Topic 23

Question 1

What is money laundering?

Answer 1

Money laundering involves filtering the proceeds of any kind of criminal
activity (including terrorism) through a series of accounts or other financial products in order to make such funds appear legitimate or to make their origins difficult to trace.

Question 2

Name examples of when the financial services industry has been used in an attempt to launder money

Answer 2

„ opening an account with a small initial deposit and then adding large sums in cash;

„ making an investment into a collective investment which is then encashed within a short period of time;

„ arranging a mortgage or loan that is then quickly paid off using cash.

Question 3

What are the key legislations that mitigate the risk of money laundering?

Answer 3

Proceeds of crime act 2002
Terrorism act 2000
EU’s money laundering directives

Question 4

What are the three principal money laundering offences under the proceeds of crime act 2002?

Answer 4

Concealing criminal property -
* Criminal property is property that a person knows, or suspects, to be the proceeds of any criminal activity
* It is a criminal offence to conceal, disguise, convert or transfer criminal property

Arranging - Arranging occurs when a person becomes involved in a process that they know or suspect will enable someone else to acquire, retain, use or control criminal property (where that other person also knew or suspected that the property derived from criminal activity)

Acquiring, using or possessing - It is a criminal offence for a person to acquire, use or possess any property when that person knows or suspects that the property is the proceeds of criminal activity

Question 5

What is ‘Failure to disclose’?

Answer 5

All suspicions of money laundering must be reported to the authorities.
The Proceeds of Crime Act 2002 introduced the requirement for a person to disclose information about money laundering if they have reasonable grounds for knowing or suspecting that someone is engaged in money laundering.

Question 6

What is ‘Terrorist property’ defined as?

Answer 6

„ money or other property that is likely to be used for terrorism purposes;

„ proceeds of the commission of acts of terrorism;

„ proceeds of acts carried out for the purposes of terrorism.

Question 7

What is the EU’s ‘Third money laundering directive’?

Answer 7

The Directive defines money laundering in some detail.
It comprises “the following conduct when committed intentionally:

„ the conversion or transfer of property, knowing that such property is
derived from criminal activity or from an act of participation in such
activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such activity to evade the legal consequences of his action;

„ the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to or ownership of property, knowing that such property is derived from criminal activity or from an act of participation in such activity;

„ the acquisition, possession or use of property, knowing, at the time of
receipt, that such property was derived from criminal activity or from an act of participation in such activity;

„ participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions mentioned in the foregoing paragraphs”.

Question 8

What are the three important definitions included in order to clarify the definition of money laundering with EU’s ‘Third money laundering directive’?

Answer 8

„ property is assets of every kind, tangible or intangible, movable or
immovable, as well as legal documents giving title to such assets;

„ criminal activity is a crime as specified in the Vienna Convention (the
United Nations Convention Against Illicit Traffic in Narcotic Drugs) and any other criminal activity designated as such by each member state;

„ criminal property is defined as property that consists, directly or indirectly, wholly or in part, of a benefit from criminal conduct, where the alleged offender knows or suspects that it constitutes a benefit.

Question 9

What are the key elements of the Money laundering regulations 2017 as part of the ‘fourth money laundering directive’?

Answer 9

„ a requirement to adopt a risk‑based approach to the implementation of AML measures such as customer due diligence (ie to understand the nature of the threats faced and devote most resources to the areas of greatest risk). A relevant person must produce a written AML risk report and translate its findings into written policies to be approved by the firm’s senior management;

„ a widened definition of ‘politically exposed persons’, including those
holding prominent positions in their home country. Politically exposed
people are those individuals who, because of their position, are considered to be more vulnerable to corruption;

„ the introduction of a new criminal offence. An individual found guilty of recklessly making a statement in the context of money laundering that is false or misleading may face a fine and/or a maximum two‑year jail sentence.

The fourth Money Laundering Directive also:

„ includes ‘tax crimes’ within EU legislation for the first time;

„ strengthens co‑operation between member states;

„ increases transparency around the beneficial ownership of legal entities – each member state must maintain a central register of the beneficial owners of legal entities (beneficial owners are those who own or control 25 per cent of a legal entity).

Question 10

What changes regarding electronic money were introduced with the ‘fifth money laundering directive’?

Answer 10

„ A new maximum monthly payment transaction limit of €150 for nonreloadable payment instruments, and where the maximum amount stored electronically exceeds €150, they are now subject to customer due diligence (CDD) measures. The threshold has been reduced from €250 to €150.

„ Remote payment transactions that exceed €50 are subjected to customer due diligence measures. The threshold has been reduced from EUR100 to €50.

Question 11

What changes regarding customer due diligence and beneficial ownership registers were introduced with the ‘fifth money laundering directive’

Answer 11

„ The identification and verification of customers must be based on
documents, data or information from a reliable and independent source, which should also include electronic identification means that have been approved by national authorities.

„ Any member of the public has the right to access beneficial ownership information held in the register for corporate and other legal entities. Access is no longer limited to persons who can demonstrate legitimate interests.

