Topic 23

Question 1

What is money laundering?

Answer 1

Money laundering is the process of filtering the proceeds of criminal activity (including terrorism) through financial accounts or products to make the funds appear legitimate or hide their origins.

Question 2

What are some examples of money laundering in financial services?

Answer 2

Examples include:

Opening an account with a small deposit and later adding large cash sums

Investing in a collective investment and quickly encashing it

Arranging a mortgage or loan and paying it off quickly with cash

Question 3

Which types of organisations might report suspicious money laundering activity?

Answer 3

Banks, building societies, finance companies, credit card providers, money service businesses (e.g. bureaux de change), accountants, tax advisers, solicitors, and estate agents.

Question 4

What UK legislation governs money laundering?

Answer 4

The Proceeds of Crime Act 2002, the Terrorism Act 2000, and the EU’s Money Laundering Directives transposed into UK law.

Question 5

What is the role of the National Crime Agency (NCA) in money laundering?

Answer 5

The NCA combats serious and organised crime, working with international agencies. Its National Economic Crime Centre tackles money laundering, fraud, bribery, corruption, and currency counterfeiting.

Question 6

What are the three principal money laundering offences under the Proceeds of Crime Act 2002?

Answer 6

Concealing criminal property

Arranging

Acquiring, using or possessing criminal property

Question 7

What does “concealing criminal property” mean under the Act?

Answer 7

It means concealing, disguising, converting, or transferring property that a person knows or suspects to be the proceeds of any criminal activity.

Question 8

What does the offence of “arranging” involve under the Proceeds of Crime Act 2002?

Answer 8

It involves knowingly or suspecting involvement in a process that enables someone else to acquire, retain, use, or control criminal property.

Question 9

When is it an offence to acquire, use or possess property under the Act?

Answer 9

When the person knows or suspects that the property is the proceeds of criminal activity.

Question 10

What does the offence of failure to disclose involve under the Act?

Answer 10

Failing to report suspicions of money laundering when there are reasonable grounds for knowing or suspecting it.

Question 11

What is “tipping off” in relation to money laundering?

Answer 11

Tipping off is the offence of telling someone who is suspected of money laundering that they are under investigation or may be investigated.

Question 12

How does the Terrorism Act 2000 define terrorism?

Answer 12

As the use or threat of serious violence, property damage, or disruption to electronic systems, intended to influence government, intimidate the public, or advance a political, religious, or ideological cause.

Question 13

How is money laundering connected to the Terrorism Act 2000?

Answer 13

The Act makes it an offence to retain or control terrorist property by concealment, removal from jurisdiction, transfer to nominees, or any other method—effectively money laundering.

Question 14

What is considered ‘terrorist property’ under the Terrorism Act 2000?

Answer 14

Money/property likely to be used for terrorism

Proceeds of acts of terrorism

Proceeds of acts carried out for terrorist purposes

Question 15

What is the purpose of the Money Laundering Regulations?

Answer 15

To implement the EU’s Money Laundering Directives into UK law and strengthen measures against money laundering.

Question 16

What are the key offences under the Third Money Laundering Directive?

Answer 16

Conversion/transfer of criminal property

Concealing/disguising the origin of property

Acquiring/possessing property from criminal activity

Participating or facilitating these actions

Question 17

How does the Directive define ‘property’ and ‘criminal activity’?

Answer 17

Property: All kinds of assets, tangible or intangible

Criminal activity: As defined by the Vienna Convention and designated by each state

Criminal property: Benefits from criminal conduct, knowingly obtained

Question 18

What is a key rule in the Third Directive regarding non-EU crimes?

Answer 18

Money laundering within the EU is treated under EU rules, even if the crime occurred outside the EU.

Question 19

What did the Fourth Money Laundering Directive introduce in 2015?

Answer 19

Risk-based AML measures (e.g., customer due diligence)

A wider definition of politically exposed persons

A new offence for making misleading AML statements

Inclusion of tax crimes

Central registers of beneficial owners

Improved inter-state cooperation

Question 20

What changes did the Fifth Money Laundering Directive bring in 2020?

Answer 20

Included crypto providers, art dealers, and letting agents

Lowered payment thresholds for due diligence

Public access to beneficial ownership registers

Harmonised enhanced due diligence (EDD) rules across the EU

Question 21

What is the Financial Action Task Force (FATF)?

