Exam: MCQs. 21 multiple-choice questions with each question worth 3, Para 4.6 Anti-Money Laundering Guidance for the Legal Sector (AMLG)
4 or 5 marks. Score min. 40 out of 80 marks to be ‘competent’ for PCR. Staying alert to suspicious circumstances or the provision of false CDD
material. Does the fact pattern suggest money laundering?
The 2011 Code of Conduct has been replaced by two new shorter
codes:
1. SRA Code of Conduct for Solicitors, Registered European WHAT CDD IS REQUIRED FOR THIS CLIENT?
Lawyers (RELs) and Registered Foreign Lawyers (RFLs) (CCS)
2. SRA Code of Conduct for Firms (CCF) Risk assessment – Reg 18:
Together, the new rules and regulations are known as the SRA Reg 18(2) In making the assessment, take into account any info
Standards and Regulations 2019. provided by the Law Society or SRA.
Para 2.3.1 AMLG High-risk client attributes:
MONEY LAUNDERING *the more of these attributes, the higher the risk*
• Nationality, residence: Financial Action Task Force (FATF)
Exam Structure – MLR: *Go through this for each transaction jurisdictions: North Korea, Iran
separately*
1. Does the MLR apply to this type of work? • Occupation:
2. New or existing client? 1. Has off-shore interests – this can be seen if attended
3. What CDD is required for this client? offshore investment conference in tax haven – eg.
4. Apply the correct CDD measures. Cayman Islands, Oman, Panama.
5. When should CDD be conducted for this client? 2. Client operates in public works, real property, oil gas,
nuclear energy, mining or arms sectors
Money laundering involves transactions where proceeds from crime 3. Client works in high turnover cash business
are ‘cleaned’ so that its source becomes difficult to trace. Solicitors can
be guilty of offences under the Proceeds of Crime Act 2002 (PoCA) if • You do not meet the client
they receive the proceeds of crime. • Client is a politically exposed person (PEP)
Offences: Para 2.3.2 AMLG High-risk client activities:
Regs 86 and 87 Money Laundering, Terrorist Financing and Transfer of • Trust set up for no reason
Funds Regs 2017 (MLR) A person who fails to carry out CDD, may be • Off-shore funds or paying large sums in cash
charged of an offence with up to 2 years imprisonment and/or fine. • Getting paid by/being asked to pay unknown third party
Reg 88 A person may be charged with a criminal offence if he has • Overpayments, client uses client account as banking service
either knowingly or recklessly failed to carry out CDD or accepted • Unusual or one-off, high-value transactions
documentation which he knew or should have known was false. • Sham litigation
Reg 92 Solicitors will be personally liable even if acted on behalf of a • Unusual retainers for no apparent reason
firm. • Similar signatures of both buyer and seller in a deal
• Buyer and seller have similar names and/or addresses in a deal
DOES THE MLR APPLY?
Example:
Lawyers must carry out customer due diligence (CDD) before taking on 1. North Korean national (high-risk attribute) making a claim for
work from clients. personal injury (low-risk activity) – Low risk.
2. North Korean national (high-risk attribute) buying property
Reg 8(1) and 8(2)(d)-(e) MLR MLR applies to work carried out by using off-shore funds (high-risk activity) – High risk.
relevant persons.
Reg 3(1) Relevant person = independent legal professionals or trust or Choosing which type of CDD to use:
company service providers.
Standard CDD: Reg 28
Regs 8(2)(d) and 12(1) Independent legal professionals = includes firms Use this type when none of the other types apply.
who provide legal services to others when participating in:
1. Real property transactions concerning the buying and selling of Enhanced Due Diligence (EDD): Reg 33
real property and – Won’t apply to employment claims, Highest level of due diligence for high-risk clients/transactions.
litigation
2. Financial transactions concerning the buying and selling of Risk factors: Reg 33(1)
businesses. – Acquisitions 1. Reg 33(1)(a) Identified as high risk under Reg 18 (above).
2. Reg 33(1)(b) Client is established in a high-risk country.
Reg 12(2) Trust or company service provider = firm or individual who 3. Reg 33(1)(c) Client is a credit institution or financial institution.
by way of business provides services for companies such as forming 4. Reg 33(1)(d) Client is a politically exposed person (PEP) who has
them or acting/arranging for another person to act as a secretary or been entrusted with a prominent public function or their family
director. member/known close associate.
