UNIT 3 - Money Laundering and the Proceeds of Crime Act 2002 Flashcards
A solicitor is instructed by a client in a family case. The client tells the solicitor that their marriage has broken down, but their spouse will not defend the divorce and has already agreed to the family home and all other family assets being transferred to the client. The client instructs the solicitor to commence divorce proceedings and deal with the transfer of the assets in accordance with the agreement.
The client is known to the solicitor because they are both members of a local gym. The solicitor knows that the client has told others at the gym that their spouse is under criminal investigation for tax fraud.
Which of the following best explains the steps that the solicitor should take with regard to due diligence?
A) The solicitor should carry out enhanced due diligence because there is a high risk of money laundering.
B) The solicitor should carry out standard due diligence because the client has not personally been involved in any criminal activity.
C) The solicitor should carry out standard due diligence because the client is a private individual.
D) The solicitor should carry out simplified due diligence because family work presents a low risk of money laundering.
E) The solicitor does not need to carry out any due diligence because the client is already known to the solicitor.
CORRECT ANSWER A - Due diligence is required irrespective of the fact that the solicitor has some personal knowledge of the client (option E therefore is wrong). Simplified due diligence is based on an assessment of the individual facts of the case, not on the type of work involved (option D is wrong). Options B and C do not represent the best answers because while normally standard due diligence would be appropriate, here the facts suggest a high risk of money laundering and so enhanced due diligence is required. The criminal investigation is relevant (even though the client is not the subject) and the willingness of the spouse to transfer all the assets to the client is unusual. The risk here is that the divorce is a sham and that the spouse is seeking to distance themselves from assets purchased with the proceeds of crime by transferring those assets to the complicit client.
A solicitor is instructed by a client in the purchase of a property. At the first meeting, in accordance with the firm’s client due diligence policy, the solicitor asks to see the client’s passport. The client explains that they have just had to send the passport off for renewal and does not expect their new passport to arrive for several weeks. The client produces a bank statement showing the client’s name and address and promises to bring in a photo card driving licence tomorrow.
The following day, the client says that they cannot find their driving licence. Instead the client produces a letter from the client’s neighbour stating that they have known the
client for two years and confirming the client’s full name. The client then says that, as a demonstration of goodwill, the client will provide the solicitor with the full purchase price of the property in cash later that day.
Which of the following best explains what the solicitor should do?
A) Proceed and complete the purchase because the bank statement contains the client’s name and address.
B) Refuse to act because the solicitor does not have sufficient verification of the client’s identity.
C) Agree to undertake the initial steps in the purchase pending receipt of the new passport because there is little risk of money laundering.
D) Proceed and complete the purchase because the letter is independent verification of the client’s identity.
E) Agree to undertake the initial steps in the purchase pending speaking to the neighbour direct.
CORRECT ANSWER B - . As a general rule verification should be obtained at first contact. Verification must be obtained from a reliable source which is independent from the client. The letter would not fall within this description (meaning that option D is wrong), even if the contents are confirmed face to face (option E is wrong), as the neighbour is a personal friend and may have been duped by the client. Good practice dictates that verification should
be based on at least one government document. A bank statement might be sufficient in combination with a government document, but not in isolation; accordingly, option A is not the best answer. It is possible to delay verification if, inter alia, there is little risk of money laundering. That cannot be the case here given the client’s inability to produce suitable documentation and the cash payment proposal. The solicitor should refuse to act in these circumstances. Accordingly, option C is wrong.
A solicitor is instructed on the purchase of company shares. The solicitor discovers that a colleague in the firm has been instructed by the same client in respect of an investigation by the French tax authorities into certain of the client’s business activities in France which are alleged to amount to tax fraud. The solicitor makes an authorised disclosure to the firm’s nominated officer. The nominated officer does not go on to make a suspicious activity report to the National Crime Agency. Forty-eight hours later, having heard nothing from the nominated officer, the solicitor buys the shares on the client’s behalf.
Is the solicitor likely to have committed the offence of ‘arranging’ under s 328 Proceeds of Crime Act 2002?
A) Yes, because a suspicious activity report has not been made to the National Crime Agency.
B) Yes, because the solicitor did not have appropriate consent to proceed with the purchase of the shares.
C) No, because the solicitor made an authorised disclosure to the firm’s nominated officer.
D) No, because the client has not yet been convicted of any criminal offence.
E) No, because any criminal conduct took place outside the UK.
CORRECT ANSWER B - An authorised disclosure was required to prevent falling foul
of s 328 despite the fact that the alleged criminal activity took place outside the UK (fraud
is a criminal offence in France) and despite the lack of a conviction (suspicion is all that is required). However, the making of an authorised disclosure is not a sufficient defence in itself. Having made the disclosure the solicitor will still have committed the offence by proceeding with the purchase without consent. The duty to make a suspicious activity report lies with the nominated officer and a failure to make the report has no relevance to the solicitor’s liability under s 328.
