Unit 3

Question 1

What are the key areas of a solicitors’ work that are at risk of money laundering?

Answer 1

1) Company & trust work
2) Use of client account
3) Real estate
4) Sham litigation

Question 2

Is a firm required to keep an up-to-date written record of all steps taken in terms of their risk assessment?

Answer 2

Yes.

Question 3

What is regulation 19?

Answer 3

= A firm is required to establish and maintain anti-money laundering policies, controls and procedures (proportionate to its size and nature and approved by its senior management) to mitigate and manage effectively the money laundering and terrorist financing risks identified in its risk assessment.

Question 4

What internal controls are firms required to have?

Answer 4

Money Laundering Reporting Officer (MLRO) = A firm must appoint a nominated officer (MLRO) to receive reports from within the firm concerning any instances of suspected money laundering and to liaise, if necessary, with the National Crime Agency.

Money Laundering Compliance Officer (MLCO) (reg 21(3) = A firm must appoint a nominated MLCO if it is appropriate having regard to the size and nature of the firm.

– MLCO will be SRA’s point of contact with the firm regarding money laundering.

– Role of MLRO and MLCO can be fulfilled by the same individuals.

Question 5

When is client due diligence required?

Answer 5

Where the client and solicitor agree to form a business relationship.

Question 6

When should verification as to a client’s identity be done?

Answer 6

As soon as is possible after first contact and must take place before a business relationship is established or before the transaction has taken place.

Question 7

When can a solicitor verify the identity of the client DURING the establishment of a buisness relationship?

Answer 7

(a) There is little risk of any money laundering or terrorist financing occurring;
(b) It is necessary not to interrupt the normal conduct of business; and
(c) The identity is verified as soon as practicable after contact is first established.

However, if solicitor is unable to complete the client due diligence in time, the solicitor cannot:

(a) Carry out a transaction with or for the client through a bank account; or
(b) Establish a business relationship or carry out a transaction otherwise than through a bank account.

Question 8

What is standard due diligence for natural persons?

Answer 8

Good practice to have either:

a) 1 government document which verifies either the person’s name and address, or the persons’ name and date of birth; or

b) A government document which verifies the person’s full name, plus another supporting document which verifies the persons name and either addres or DOB

Question 9

For standard due diligence, can a solicitor rely on copies?

Answer 9

Only when this can be justified based on an assessment of the risks involved in doing so.

Question 10

For non-limited liability partnerships, what is required under standard due diligence?

Answer 10

If the partnerships are well-known:
– their name
– Registered / trading address;
– Nature of the business

If not well known:
– information on all constituent individuals who make up the partnership

Question 11

What are the standard identifiers for a company client for standard due diligence? (not listed)

Answer 11

– Name
– Company number or proof of registration;
Registered office address and principal place of business;
– The law to which it is subject
– Its constitution or other governing documents and;
– The names of the board of directors or other senior persons responsible for its operations.

Question 12

What is required for standard due diligence for a listed company?

Answer 12

– Name
– Company number or proof of registration;
Registered office address and principal place of business;

Question 13

Where simplified due diligence does not apply, what is required?

Answer 13

Identity of the beneficial owners verified on the basis of identification documents from an independent source.

Question 14

Who is the beneficial owner of a company / limited liability partnership?

Answer 14

(a) Any individual who exercises ultimate control over the management of the body corporate;

(b) Any individual who ultimately owns or controls (in each case whether directly/indirectly) including through bearer share holdings or by other means, more than 25% of the shares or voting rights in the body corporate; or

(c) An individual who controls the body corporate (i.e., the company).

Question 15

Who is beneficial owner of a partnership?

Answer 15

A beneficial owner is any individual who:

(a) Ultimately is entitled to or controls (directly or indirectly) more than a 25% share of the capital or profits of the partnership, or more than 25% of the voting rights in a partnership: or

(b) Otherwise exercises control over the management of the partnership (i.e., the ability to manage the use of funds or transactions outside of the normal management structure and control mechanisms).