5. Reg 33(1)(e) Client has provided false ID.
If the work the firm does falls within the definition, firm must appoint: 6. Reg 33(1)(f) Unusually large or complex transaction or unusual
1. A Money Laundering Reporting Officer (MLRO) or also called, patterns of transaction and the transaction have no apparent
Nominated Officer economic or legal purpose.
2. Reg 21(1) A Money Laundering Compliance Principal (MLCP) 7. Reg 33(1)(g) Any other cases presenting higher risk of money
3. A Compliance Officer for Legal Practice (COLP) laundering.
AND
4. A Compliance Officer for Finance and Administration (COFA) para 4.12 AMLG Apply EDD if any of the risk factors in Reg 33(1) are
present.
Conclude:
If the new work falls within the definition, go onto the next question. Simplified Due Diligence (SDD): Reg 37
Andrew buying a property falls within Reg. 12(1)(a). The firm is Lowest level of due diligence. A firm can use SDD if a business
providing legal services, so they fall within the definition. relationship or transaction presents a low risk.
Reg 37(5) Also use SDD if client is an EEA independent legal
NEW OR EXISTING CLIENT? professional.
If new client: You must undertake CDD in relation to all new clients. – Firm must take into account factors:
Eg. if two clients instruct you together, undertake CDD for both of them. 1. Reg 37(1)(a) Reg 18 risk assessment suggests low risk.
If existing client: CDD has already been undertaken. 2. Reg 37(1)(b) If supervisory authority disclosed information to
the firm under Reg 17(9) that would make money laundering
Reg 28(11) MLR You must carry out ongoing monitoring of the more likely, then don’t use SDD.
business relationship with client by:
• Scrutinising each transaction – eg. the source of funds 3. Reg 37(1)(c) Reg 37(3) risk factors suggests low risk.
AND
• Reviewing existing records and keeping all CDD-related Reg 37(3) Risk factors:
documents or client info up-to-date and new records should be a) Customer risk factors: is customer a credit institution or
checked using a reputable electronic verification service in administration?
provider. – eg if client’s passport expired b) Product, service risk factors: is customer an insurance
company or provides pension scheme or other financial
products?
c) Geographical risk factors: high risk or low risk country of
residence? – eg EEA states are low risk
Professional Conduct Rules – Revision notes | Page 1 of 15
4 or 5 marks. Score min. 40 out of 80 marks to be ‘competent’ for PCR. Staying alert to suspicious circumstances or the provision of false CDD
material. Does the fact pattern suggest money laundering?
The 2011 Code of Conduct has been replaced by two new shorter
codes:
1. SRA Code of Conduct for Solicitors, Registered European WHAT CDD IS REQUIRED FOR THIS CLIENT?
Lawyers (RELs) and Registered Foreign Lawyers (RFLs) (CCS)
2. SRA Code of Conduct for Firms (CCF) Risk assessment – Reg 18:
Together, the new rules and regulations are known as the SRA Reg 18(2) In making the assessment, take into account any info
Standards and Regulations 2019. provided by the Law Society or SRA.
Para 2.3.1 AMLG High-risk client attributes:
MONEY LAUNDERING *the more of these attributes, the higher the risk*
• Nationality, residence: Financial Action Task Force (FATF)
Exam Structure – MLR: *Go through this for each transaction jurisdictions: North Korea, Iran
separately*
1. Does the MLR apply to this type of work? • Occupation:
2. New or existing client? 1. Has off-shore interests – this can be seen if attended
3. What CDD is required for this client? offshore investment conference in tax haven – eg.
4. Apply the correct CDD measures. Cayman Islands, Oman, Panama.
5. When should CDD be conducted for this client? 2. Client operates in public works, real property, oil gas,
nuclear energy, mining or arms sectors
Money laundering involves transactions where proceeds from crime 3. Client works in high turnover cash business
are ‘cleaned’ so that its source becomes difficult to trace. Solicitors can
be guilty of offences under the Proceeds of Crime Act 2002 (PoCA) if • You do not meet the client
they receive the proceeds of crime. • Client is a politically exposed person (PEP)
Offences: Para 2.3.2 AMLG High-risk client activities:
Regs 86 and 87 Money Laundering, Terrorist Financing and Transfer of • Trust set up for no reason
Funds Regs 2017 (MLR) A person who fails to carry out CDD, may be • Off-shore funds or paying large sums in cash
charged of an offence with up to 2 years imprisonment and/or fine. • Getting paid by/being asked to pay unknown third party
Reg 88 A person may be charged with a criminal offence if he has • Overpayments, client uses client account as banking service
either knowingly or recklessly failed to carry out CDD or accepted • Unusual or one-off, high-value transactions
documentation which he knew or should have known was false. • Sham litigation
Reg 92 Solicitors will be personally liable even if acted on behalf of a • Unusual retainers for no apparent reason
firm. • Similar signatures of both buyer and seller in a deal
• Buyer and seller have similar names and/or addresses in a deal
DOES THE MLR APPLY?
