U3 - Money laundering Flashcards
Who do the money laundering regulations apply to?
Persons acting in the course of businesses carried out in the UK incl. independent legal professionals
What is the SRAs role?
supervisory and firms must apply to the SRA for approval under the Regulations
What criminal sanctions are associated with the Money Laundering Regulations?
Practitioners must apply to SRA for approval under the regulations and acting without approval is a criminal offence (imprisonment, fine or both)
what must the firm keep in relation to risk assessment?
up to date written record of the steps it has taken for risk assessment
What processes and controls must firms have in place to deal with money laudnering?
A firm must establish and maintain written policies, controls and procedures, proportionate to its size and nature AND approved by senior management
What officers must each firm have?
- Money Laundering Compliance Officer (MLCO) - at the level of senior management to be responsible for compliance
- Nominated officer - to receive reports of money laundering and liaise with National Crime Agency
both roles can be by the same person
What internal control must be in place in respect to employees?
Screening of employees whose work is relevant to compliance with the Regulations, before and during the course of their employment, to assess skills, knowledge, conduct and integrity.
In what circumstances must firms verify the client’s identity? (due diligence)
- client and sol agree to form a business relationship
- sol carrying out an occassional transaction to transfer funds > 1000 euros
- Sol suspects money laundering
- Sol doubts veracity of info/docs received
When should sol carry out verification?
as soon as possible after first contact MUST take place before business relationship established
what exceptions apply where the sol may be able to verify the clients identity during the business relationship?
- little risk of money laundering
- necessary to not interrupt normal conduct od business
- identity verified as soon as practicable
what happens if the sol cannot complete due diligence in time?
solicitor cannot:
* carry out a transaction with or for the client through a bank account OR
* establish a business relationship or carry out a transaction other than through a bank account
in these circs, sol must terminate business relationship and consider disclosing to NCA
Does due diligence end after verification?
no, need ongoing monitoring of the business relationship
standard due diligence - natural persons
Good practice to have either:
1. One gov doc verifying:
a. Name + address OR
b. Name + DOB
OR
2. One gov doc verifying name AND one supporting doc verifying name + address OR name + DOB
standard disclosure - general partnerships
- info on people who make up partnership
- BUT if well known and public info about them, may be sufficient to get:
- Name
- Registered or trading address
- Nature of business
standard due diligence - company
Verify the existence of the company (Companies House):
* Its name
* Company number
* Registered office address and principal place of business (if different)
If PRIVATE - check:
* Law that company is subject to
* constitution
* names of directors
standard due diligence - company and LLPs
get proof of registration before forming a business relationshp
standard disclosure - beneficial owners
sol must consider the identity of beneficial owners (i.e. where beneficial owner is not the client)
who is a beneficial owner in LLP and PRIVATE companies
individual who
* exercises ultimate control over management of body OR
* owns or controls more than 25% of shares or voting right OR
* controls the body
who is a beneficial owner in general partnership
individual who
* ultimately entitled to or controls more than 25% share of the capital or profits OR
* More than 25% of the voting rights, or
* Exercises control over the management of the partnership
who is a beneficial owner where trusts are concerned
- The settlor
- The trustees
- The beneficiaries
- Where beneficiaries have not been determined, the class of people for whom the trust is set up
- Any individual who has control over the trust
when is simplified due diligence permitted
firm determines through a risk assessment that the business relationship or transaction presents a low risk of money laundering or terrorist financing
sol must get evidence that transaction and client are eligible for simplified due diligence
what factors could a firm consider for simplified due diligence
- Whether the company is listed on a regulated market
- Location of the regulated market
- Where a client is established and does business
when is enhanced due diligence required?
- firm’s/SRA guidance identifies case as high risk
- client or counterpart in high risk country
- client provided false or stolen docs
- Politically Exposed persons (client or close family)
- complex
- other high risk issues
what steps must the sol carry out for enhanced due diligence
- Sol must take measures to examine background and purpose of transaction
- Consider need to get independent verification of client’s or beneficial owners identity or about ownership and control
- Enhanced ongoing monitoring
what is a PEP
individual with prominent public functions NOT middle ranking or junior officials
What additional steps need to be taken for PEPs?
- Get approval of senior management (e.g. managing partner) to act for the client
- Establish source of wealth and source of funds
- Enhanced ongoing monitoring of the business relationship
What is the requirement for training?
Firms are obliged to provide (and maintain a record of) training to their employees in respect of money laundering.
what is the effect of no training?
employee may have a defence to some of the offences under POCA
What must firms also ensure?
- Records kept of due diligence (5 years from end of business relationship)
- Independent audit funcion
- Controls in place to respond rapidly to requests from law enforcement agencies
What is the offence under Criminal Finances Act 2017?
corporate offence of failure to prevent the criminal facilitation of tax evasion.
When will a firm be liable?