Question 16

Who is the beneficial owner of a trust?

Answer 16

A beneficial owner means each of the following:

(a) The settlor;
(b) The trustees;
(c) The beneficiaries;
(d) Where the individuals (or some of the individuals) benefiting from the trust have not been determined, the class of persons in whose main interest the trust is set up, or operates;
(e) Any individual who has control over the trust, i.e., one who has power (whether exercisable alone, jointly with another person or with the consent of another person) under the trust instrument or by law, for example, to add or remove a person as a beneficiary, or to appoint or remove trustees.

Question 17

When is simplified due diligence appropriate?

Answer 17

Where the relationship or transaction presents a low risk of money laundering/terrorist financing, for example where the client is a publicly listed company, credit/financial institution which is already subject to the Money Laundering Directive, or a public authority.

Question 18

When is enhanced due diligence appropriate?

Answer 18

Used where the type of arrangement / a feature of the arrangement means there is a high risk of money laundering or terrorist financing.

Question 19

List the siutations where enhanced due diligence is appropriate?

Answer 19

(a) The case has been identified as one where there is a high risk of money laundering/terrorist financing in the firm’s risk assessment or in the information made available the SRA and the Law Society;

(b) The client or the counter-part to the transaction is in a high-risk third country

(c) The client has provided false or stolen identification documentation or information and the solicitor has decided to continue dealing with the client;

(d) The client is a politically exposed person (PEP), or a family member or known close associate of a PEP.

(e) A transaction is complex or unusually large, or there is an unusual pattern of transactions, or the transactions have no apparent economic or legal purpose.

(f) Any other situation where there is a higher risk of money laundering or terrorist financing. Wide range of factors, e.g., whether the business relationship is conducted in unusual circumstances (e.g., where solicitor has not met client face to face) or payments will be received from unknown or associated third parties.

Question 20

Define a PEP

Answer 20

Individual who is entrusted with prominent public functions, other than as a middle-ranking or more junior official.

Question 21

List potential PEPs

Answer 21

(a) Heads of State, heads of government, ministers and deputy or assistant ministers;

(b) Members of Parliament

(c) Members of supreme courts, of consitutional courts or of other high-level judicial bodies whose decisions are not generally subject to further appeal, except in exceptional circumstances;

(d) Members of courts of auditors or of the boards of central banks;

(e) Ambassadors, charges d’affaires and high-ranking officers in the armed forces;

(f) Members of the administrative management or supervisory bodies of State-Owned enterprises.

Question 22

Do PEPs family members also require enhanced due diligence?

Answer 22

Yes.

Question 23

Who is included in a PEPs family member?

Answer 23

– Parents
–Spouse/civil partner
– Children
– Spouses/civil partner’s parents
– Known associates include those with whom there are close business relationships.

Question 24

What are the additional obligations where a PEP is involved?

Answer 24

1) Solicitor must have approval of senior management (e.g., managing partner) to act for the client;

2) Must take adequate measures to establish the source of wealth and source of funds involved in the business relationship or proposed transactions;

3) Conduct an enhanced monitoring of the business relationship.

Question 25

Are firms obliged to provide and maintain a record of training to their employees in respect of money laundering?

Answer 25

Yes. However, regulations do not specify how training should be given.

Question 26

How long should due diligence records be kept?

Answer 26

For at least 5 years from when the buisness relationship ends or the end.

Question 27

What is the key offence under the Criminal Finances Act 2017?

Answer 27

Failure to prevent the criminal facilitation of tax evasion.

Question 28

What is the defence for a firm under Criminal Finances Act 2017?

Answer 28

The firm had in place reasonable prevention procedures or is able to show it was reasonable not to have had such procedures in place.

Question 29

What is the penalty for breach of Criminal Finances Act 2017?

Answer 29

Unlimited fines and confiscation of assets.