Example:
Lawyers must carry out customer due diligence (CDD) before taking on 1. North Korean national (high-risk attribute) making a claim for
work from clients. personal injury (low-risk activity) – Low risk.
2. North Korean national (high-risk attribute) buying property
Reg 8(1) and 8(2)(d)-(e) MLR MLR applies to work carried out by using off-shore funds (high-risk activity) – High risk.
relevant persons.
Reg 3(1) Relevant person = independent legal professionals or trust or Choosing which type of CDD to use:
company service providers.
Standard CDD: Reg 28
Regs 8(2)(d) and 12(1) Independent legal professionals = includes firms Use this type when none of the other types apply.
who provide legal services to others when participating in:
1. Real property transactions concerning the buying and selling of Enhanced Due Diligence (EDD): Reg 33
real property and – Won’t apply to employment claims, Highest level of due diligence for high-risk clients/transactions.
litigation
2. Financial transactions concerning the buying and selling of Risk factors: Reg 33(1)
businesses. – Acquisitions 1. Reg 33(1)(a) Identified as high risk under Reg 18 (above).
2. Reg 33(1)(b) Client is established in a high-risk country.
Reg 12(2) Trust or company service provider = firm or individual who 3. Reg 33(1)(c) Client is a credit institution or financial institution.
by way of business provides services for companies such as forming 4. Reg 33(1)(d) Client is a politically exposed person (PEP) who has
them or acting/arranging for another person to act as a secretary or been entrusted with a prominent public function or their family
director. member/known close associate.
5. Reg 33(1)(e) Client has provided false ID.
If the work the firm does falls within the definition, firm must appoint: 6. Reg 33(1)(f) Unusually large or complex transaction or unusual
1. A Money Laundering Reporting Officer (MLRO) or also called, patterns of transaction and the transaction have no apparent
Nominated Officer economic or legal purpose.
2. Reg 21(1) A Money Laundering Compliance Principal (MLCP) 7. Reg 33(1)(g) Any other cases presenting higher risk of money
3. A Compliance Officer for Legal Practice (COLP) laundering.
AND
4. A Compliance Officer for Finance and Administration (COFA) para 4.12 AMLG Apply EDD if any of the risk factors in Reg 33(1) are
present.
Conclude:
If the new work falls within the definition, go onto the next question. Simplified Due Diligence (SDD): Reg 37
Andrew buying a property falls within Reg. 12(1)(a). The firm is Lowest level of due diligence. A firm can use SDD if a business
providing legal services, so they fall within the definition. relationship or transaction presents a low risk.
Reg 37(5) Also use SDD if client is an EEA independent legal
NEW OR EXISTING CLIENT? professional.
If new client: You must undertake CDD in relation to all new clients. – Firm must take into account factors:
Eg. if two clients instruct you together, undertake CDD for both of them. 1. Reg 37(1)(a) Reg 18 risk assessment suggests low risk.
If existing client: CDD has already been undertaken. 2. Reg 37(1)(b) If supervisory authority disclosed information to
the firm under Reg 17(9) that would make money laundering
Reg 28(11) MLR You must carry out ongoing monitoring of the more likely, then don’t use SDD.
business relationship with client by:
• Scrutinising each transaction – eg. the source of funds 3. Reg 37(1)(c) Reg 37(3) risk factors suggests low risk.
AND
• Reviewing existing records and keeping all CDD-related Reg 37(3) Risk factors:
documents or client info up-to-date and new records should be a) Customer risk factors: is customer a credit institution or
checked using a reputable electronic verification service in administration?
provider. – eg if client’s passport expired b) Product, service risk factors: is customer an insurance
company or provides pension scheme or other financial
products?
c) Geographical risk factors: high risk or low risk country of
residence? – eg EEA states are low risk
Professional Conduct Rules – Revision notes | Page 1 of 15