A junior solicitor, who works for a firm in Newcastle, is instructed on the purchase of a residential property by a client who lives in Southampton. The client provides the solicitor with the purchase price of the property in cash. The client then pulls out of the purchase and asks the solicitor to return the purchase money to the client by cheque.
Which of the following best describes how the solicitor should respond?
A) Inform their head of department about the client’s request.
B) Do nothing.
C) Tell the firm’s nominated officer that there is a suspicion of money laundering.
D) Make a full file note of the client’s request.
E) Send the cheque.
CORRECT ANSWER C -
Option C is correct. There are reasonable grounds for suspecting that the client is engaged in money laundering (geographical distance between solicitor and client and the use of cash). The solicitor will commit the failure to disclose offence under s 330 if they do not make a relevant disclosure. The solicitor should therefore inform the firm’s nominated officer giving details of their suspicions. Option B is wrong as doing nothing is not an option in this case. Neither option A nor D is the best answer because, while making a file note and informing the head of department are good ideas they will not save the solicitor from committing the offence. Finally, option E is wrong. By sending the cheque the solicitor is likely to commit other offences (eg arranging under s 328).
A partner in a firm is acting for a client in the purchase of a business. The firm receives a telephone call from the client’s wife. The partner, who is in a meeting, asks a junior solicitor to take the call. In doing so the partner says that the client has given permission for any information about the purchase to be discussed with his wife.
The solicitor takes the call. The client’s wife asks for an update on the progress of the purchase. On checking the file, the solicitor tells the client’s wife that the client provided the money for the purchase in cash and the partner has concerns that the client may have obtained some of the money as a result of tax fraud and that consequently the purchase is on hold whilst the firm considers making a suspicious activity report to the National Crime Agency.
Which of the following best explains whether the solicitor has committed a ‘tipping off’ offence under s 333A Proceeds of Crime Act 2002?
A) An offence has not been committed because the disclosure was authorised by the partner.
B) An offence has not been committed because the solicitor did not intend to prejudice an investigation.
C) An offence has not been committed because the disclosure was not made to the client.
D) An offence has been committed because there is strong evidence that the client has been engaged in money laundering.
E) An offence has been committed because the disclosure is likely to prejudice any investigation into money laundering.
CORRECT ANSWER E - A key element of the offence is that the disclosure is likely to prejudice
an investigation. Making the disclosure to the client’s wife is highly likely to prejudice the investigation. However, the solicitor does not need to have intended this outcome (option B therefore is wrong). A tipping off offence under s 333A(3) does not depend on the strength of evidence of money laundering (option D is wrong); even the contemplation of an investigation is sufficient. Tipping off offences can be committed where a disclosure is made to any person, meaning that option C is wrong. Finally, option A is wrong as there is no scope for the tipping off to be authorised, and in any event the partner authorised the conversation taking place, not its content.
TRUE OR FALSE:
Unlike PoCA 2002, there are no criminal sanctions associated with the Money Laundering Regulations.
FALSE - See for example regulation 26, whereby practitioners must apply to the SRA for approval under the Regulations, and acting without such approval is a criminal offence.
TRUE OR FALSE:
All firms must establish and maintain written policies, controls and procedures in relation to money laundering to exactly the same degree and level of detail.
FALSE - A firm is required to establish and maintain written policies, controls and procedures approved by its senior management to mitigate and manage effectively the money laundering and terrorist financing risks identified in its risk assessment; but these policies and controls must be proportionate to the firm’s size and nature.
TRUE OR FALSE:
Within a given firm, the roles of Money Laundering Compliance Officer, ‘nominated officer’ to receive money laundering reports and Money Laundering Reporting Officer can all be held by the same person.
TRUE - Money Laundering Compliance Officer and ‘nominated officer’ to receive money laundering reports are technically distinct roles but can be fulfilled by the same person; and the ‘nominated officer’ to receive money laundering reports is often referred to as the Money Laundering Reporting Officer.
TRUE OR FALSE:
The corporate offence under the Criminal Finances Act 2017 of failing to prevent the criminal facilitation of tax evasion can be committed without intention or even knowledge
TRUE - The offence is strict liability, and no knowledge or intention is required on the part of the firm or its senior management. The 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).
TRUE OR FALE:
For a solicitor to be guilty of the ‘arranging’ offence under PoCA 2002, illicit funds must have passed through their hands
FALSE - For the purpose of the offence, becoming ‘concerned’ in an arrangement has a much broader meaning than just handling questionable funds (although actually handling such funds could, of course, make it out). It could encompass virtually any act which assists in the process of money laundering by another person.
TRUE OR FALSE:
Any vague feeling of unease will amount to ‘suspicion’ for the purpose of making out the ‘know or suspect’ element of the ‘arranging’ offence under PoCA 2002.
