement in reinvesting stolen assets however would fall in the scope of s328.
• Solicitor cannot rely on litigation being excluded if litigation itself was a sham created for money laundering purposes.

Question 7

Give an overview of the authorised disclosure defence to the offence of arranging.

Answer 7

• Disclosure must be made by a person who, but for the disclosure, would be committing an offence.
• The disclosure must be in relation to criminal property and satisfy certain requirements in terms of timing and to whom the disclosure should be made.

Question 8

For the defence of disclosure, to whom must the disclosure be made?

Answer 8

1) A nominated officer (who will be there MLRO); or
2) a constable; or
3) an officer of HMRC.

Question 8

To whom should a nominated MLRO report suspected offences to and what is the report called?

Answer 8

Offences are reported to the National Crime Agency (NCA) and the report is called a Suspicious Activity Report (SAR).

Question 9

Explain the timing of when a disclosure must be made in order to rely on the defence.

Answer 9

• Must be made ASAP prior to the transaction/arrangement taking place;
• To continue with the transaction, nominated officer or NCA consent MUST be obtained. If not, an offence is still being committed under s328.
• The defence is a complete defence.

Question 10

Explain the oversees defence.

Answer 10

• Applies where individual knew or believed that the alleged criminal conduct occurred abroad and the conduct in question was lawful in that particular country.
• Note this provision can be overridden by the Secretary of State.

Question 11

What is the maximum penalty for an individual convicted under the offence of arranging under s328?

Answer 11

Maximum of 14 years in prison.

Question 12

Explain the adequate consideration defence to s329.

Answer 12

• Offence will not be committed if there was adequate consideration for acquiring, using and possessing criminal property, unless the individual knew or suspected that those goods or services might help to carry out criminal conduct.
• This will apply to money paid to solicitor in fees on account of costs and disbursements, but will not apply if the money received is significantly more than the value of the work undertaken (ie the fees charged must be reasonable).

Question 13

Where nominated officer raises a SAR with the NCA, when are they able to give consent to the solicitor involved to proceed with the transaction?

Answer 13

1) If having made the disclosure, nominated officer receives authorisation to proceed by the NCA;

2) Nominated officer, having made disclosure to NCA, hears noting for 7 working days;

3) Where consent is refused by NCA, nominated officer can’t consent to transaction unless consent is subsequently granted within 31 days starting on day refusal is given, or the period of 31 days has expire.

Question 14

Can a solicitor use the consent (disclosure) defence to proceed with a transaction, but still be in breach of professional conduct regulations?

Answer 14

Yes.

Question 14

Explain the use of the disclosure defence, where the disclosure is made during the prohibited act (s328).

Answer 14

The defence will still work provided the following conditions are satisfied:

1) Disclosure made whilst prohibited act is ongoing; and
2) When solicitor began to do the act, solicitor did not know or suspect that the property constituted or represented a person’s benefit from criminal conduct; and
3) Disclosure is made ASAP after solicitor first knows/ suspects the property constitutes or represents a person’s benefit from criminal conduct and the disclosure is made on solicitor’s own initiative.

Question 14

Explain how the defence of disclosure can be used after the prohibited act has ben completed.

Answer 14

• Solicitor must have a good reason for not disclosing sooner (ie prior to the act).
• Solicitor must also make disclosure as soon as practicable and have made the disclosure on their own initiative.

Question 15

Explain the reasonable excuse for non-disclosure defence.

Answer 15

• Where the solicitor intended to make a disclosure but has reasonable excuse for not doing so.
• What constitutes a reasonable excuse has not been defined but is known to be narrowly applicable.

Question 16

Explain the available defences to s329 offence (acquisition use or possession).

Answer 16

• Authorised disclosure defence;
• Overseas defence;
• The adequate consideration defence.

Question 16

Explain the offence under s329 (acquisition, use or possession).

Answer 16

Person commits this offence where they acquire, use or have possession of criminal property.

Mainly used to prosecute those who had no involvement in the original crime, but benefit from it.

For example, solicitor receives money for costs, for work carried out for client charged with a criminal offence and there is a possibility that the money is question is criminal property.

Question 17

What is the maximum prison sentence for s329?

Answer 17

14 years imprisonment.

Question 18

Explain the offence under s327 (concealing).

Answer 18

• It is an offence to conceal, disguise, covert or transfer criminal property or remove it from UK.
• This is the main money laundering offence.
• Easily committed given solicitors often convert money into property (for example) and transfer money between parties.

Question 19

Which defences apply to s327 (concealing).

Answer 19

• Overseas defence;
• Authorised disclosure defence

Question 20

Briefly explain the offence under s330 (failure to disclose).

Answer 20

• Person commits this offence where:

a) he knows or suspects, or has reasonable grounds to know or suspect, that a person is engaged in money laundering;
b) the information comes to him in the course of a business in the regulated sector;
c) the information may assist in identifying the money launderer or the location of any laundered property; and
d) he does not make a disclosure as soon as is practicable.