Firm will be liable if fails to prevent tax evasion offences by its employees or other ‘associated persons’
Can it be committed without intention or even knowledge?
Yes strict liability
what defence applies
firm had in place reasonable prevention procedures (or is able to show that it was reasonable not to have had such procedures in place).
what is the penalty for breach
Unlimited fines, and confiscation of assets may be ordered.
what should firms do to ensure compliance
- Ensure policies and procedures to comply with Regulations also comply with Criminal Finances Act 2017.
- Due diligence procedures should consider the risk of criminal facilitation of tax evasion
what is the effect of the UK financial sanctions regime?
MUST inform Office of Financial Sanctions Implementation if it is known or reasonably suspected that a person is a designated person or has committed offences under financial sanctions and asset freezing regimes.
Does discussing a person’s sanctioned statius amount to a tipping off offence?
No
Which offences under POCA 2002 relate to regulated sectors only?
- Failure to disclose
- failure to disclose (nominated officer)
- tipping off
- prejudicing an investigation into money laundering
Which offences under POCA 2002 apply more generally?
- arranging
- acquiring
- concealing
what is the offence of arranging?
enter into, or become concerned in an arrangement, which a person knows or suspects facilitates the retention, use or control of the proceeds of crime
what is the max sentence for arranging
14 years
do criminal proceeds need to pass through sols hands
no
what does it mean to know or suspect
Suspicion = D must think there is a more than fanciful possibility. NOT a vague feeling of unease
what test will the courts apply to determine if someone knew or suspects
SUBJECTIVE TEST
which acts are excluded from definition of arranging
- Taking steps in litigation (incl. pre action steps) and resolving issues in a litigious context
- Dividing assets in accordance with a court judgment
what defences apply to arranging?
- making an authorised disclosure
- overseas defence
what is an authorised disclosure
disclosure made to a constable, HMRC or nominated officer
when does the defence apply
solicitor makes an authorised disclosure to nominated officer as soon as practically possible (BEFORE THE TRANSACTION) AND gets the CONSENT of nominated officer or NCA
when can the nominated officer fgive consent
- receives the NCAs consent
- hears nothing for 7 working days from NCA
- where consent is refused, nominated officer cannot give consent unless consent is granted within 31 days or 31 days have expired
what is the effect of consent
provide a defence against a money laundering offence. Sol must still look to law to decide whether to proceed.
can defence apply when disclosure is made during the prohibited act
- Make the disclosure whilst the act is ongoing AND
- When the sol began to act, they did not know or suspect AND
- Disclosure made as soon as practicable after the sol first knows or suspects AND
- made on sol’s own initiative
can defence apply when disclosure is made AFTER the prohibited act
- Sol must have a good reason for their failure to disclose prior to completing the act
- Disclosure made as soon as practicable on the sol’s own initiative
Will sol have a defence where there is a reasonable excuse not to ?
yes, document reasons
what is the overseas defence
Individual knew or believed the ‘criminal conduct’ occurred abroad and was lawful in the country where it took place
who can ovverride the overseas defence
Secretary of state
What is the offence of acquisition, use or possession?
Typically used where person has no involvement with original crime but has enjoyed the benefit (e.g. family members who have lived off the proceeds of crime)
e.g. sol receives money for costs and money may be criminal
what defences apply
- Authorised disclosure
- overseas defence
- adequate consideration
what is the penalty for acquisition, use or possession
max 14 years imprisonment
what is concealing
Offence to conceal, disguise, convert or transfer criminal property or remove it from England Wales Scotland or Northern Ireland.
what defences apply
- Authorised disclosure defence
- Overseas defence
what is the failure to disclose offence
Offence committed if:
* He knows or suspects, or has reasonable grounds to know or suspect, that a person is engaged in money laundering;
* The information comes to him in the course of a business in the regulated sector;
* The information may assist in identifying the money launderer or the location of any laundered property; and
* He does not make a disclosure as soon as is practicable.
does money laundering have to have occurred for offence to be committed
no
what test applies to ‘know or suspect’ or has reasonable grounds to know or suspect
OBJECTIVE TEST - * Court will look at whether the sol should have known (or at least suspected) that money laundering was occurring
What defences apply?
- Sol intended to make a disclosure but has a reasonable excuse for not
- Training defence
- Legal professional privilege defence
- Overseas defence
what is the penalty for failure to disclose
max 5 years imprisonment
what is the offence of tipping off
Alerting someone suspected of money laundering (or an associate) to the fact that an investigation has started or is anticipated.
Do you need to show intention to alert money launderer or prejudice the investigation
no
what defences apply to tipping off
- Person who made the disclosure did not know or suspect that the disclosure would prejudice an investigation
- Disclosure is made by an adviser to their client for the purposes of dissuading the client from engaging in the alleged money laundering
what are the penalties for tipping off
max fine or 2 years imprisonment
what is offence of prejudicing an investigation
same as tipping off but extends to non-regulated individuals