Answer 21

An international body that coordinates global AML efforts by setting standards, evaluating countries, and identifying high-risk jurisdictions.

Question 22

What are the four key roles of the FATF?

Answer 22

Identifying laundering trends

Setting AML standards

Evaluating countries’ implementation

Highlighting high-risk jurisdictions

Question 23

Has the UK adopted the Sixth Money Laundering Directive?

Answer 23

No, the UK opted out as its laws already cover most requirements, but UK firms operating in the EU must comply.

Question 24

What is Customer Due Diligence (CDD)?

Answer 24

CDD is the process of confirming a customer’s identity to prevent money laundering, especially in higher-risk transactions.

Question 25

When must CDD procedures be carried out?

Answer 25

When starting a new business relationship Occasional transactions over €15,000 (or €10,000 for businesses trading goods/services) Life assurance: annual premiums > €1,000 or single premiums > €2,500 Suspicion of money laundering or terrorist financing Doubts about previously obtained ID Change in customer’s circumstances

Question 26

Can firms rely on third parties for customer identification?

Answer 26

Yes, if a customer is introduced by another authorised firm or intermediary, and due diligence info is shared, the firm can rely on that identification.

Question 27

What are some acceptable forms of ID under CDD?

Answer 27

Current passport Photo driving licence National ID card with photo Recent utility or council tax bill Electoral roll entry

Question 28

What is the FCA's stance on preventing financial exclusion?

Answer 28

If standard ID isn’t available, firms can accept a letter from a responsible person (e.g., solicitor, doctor, minister) who knows the customer.

Question 29

How long must CDD records be kept?

Answer 29

ID evidence: at least 5 years after the customer relationship ends Transaction records: at least 5 years after the transaction

Question 30

How are credit reference agencies involved in CDD?

Answer 30

They conduct anti-money laundering checks on behalf of financial institutions. These leave an ID footprint but do not affect credit scores or applications.

Question 31

What is one of the FCA’s operational objectives regarding financial crime?

Answer 31

To ensure the integrity of financial markets by requiring authorised firms to have systems and controls that mitigate the risk of financial crime, including money laundering.

Question 32

Name 3 key anti-money-laundering responsibilities firms must follow under the FCA's SYSC rules.

Answer 32

Appoint a senior manager responsible for AML systems Appoint a Money Laundering Reporting Officer (MLRO) Provide regular training to staff about AML responsibilities and consequences of non-compliance

Question 33

What must all firms have in place regarding money laundering risk?

Answer 33

A documented risk policy related to money laundering and systems to identify, report and review suspicious activity.

Question 34

What are Suspicious Activity Reports (SARs)?

Answer 34

Reports completed by staff who suspect money laundering. These are submitted to the MLRO, who may escalate them to the National Crime Agency.

Question 35

What must the MLRO’s annual report include?

Answer 35

Firm’s compliance with Joint Money Laundering Steering Group guidance Use of Financial Action Task Force findings Reports of suspected money laundering during the year

Question 36

What is the Joint Money Laundering Steering Group (JMLSG)?

Answer 36

A group of UK financial trade associations providing guidance to help firms interpret UK money laundering regulations and promote good practice.

Question 37

What is required of AML training under the FCA?

Answer 37

Training must be regular and ongoing, covering AML laws, firm procedures, staff responsibilities, identity of the MLRO, and consequences of non-compliance.

Question 38

What penalties exist under the Proceeds of Crime Act 2002 for money laundering offences?

Answer 38

Up to 14 years in prison, unlimited fines, or both. Failing to disclose or tipping off carries up to 5 years’ imprisonment or an unlimited fine.

Question 39

What is the role of the FCA in enforcing money laundering regulations?

Answer 39

The FCA can discipline firms and individuals, prosecute breaches, and impose civil penalties for non-compliance with Money Laundering Regulations.

Question 40

What is considered an offence under the Bribery Act 2010?

Answer 40

Offering, promising, or giving a financial or other advantage to induce or reward improper performance of a function or activity.

Question 41

What is the maximum penalty for an individual convicted of a bribery offence in the UK?

Answer 41

An unlimited fine and imprisonment for up to ten years.

Question 42

What test is used to determine ‘improper performance’ under the Bribery Act?

Answer 42

Whether a reasonable person in the UK would expect the function to be carried out in good faith, impartially, or in accordance with a position of trust.