• Note the offence can still be committed even if there is insufficient evidence to prove money laundering had taken place.
• The s330 offence also includes ‘has reasonable grounds to know or suspect’ meaning solicitor can commit offence without knowing or suspecting, provided it is reasonable they should have known. This is an objective test for the court.

Question 21

Define information for the purposes of s330.

Answer 21

• Info must be of some use to authorities.
• Solicitor must therefore identify or believe the info may assist run identifying the money launderer or the location of the laundered property. If solicitor cannot provide this info, they are not in breach of s330.
• When considering the info and whether solicitor is in breach of s330, court will consider whether it would have been reasonable to expect solicitor to believe info would assist in the above.

Question 22

Explain the discourse defence to s330.

Answer 22

• Must be made to the firm’s nominated officer or NCA;
• Disclosure must comprise reasons behind solicitor’s knowledge or suspicions of money laundering and as far as possible, identify the money launderer/ location of laundered property.
• If disclosure is made, solicitor has not committed offence under s330.

Question 23

Will a solicitor commit the offence of s330 where they intended to make a disclosure but have a reasonable excuse for not doing so?

Answer 23

No however the reasonable excuse threshold is likely very high.

Question 24

Explain the training defence to s330.

Answer 24

Employee doesn’t commit the offence if:

1) They do not know or suspect client is engaged in money laundering; and
2) There were reasonable grounds to suspect the client was engaged in money laundering; and
3) The employee did not receive proper training (which firms are obliged tp provide under the regulations).

Question 25

Explain whether legal advice privilege or litigation privilege are defences to s330.

Answer 25

• They are not, as they are not defences where the advice given is furthering a criminal purpose.
• Duty of non-disclosure/ confidentiality does not apply where the communications are furthering criminal purpose.

Question 26

Does the overseas defence apply to s330?

Answer 26

Yes.

Question 27

What is the maximum penalty for committing an offence under s330?

Answer 27

5 year imprisonment.

Question 28

Explain the s331 offence - failure to disclose as a nominated officer.

Answer 28

Nominated officer commits the offence if:
1) they know or suspect, or have reasonable grounds to know or suspect, money laundering as a consequence of their role as nominated person to receive disclosures under s330; and
2) fail to make the necessary disclosure to NCA as soon as practicable.

Question 29

Doe the reasonable excuse defence apply to s331?

Answer 29

Yes.

Question 30

What are the two tipping off offences under s333A?

Answer 30

1) Disclosing a disclosure;
2) Disclosing an investigation.

Question 31

Explain the tipping of offence of disliking a disclosure (under s333A(1)).

Answer 31

• Where someone discloses to any person that a relevant disclosure has been made, and disclosing the disclosure is likely to prejudice an investigation.
• The info on which the disclosure is made must have come to the person in the course of business in the regulated sector.

Question 32

Explain the offence of disclosing an investigation (under s333A(3)).

Answer 32

• Offence is committed where a disclosure is made to any person that an investigation into allegations of an offence under POCA 2002 has been committed/being carried out/ is being contemplated.
• The discourse also must be likely to prejudice the one laundering investigation.
• The info on which the disclosure is made must have come to the person in the course of a business in the regulated sector.

Question 33

Give the possible defences to s333A(1) and s333A(3).

Answer 33

1) The person did not know or suspect the disclosure would prejudice the investigation into money laundering; or

2) The disclosure is made by an adviser to their client for the purposes of dissuading the client from engaging in the alleged money laundering.

Question 34

What are the maximum penalties for the tipping off offences?

Answer 34

Unlimited fine and/or maximum of 2 years prison sentence.

Question 35

Explain the prejudicing an investigation offence under s342.

Answer 35

• Where someone knows or suspects money laundering investigation has or is about to be commenced and they make a material disclosure to any person, which is likely to prejudice the investigation/ interferes with relevant material.
• Similar to tipping off offences but applies to non-regulated individuals.

Question 36

Explain the warning indicators the SRA have put forward as potential signs of money laundering/ terrorist financing.

Answer 36

1) The client (eg personality or nature of the client - ie they are secretive, obstructive, evasive, avoid personal contact, refuses to provide private info/ docs etc);

2) Funding (eg unusual sources of funding, large cash payments, unexplained payments from third parties, loans from non-institutional lenders, using multiple or foreign accounts);

3) The transaction (eg usual features to the transaction such as loss making, repetitive instructions, unexplained urgency, no obvious commercial purpose, litigation settled too easily or quickly);

4) Unusual Instructions (eg instructions outside the firm’s area of expertise/ normal business, no real explanation why the firm has been chosen by the client, client is willing to pay substantially higher fees, client appears unengaged/ not concerned with the transaction).

5) Geographical Concerns (eg unexplained movement of monies between other jurisdictions or connections with suspect jurisdictions).