Question 30

If a firm suspects tax evasion who should they inform?

Answer 30

Office of financial sanctions implementation

Question 31

Where a firm wishes to act for a sanctioned person under the uk sanctions regime, what must it first obatin?

Answer 31

A licence to recieve reasonable fees for the provision of legal advice.

Question 32

The sanctions list is public information. Because of this, discussing a person’s sanctioned status does not amount to ….

Answer 32

A tipping off offence.

Question 33

Can firms face liability under the UK financial sanctions regime even where they have no knowledge or reasonable cause to suspect that a transaction to which they are party is in breach?

Answer 33

Yes. No knowledge is required. Just acting for the client and facilitating them is required.

Question 34

What are the 3 offences under the Proceeds of Crime Act 2002?

Answer 34

1) Arranging

2) Aquisition / use / possession

3) Concealing

Question 35

What is 1) Arranging?

Answer 35

Entering into, or becoming concerned in an arrangement, which a person knows or suspects facilitates the retention, use or control of the proceeds of crime.

Question 36

What is 2) Acquisition / use / possession?

Answer 36

Aquires, use or possess the proceeds of crime.

Question 37

What is 3) concealing?

Answer 37

Conceal, disguise, convert or transfer the proceeds of crime, or remove the proceeds of crime from the UK.

Question 38

What are the other possible offences related to the action / inaction of someone who is aware of possible money laundering?

Answer 38

1) Failure to disclose information about money laundering to the appropriate authorities (s 330);

2) Failure on the part of a firm’s nominated officer to disclose information about money laundering to the appropriate authorities (s 331);

3)‘Tipping off’ an individual that an investigation into money laundering is underway (s 333A);

4) Prejudicing an investigation into money laundering (s 342).

Question 39

When is offence 1) Arranging committed? (Section 328)

Answer 39

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

Question 40

What is the test for know or suspect under arranging?

Answer 40

Threshold for the mental element of the offence is ‘suspicion’ – test is subjective and the bar is low:

R v Da Silva Test:

a) All that is required for ‘suspicion’ is that there is a possibility, which is more than ‘fanciful’.

Question 41

Does “criminal property” also include that which has come from abroad?

Answer 41

Yes.

Question 42

Does S 328 (arranging) include taking steps in litigation?

Answer 42

No.Taking steps in litigation (including pre-action steps) and the resolution of issues in a litigious context are excluded from the scope of s 328.

E.g., Dividing assets in accordance with a court judgement does not fall within the definition of arranging.

Note this exclusion does not apply where the litigation is a sham created for the purposes of money laundering.

Question 43

What is the authorised disclosure defence under s 338?

Answer 43

Requirements for authorised disclosure:

A) Disclosure needs to be made to a constable, an officer of His Majesty’s Revenue and Customs or a nominated officer.

B) Nominated officer is usually the MLRO, however, can be two distinct individuals.

C) Nominated officer’s responsibility to report concerns about money laundering to the NCA. A report to the NCA by nominated officer is called a ‘suspicious activity report’ (SAR).

D) Report can be made online or by post.

E) It is for the nominated officer to exercise their own judgement in deciding whether the matter should be passed on to the NCA – they’re not under any obligation to make a SAR when concerns are raised by another person in the firm.

Question 44

What are the 3 kinds of authorised disclosure under s 338?

Answer 44

1) Disclosure prior to the act taking place

2) Disclosure during the prohibited act

3) Disclosure after the prohibited act

Question 45

What is the effect of 1) Disclosure prior to the act taking place?

Answer 45

A complete defence to a charge under s 328:

– A solicitor does not commit an offence under s 328 if the solicitor makes an authorised disclosure to the firm’s nominated officer as soon as it practically possible prior to the transaction taking place, and the consent of the nominated officer or the National Crime Agency is obtained.

– Note that the making of the authorised disclosure is not in itself sufficient. Proceeding without having obtained the appropriate consent remains an offence.