„ Implementing requirements to harmonise the enhanced due diligence (EDD) measures for entities across member states to apply to business relationships with high risk third countries (Deloitte, 2018).

Question 12

What is the financial action task force (FAFT)?

Answer 12

The Financial Action Task Force (FATF) is an inter‑governmental
organisation established in 1989 to co‑ordinate the
international fight against money laundering. In 2001, the
remit of the FATF was expanded to include terrorist financing.
It is a policy‑making body: it does not become involved in law
enforcement

Question 13

What are the three main areas of the financial action task force (FATF)?

Answer 13

„ setting appropriate standards for national anti‑money‑laundering programmes, detailed in a list of 40 recommendations incorporating minimum standards for the measures that countries should have in place within their own criminal justice and regulatory systems;

„ evaluating the extent to which individual countries have
implemented these standards;

„ identifying trends in money‑laundering methods.

Question 14

List the circumstances where identification procedures are required to be carried out

Answer 14

New business relationship
Occasional transaction exceeding €15,000
Life assurance policies
Suspicion
Doubts
Change of circumstances

Question 15

What are acceptable forms of identification?

Answer 15

Current passport
National identity card with photograph
Driving licence with photograph
Entry on electoral roll
Recent utility bill or council tax bill

Question 16

What are the record keeping requirements in respect to customer due diligence?

Answer 16

„ evidence of identification must be retained until at least
five years after the relationship with the customer has
ended;

„ supporting evidence of transactions (in the form of
originals or copies admissible in court proceedings) must
be retained until at least five years after the transaction
was executed.

Question 17

What is the role of the FCA?

Answer 17

The FCA has an operational objective to ensure the integrity of financial
markets. To help achieve this, the FCA requires that all authorised firms must have systems and controls in place which mitigate the risk that the firms may be used to commit financial crime, including money laundering.

The FCA details its requirements in the Senior Management Systems and Controls (SYSC) section of the Handbook and requires that all authorised firms:

„ establish accountabilities, procedures and systems to minimise the risk of money laundering;

„ give responsibility for anti‑money‑laundering systems and controls to a senior manager;

„ appoint a money laundering reporting officer (MLRO) (see section 23.6.1);

„ have a documented risk policy related to money laundering;

„ give regular training to staff about what is expected of them under the money‑laundering rules, including the consequences for the firm and for themselves if they fail to comply;

„ educate their staff about potential problems;

„ take reasonable steps to ensure that procedures are up to date and reflect any findings contained in periodic reports on money‑laundering matters issued by the government, by the Financial Action Task Force (FATF) and the FCA’s own guidance on financial crime;

„ requisition a report at least once in each calendar year from the MLRO;

„ take appropriate action to strengthen its procedures and controls to remedy any deficiencies identified by the report.

The FCA expects that firms have procedures in place to ensure that individuals working within the firm:

„ report suspicious circumstances by completing ‘suspicious activity reports’ (SARs);

„ refrain from alerting persons being investigated.

The FCA has the power to take enforcement action against firms and to impose sanctions on them for non‑compliance with Money Laundering Regulations.

When assessing a firm’s compliance with its money‑laundering requirements, the FCA will take into account the extent to which the firm has followed the:

„ Joint Money Laundering Steering Group’s guidance notes for the financial sector – these describe the steps that firms should take to verify the identity of their customers and to confirm the source of their customers’ funds;

„ publications of the FATF – these highlight any known developments in
money laundering and any deficiencies in the money‑laundering rules of other jurisdictions;

„ FCA’s own guidance on financial exclusion

Question 18

What is the role of a money laundering reporting officer (MLRO)?

Answer 18

Each firm must appoint a money laundering reporting officer (MLRO) with responsibility for co‑ordinating all the firm’s AML activities. The MLRO must be a person of ‘appropriate seniority’.

Question 19

At least once in each calendar year senior management of the firm must requisition a report from the MLRO. This report must:

Answer 19

„ assess the firm’s compliance with the Joint Money Laundering Steering Group guidance notes;

„ indicate how Financial Action Task Force findings have been used during the year;

„ provide information about reports of suspected money‑laundering
incidents submitted by staff during the year.

Question 20

What is joint money laundering steering group?

Answer 20

The Joint Money Laundering Steering Group is made up of the
leading UK trade associations in the financial services industry.
Its aim is to promote good practice in countering money
laundering and to give practical assistance in interpreting the
UK money‑laundering regulations. This is primarily achieved
by the publication of guidance notes.

Question 21

What are AML training requirements?

Answer 21

Firms must;
- Take appropriate measures to make employees aware of money laundering procedures and legislation
- Provide training in the recognition and handling of money-laundering
transactions

Staff must be made aware of;

• The law relating to money laundering
• The firm’s procedures and staff individual responsibilities
• The identity of the firm’s MLRO and what their responsibilities are
• How any breach of money laundering rules can impact on the firm and on themselves, ie the consequences of committing what may be a criminal act

Question 22

What is ‘improper performance’?

Answer 22

Performance that amounts to a breach of an expectation that a person will act in good faith, impartially or in accordance with a position of trust.

The test used is what a reasonable person in the UK would expect of a
person performing the relevant function or activity.