Unit 3 Money laundering

Question 1

Money laundering

Answer 1

The process by which criminals seek to alter or ‘launder’ their proceeds of crime so that it appears that these funds come from a legitimate source.

Question 2

The relevance of money laundering for solicitors

Answer 2

The law. Identified by SRA.

Risks:
(a) Company and trust work
(b) Use of a client account
(c) Real estate
(d) Sham litigation

Question 3

The purpose of the Regulations

Answer 3

Codify the steps which those who are at risk of coming up against money launderers (‘gatekeepers’) should be expected to take in order to protect society as a whole.

Require systems and procedures to be put in place with a view to preventing money laundering and/ or ensuring that such behaviour comes to the attention of the appropriate authorities for investigation.

The approach is risk based.

Question 4

The application of the Regulations

Answer 4

Apply to persons acting in the course of businesses carried out in the UK.

SRA has a supervisory role. Firms and sole practitioners apply to the SRA for approval under the regulations. Otherwise acting is a criminal offence.

Have to give approach under committed of a money laundering offence or one with dishonesty/deception.

Question 5

Risk assessment

Answer 5

Firm is required to take appropriate steps to identify and assess the risk of the firm being used for money laundering.

Firm is required to keep an up- to- date written record of all of the steps it has taken in terms of the risk assessment for at least 5 yrs.

Question 6

Policies, controls and procedures

Answer 6

A firm is required to establish and maintain written anti-money laundering policies, controls and procedures to mitigate and manage risks identified in risk assessment.
- proportionate to its size.

Question 7

Internal controls

Answer 7

A firm must appoint a ‘nominated officer’ (MLRO).

Also a Money Laundering Compliance Officer (MLCO) if this is appropriate having regard to the size and nature of the firm.

Both roles can be fulfilled by the same person.

Also have to screen employees to assess their knowledge and establish an audit function to monitor firm policies.

Question 8

Client due diligence

Answer 8

The need to verify the client’s identity arises in a number of circumstances including the following (reg 27):
(a) where the client and solicitor agree to form a business relationship;
(b) carrying out an occasional transaction (ie one not carried out as part of a business relationship) that amounts to a ‘transfer of funds’ exceeding €1,000;
(c) carrying out an occasional transaction that amounts to €15,000 or more, whether the transaction is executed in a single operation or in several operations which appear to be linked;
(d) where the solicitor suspects money laundering or terrorist financing;
(e) where the solicitor doubts the veracity or adequacy of documents or information supplied to verify the client’s identity.

Required as soon as possible after first contact and before business relationship is established/carrying out the transaction.

Can do it during if little risk of money laundering.

Question 9

Client due diligence - Standard due diligence

Answer 9

Applies to most clients.

Obtain documents to verify identity and understand the ownership and control structure of non-natural persons such as trusts and companies.

For companies, it is necessary to verify the existence of the company.

For non- limited liability partnerships, it will be necessary to obtain information on the constituent individuals who make up the partnership.

Identify any ‘beneficial owner’ where the beneficial owner is not the client - anyone who controls.

Question 10

Client due diligence - Simplified due diligence

Answer 10

For low risk transactions.

Through firms risk assessment.

Must obtain evidence that the transaction and the client are eligible for simplified due diligence.
The exact verification required depends on the identity of the client.

Question 11

Training

Answer 11

Firms are obliged to provide (and maintain a record of) training to their employees in respect of money laundering.

Where no such training is given, this may provide the employee with a defence to some of the offences under the Proceeds of Crime Act 2002.

Question 12

Client due diligence - Enhanced due diligence

Answer 12

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

(b) the client or the counter- part to the transaction is in a high- risk third country (as defined in the Regulations);

(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) in any other situation where there is a higher risk of money laundering or terrorist financing.

Question 13

Criminal Finances Act 2017

Answer 13

Corporate offence of failure to prevent the criminal facilitation of tax evasion.

Only defence available is that the firm had in place reasonable prevention procedures or is able to show that it was reasonable not to have had such procedures in place.