Question 46

Once the nominal officer has made a SAR (suspicious activity report) to the NCA, when can the nominated officer give consent to the solicitor to continue acting for the client?

Answer 46

When one of the following conditions are met:

(a) The nominated officer, having made a disclosure to the NCA, receives consent of the NCA;

(b) The nominated officer, having made a disclosure to the NCA, hears nothing for seven working days (starting with the first working day after the disclosure is made);

(c) Where consent is refused by the NCA, the nominated officer may not give consent unless consent is subsequently granted within 31 days starting on the day refusal is given, or a period of 31 days has expired from the date of refusal. This 31-day period gives the authorities time to take action to seize assets or take other action with respect to the money laundering (31-day period can be extended in certain circumstances).

Question 47

What are the requirements for 2) disclosure during the prohibited act?

Answer 47

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

Question 48

What are the requirements for 3) disclosure after the prohibited act?

Answer 48

A solicitor must have a good reason for failure to disclose prior to completing the act.

– Disclosure must be made as soon as is practicable, and again the solicitor must make the disclosure on the solicitor’s own initiative.

Question 49

When may a solicitor have a defence for non-dicslosure of suspicious activity / money laundering?

Answer 49

Where the solicitor intended to make an authorised disclosure but has a reasonable excuse for failing to do so.

Reasonable excuse = narrowly construed but may include where information is already in the public domain.

– Solicitor needs to document their reasons for non-dicslosure.

Question 50

What is the overseas defence?

Answer 50

Where the individual knew or believed that the criminal conduct occurred abroad and the conduct was lawful in the country where it took place.

– Secretary of state has the power to override this provision.

Question 51

What is the penalty for a conviction under s 328 (arranging)?

Answer 51

Maximum of 14 years’ imprisonment.

Question 52

When does 2) Acquisition / use or possession apply (Section 329)?

Answer 52

When someone has had no involvement with the original crime but have enjoyed the benefit of it.

i.e., when a solicitor recieves money for costs for work carried out for a client charged with a criminal offence and there is a possibility that the money in question is criminal property.

Question 53

What are the 3 defences to s 329 (aquisition)?

Answer 53

1) Authosied disclosure

2) Overseas defence

3) Adequate Consideration defence

Question 54

What is the adequate consideration defence to S 329 (acquisition)?

Answer 54

– An offence will not be committed if there was adequate consideration for acquiring, using and possessing the criminal property, unless the individual knew or suspected that those goods or services might help to carry out criminal conduct.

– Defence applies where solicitors (or any other professional advisers) receive money on account of costs, including disbursements. Fees charged must be reasonable and the defence is not available if the value of the work is significantly less than the money received.

Question 55

What is the potential penalty for S 329 (Acquisition)?

Answer 55

– 14 years imprisonment.

Question 56

What is S 327 Concealing offence?

Answer 56

Offence under s 327 to conceal, disguise, convert or transfer criminal property or remove it from England, Wales, Scotland or Northern Ireland.

‘Criminal property’ has same meaning as under s 328.

Key risk to solicitors as the purpose of many transactions conducted by solicitors is to ‘convert’ (e.g., money into property) or ‘transfer’ (e.g., money or ownership between parties).

Question 57

What defences are available to S 327, concealing?

Answer 57

– Authorised Disclosure
– Overseas Defence

Question 58

What are the requirements for S 330 Failure to Disclose?

Answer 58

A person commits an offence under s 330 POCA 2002 if:

(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.

Question 59

Does money laundering actually have to have been committed under S 330 for it to apply?

Answer 59

No.

Question 60

What is the objective test for S 330 failure to dicslose?

Answer 60

Objective test – court will consider based on the information available at the time, whether the solicitor should have known (or suspected) that money laundering was occuring.

Question 61

If the solicitor did not know or suspect that a person was engaging in money laundering are they still liable under S 330?

