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Money laundering - Coggle Diagram
Money laundering
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UK Regulations
Purpose of regulations
legislative basis
The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 enforce measures to prevent money laundering and terrorist financing.
global context
These regulations align with international standards set by the Financial Action Task Force, emphasizing a global response to crime.
goals
Disrupt Crime: Inhibit criminals’ ability to benefit from or reinvest proceeds of crime.
Protect Society: Ensure solicitors act as gatekeepers against money laundering.
Risk-Based Approach: Focus on higher-risk scenarios to maximize effectiveness.
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risk assessment
firm required to take appropriate steps to identify & assess risk of firm being used for money laundering
- this will entail a firm-wide risk assesssment to incude risk factors relating to services offered, how delivered to clients and nature of clients and industries in which they operatte
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Governments National Risk Assessment 2020- specifies servcies provided by law firms most likely to be targeted by money launders- trust & company services, conveyancing and client account services
Policies, Controls, and Procedures
Firms must have written policies, controls, and procedures that are proportionate to their size and nature. These should:
- Address the risks identified in the firm’s risk assessment.
- Be approved by senior management and include:
- Risk management practices.
- Client due diligence processes.
- Reporting and record-keeping systems.
- Protocols for:
- Adoption of new technology.
- Handling unusual or complex transactions.
internal controls
- Nominated Officer (MLRO):
- This individual is responsible for:
- Receiving internal reports of suspected money laundering.
- Liaising with the National Crime Agency (NCA) when necessary.
- to be MLRO, need to possess experience and understanding of financial crime.
- Money Laundering Compliance Officer (MLCO):
- Ensures the firm’s compliance with anti-money laundering obligations.
- Acts as the SRA’s main contact for these matters.
In most firms, the MLRO and MLCO roles are combined.
- post of MLCO must be occupied by a senior member of the firm, whereby their position would be equivalent to a director on the board of directors.
2 additional controlsa) Employee Screening:
- Conducted before and during employment to evaluate the skills, knowledge, integrity, and conduct of employees involved in:Compliance with the Regulations.
- Prevention and detection of money laundering.
b) Independent Audit Function:
- Reviews and monitors the firm’s compliance systems.
- Provides recommendations for improvement.
Rapid Response to Law Enforcement:
Firms must also be able to promptly provide details about business relationships with clients (current and within the past 5 years).
client due diligence
requirement for CDD
Firms carrying out relevant business are required to verify the identity of their clients. This process applies in the following circumstances:
- Business relationship establishment between the client and solicitor.
- Occasional transactions involving:
- A transfer of funds exceeding €1,000 via electronic means.
- A single or linked transaction exceeding €15,000.
- Suspicion of money laundering or terrorist financing.
- Doubt regarding the veracity or adequacy of identity documents provided.
CDD must be completed before establishing a business relationship or conducting a transaction
- Exceptions include cases of low risk, where it is necessary to avoid business interruptions, provided verification is completed as soon as practicable.
if CDD cannot be completed:
- The solicitor must not carry out transactions or establish a business relationship.
- Existing relationships must be terminated, and a disclosure to the National Crime Agency (NCA) should be considered
types of due diligence
standard
For most clients, standard due diligence involves:
- Verifying identity using reliable and independent sources.
- Understanding the ownership and control structures of non-natural persons (e.g., trusts, companies).
verification methods
For natural persons:
- Documents like passports or photocard driving licences.
- Combination of:
- A government-issued document confirming name and either address or date of birth, or
- A government document confirming the full name and a supporting document verifying name and address or date of birth.
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for companies
Confirm:
- Name, registration number, registered address, and principal place of business.
- Law applicable to the company, governance documents, and names of directors (unless listed on a regulated market).
- Conduct searches at Companies House and collect proof of registration.
Beneficial owners must also be identified. For companies, these include individuals who:
- Control or own more than 25% of shares or voting rights.
- Exercise ultimate control over the management of company.
- controls body corporate
beneficial owners
trusts (as trust has no legal personality so not client)a) settlor
b) trustess
c) beneficiaries
d) class of persons
- Where the beneficiaries are not specifically identified, the class of persons for whom the trust is established (e.g., "the children of X").
e) Individuals Exercising Control Over the Trust
- Any individual who has significant powers under the trust instrument or law, such as the ability to:
- Add or remove beneficiaries.
- Appoint or remove trustees.
- direct trust investments
partnerships (not LLPs)Entitlement to Capital, Profits, or Voting Rights
- Any individual with direct or indirect control over more than 25% of:
- Capital.
- Profits.
- Voting rights. OR
Control Over Management
- Any individual with significant control over management outside the normal structure, such as decisions on funds or transactions.
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for non-limited liability partnerships
- obtain info on individuals who make up partnership
- but where partneship well-known reputaable with long hisotrys in their industries and with sub public info, jsut need to obtain name, registered/trading address and nature of business
simplified
SDD applies in lower-risk scenarios, where:
- The client is a company listed on a regulated market.
- The client is established and does business
- In such cases, verification requirements may be reduced, and information on beneficial owners may not be required e.g. well-known plc listed only need confirm of companys listing on stock exchange
enhanced
EDD is required for high-risk scenarios, including:
- Transactions or relationships identified as high risk in:
- The firm’s risk assessment.
- SRA or Law Society guidance.
- Clients or transactions involving:
- High-risk third countries (as listed by the Financial Action Task Force).
- False or stolen identification documents.
- Politically Exposed Persons (PEPs), their family, or close associates.
- Complex, unusually large, or suspicious transactions with no apparent legal or economic purpose.
PEPs
PEP is an individual entrusted with prominent public functions such as:
- Heads of State, government ministers, MPs, or supreme court judges.
- High-ranking military officers or executives of state-owned enterprises.
Domestic PEPs are considered lower risk than international PEPs unless additional risk factors exist.For PEPs (or their associates and family members), solicitors must:
- Obtain senior management approval before acting.
- Conduct enhanced due diligence on the source of wealth and funds.
- Ensure ongoing monitoring of the relationship.
measures
- Verifying the source of wealth and funds.
- Obtaining senior management approval for the transaction or relationship.
- Enhanced ongoing monitoring.
economic crime
Criminal Facilitation of Tax Evasion (Criminal Finances Act 2017)The Act creates a corporate offence of failing to prevent tax evasion.
- Firms can be held strictly liable for tax evasion by employees or associated persons (e.g., agents, barristers, surveyors).
- No requirement for the firm or its management to have knowledge or intention.
- Defence: Having "reasonable prevention procedures" in place or proving it was reasonable not to have such procedures.
Penalties:
- Unlimited fines.
- Potential confiscation of assets.
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