The penalty for breach is unlimited fines, and confiscation of assets may be ordered.

Question 14

The UK financial sanctions regime

Answer 14

Serious and extensive restrictions are placed on dealing with people or entities who are on the ‘sanctions list’ (designated persons) as a result of sanctions imposed by the UK, EU or United Nations.

Question 15

Proceeds of Crime Act 2002

Answer 15

It is an offence to:
* 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 (s 328);
* acquire, use or possess the proceeds of crime (s 329);
* conceal, disguise, convert or transfer the proceeds of crime, or remove the proceeds of crime from the jurisdiction of England and Wales (s 327).

• failure to disclose information about money laundering to the appropriate authorities (s 330);
• failure on the part of a firm’s nominated officer to disclose information about money laundering to the appropriate authorities (s 331);
• ‘tipping off’ an individual that an investigation into money laundering is underway (s 333A);
• prejudicing an investigation into money laundering (s 342).

Question 16

Proceeds of Crime Act 2002 - Section 328 Arranging

Answer 16

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.

Subjective.

Taking steps in litigation (including pre- action steps) and the resolution of issues in a litigious context are excluded.

Question 17

Proceeds of Crime Act 2002 - Section 328 Arranging - Authorised disclosure defence

Answer 17

Disclosure must be made by the person who, but for the disclosure, would be committing an offence.

For solicitors often made to MLRO.

Disclosure must be in relation to criminal property.

Once the nominated officer has made a suspicious activity report to the NCA, the nominated officer is unable to give consent until:
(a) receives the consent of the NCA;
(b) 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, 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.

Disclosure during ok if:
- 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
- the disclosure is made as soon as is practicable after the solicitor first knows or suspects.

After:
must have a good reason for their failure to disclose prior to completing the act

Also a defence where the individual knew or believed that the ‘criminal conduct’ occurred abroad and the conduct in question was lawful in the country where it took place.

Question 18

Proceeds of Crime Act 2002 - Section 329 Acquisition, use or possession

Answer 18

If they acquire, use or have possession of criminal property.

Defences:
- Authorised disclosure defence
- The overseas defence
- The adequate consideration defence
Unless the individual knew or suspected that those goods or services might help to carry out criminal conduct.

Question 19

Proceeds of Crime Act 2002 - Section 327 Concealing etc

Answer 19

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

Question 20

Proceeds of Crime Act 2002 - Section 330 Failure to disclose

Answer 20

Offence 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.

Objective test.

Question 21

Proceeds of Crime Act 2002 - Section 330 Failure to disclose - defences

Answer 21

• Training defence
  employee has not received proper training.
• Legal professional privilege defence
  Communications will be protected from disclosure if they fall within ‘advice privilege’ or ‘litigation privilege’.
• Overseas defence

Question 22

Proceeds of Crime Act 2002 - Section 333A Tipping off

Answer 22

It is an offence under s333A(1) to disclose to any person that a relevant disclosure (on money laundering) has been made if that disclosure is likely to prejudice any investigation that follows such a report.

Section 333A(3) - offence is committed where a disclosure is made to any person that an investigation into allegations that an offence under POCA 2002 has been committed is being carried out, or is being contemplated, and that disclosure is likely to prejudice the money laundering investigation.

Question 23

Warning signs

Answer 23

SRA requires solicitors and firms to be able to spot the warning signs of money laundering and act appropriately.

(a) The client
e.g. secretive, obstructive or evasive
(b) Funding
unusual source of funding may be an indicator
(c) The transaction
A transaction with unusual features may be an indicator. E.g. the transaction is loss making, repetitive instructions, unexplained urgency, there is no obvious commercial purpose, or litigation which is settled too easily or quickly.
(d) Unusual instructions
E.g. instructions which are outside the solicitor’s/ firm’s area of expertise or normal business.
(e) Geographical concerns
E.g. the unexplained movement of monies between other jurisdictions or connections with suspect jurisdictions.