Answer 61

Yes – If the courts deem there to have been enough evidence for the solicitor to be expected to know or suspect, even if they didnt, they will be liable.

Question 62

To be liable under S 330, what information does the solicitor need to know?

Answer 62

– Information obtained by the solicitor must be of some use to the authorities. Solicitor must be able to identify, or believe the information may assist in identifying:

(a) The money launderer; or

(b) The location of the laundered property.

– If the solicitor is genuinely unable to provide this information, the solicitor will not breach s 330.

– Solicitor cannot blindly assume that the information will be of no use to authorities.

Question 63

What are the disclosure requirements for a solicitor to avoid liability under S 330?

Answer 63

To meet the requirements of disclosure under s 330, the disclosure must be made to the firm’s nominated officer or the NCA as soon as is practically possible.

A) Disclosure must comprise the reasons behind the solicitor’s knowledge or suspicions of money laundering and, as far as is possible, the identity of the money launderer and the whereabouts of the laundered property.

B) If disclosure is made, the solicitor will not commit the s 330 offence.

C) Where solicitor intended to make a disclosure but has a reasonable excuse for not doing so, a solicitor will not commit a s 330 offence (note courts are likely to take a stringent view on ‘reasonable excuse’).

Question 64

What is the training defence to S 330 (failure to disclose)?

Answer 64

A) The employee will not commit an offence if they do not know or suspect that a client is engages in money laundering, but there were reasonable grounds to suspect that the client was engaged in money laundering, and the employee has not received proper training.

Question 65

Does legal professional privilege apply to communications about money laundering?

Answer 65

No.

Question 66

How does the overseas defence apply to S 330 failure to disclose?

Answer 66

– Solicitor will not breach s 330 for failing to disclose where the solicitor believes the money laundering is taking place outside of the UK, and money laundering is not unlawful in that country.

– Secretary of State has power to override this defence, but at the time of writing has not taken any steps to do so.

Question 67

What is the penalty for S 330 Failure to Disclose?

Answer 67

5 years imprisonment.

Question 68

What is S 331 Failure to disclose (Nominated Officers)?

Answer 68

= a person will commit an offence if they know/suspect, or have reasonable grounds to know / suspect, money laundering, as a consequence of their role as person nominated to receive disclosures under s 330 and fail to make the necessary disclosure to the NCA as soon as practicable.

– Nominated officer will have a defence if they have a reasonable excuse for not disclosing the information.

Question 69

What is S 333 A Tipping Off offence?

Answer 69

Tipping off = Altering someone suspected of money laundering (or an associate) to the fact that an investigation has started or is anticipated.

Question 70

What are the 2 offences under S 333A?

Answer 70

1) Disclosing a disclosure – Disclosing to any person that a relevant disclosure on money laundering has been made if that disclosure is likely to prejudice any investigation. Includes any SAR or disclosure made to the NCA / nominated officer.

2) Disclosing an investigation – Where a disclosure is made to any person that an investigation into alleges that an offence under POCA has been committed / is being contemplated and this disclosure is likely to prejudice the investigation.

Question 71

What are the defences to S 333A Tipping off?

Answer 71

a) If the person who made the disclosure did not know or suspect that the disclosure would prejudice an investigation into money laundering.

b) It may cover the situation where, for example, a solicitor informs a client about an investigation believing that the client will fully cooperate with the authorities.

c) If the disclosure is made by an adviser to their client for the purposes of dissuading the client from engaging in the alleged money laundering, although this should be treated with caution.

Question 72

What are the penalties for S 333A Tipping off?

Answer 72

a maximum penalty of an unlimited fine, and or/a maximum prison sentence of two years.

Question 73

What is S 342 Prejudicing a Investigation?

Answer 73

S 342 = a person will commit an offence if they know or suspect that a money laundering investigation has or is about to be commenced and they make a make a material disclosure to any other person which is likely to prejudice the investigation or interferes with relevant material.

 Similar to tipping off offence but extends to non-regulated individuals.