FALSE - ‘Suspicion’ requires more than just a vague feeling of unease (although admittedly not that much more). It must involve ‘a possibility, that is more than fanciful, that the relevant facts exist’. This is quite an important point to grasp, as the phrase ‘knows or suspects’ appears a number of times in PoCA 2002.
TRUE OR FALSE:
Under PoCA 2002 it can be permissible for a ‘nominated officer’ who has made a ‘suspicious activity report’ to the National Crime Agency (NCA) to consent to work continuing on an affected client’s file even though consent has not been received from the NCA.
TRUE - Once a nominated officer has made a suspicious activity report to the NCA, the nominated officer is unable to give consent (to work continuing) until one of the following conditions is met:
The nominated officer, having made a disclosure to the NCA, receives the consent of the NCA; or
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); or
Where consent is refused by the NCA, either 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.
It can be seen that not all of these conditions require active consent from the NCA.
TRUE OR FALSE:
The maximum penalty for a ‘tipping off’ offence under PoCA 2002 is a £2,000 fine.
FALSE - The maximum penalty for a ‘tipping off’ offence under PoCA 2002 is an unlimited fine and/or two years’ imprisonment.
This may seem severe, but note that it is lenient compared to the potential sentences for some other PoCA 2002 offences. The offence of ‘arranging’, for example, carries a maximum sentence of fourteen years’ imprisonment.
A solicitor works in a large firm with good money laundering procedures. The solicitor has just completed a client’s matter which involved the purchase of property for a large sum of money provided by the client. These funds passed through the firm’s client bank account, and some money attributable to the client is left over in that account. The solicitor has now received information from a third party that causes them to suspect that the client’s funds were in fact the proceeds of crime.
Which of the following best describes what the solicitor should do?
A) The solicitor should retain the money in the client bank account and make a disclosure to the client of their suspicions.
B) The solicitor should retain the money in the client bank account and make a disclosure to the National Crime Agency.
C) The solicitor should send the money back to the client and make a disclosure to the firm’s Money Laundering Reporting Officer.
D) The solicitor should send the money back to the client and make a disclosure to the client of their suspicions.
E) The solicitor should retain the money in the client bank account and make a disclosure to the firm’s Money Laundering Reporting Officer.
CORRECT ANSWER E - . In these circumstances the solicitor should stop taking action on the client’s matter (and account) and make a disclosure to the firm’s MLRO.
Option A is wrong. The client should not be told of the solicitor’s suspicions as disclosure will be required of the solicitor, and effectively warning the client like this could amount to the ‘tipping off’ offence under PoCA 2002.
Option B is not the best answer. Once the solicitor has passed the information to the firm’s MLRO the MLRO could pass it on the NCA, but the normal process in a firm with ‘good money laundering procedures’ would not skip this step.
Option C is wrong because sending the money back to the client, in the knowledge or suspicion that it could be the proceeds of crime and without consent from the MLRO, could amount to an offence under PoCA 2002.
A qualified solicitor in an English law firm begins to suspect that a large sum of money held in his firm’s client bank account and due to be used on a large property transaction for a long-standing and valuable client could be indirectly linked to a number of burglaries committed in Wales. The client has previously paid the solicitor’s reasonable professional fees out of this money. The solicitor considers what do for several days without telling anyone, then finally he makes a disclosure to his Money Laundering Reporting Officer. Two days later he is told that an investigation has begun into the client. He contacts the client and reveals to her the fact of the investigation, using this to try to dissuade her from her criminality.
Which of the following best describes the solicitor’s position?
A) As the solicitor has made an authorised disclosure, they are protected from criminal consequences under PoCA 2002.
B) The solicitor will be guilty of a tipping off offence under PoCA 2002 regardless of their reasons for revealing the investigation to the client.
C) The solicitor is unlikely to have committed the offence relating to acquisition, use or possession only by way of having taken their professional fees.
D) The solicitor cannot be guilty of the arranging offence under PoCA 2002 as the benefits of the criminal activity are only indirect.
E)The solicitor could potentially make use of the overseas defence as the criminal activity took place outside England
CORRECT ANSWER C - The money has been used to pay the solicitor’s ‘reasonable professional fees’. This seems likely to fall within the ‘reasonable consideration’ defence to the ‘acquisition, use or possession’ offence under PoCA 2002.
Option A is wrong, as disclosure has clearly been delayed without any good reason on the part of the solicitor. This is contrary to the requirements of a proper authorised disclosure.
Option B is wrong, as technically a defence arises where disclosure is made to the client with the intention of dissuading the client from engaging in the alleged money laundering. This defence should, of course, be treated with extreme caution given the likely disapproval of the authorities and the potential consequences for the solicitor should it fail.
Option D is wrong as indirect benefits from criminal conduct can amount to ‘criminal property’ for the purpose of the ‘arranging’ offence just as much as direct benefits can.
Option E is wrong because England and Wales are part of the same jurisdiction, and in any case, burglary is illegal in both places. The ‘overseas defence’ has no application to these facts at all.
