13.4 POCA Offences, Defences and Due Diligence
Key Takeaways
- Anti-money laundering on SQE1 is an FLK1 Legal Services topic; with ethics it can make up to 20% of a sitting, and AML questions are not set in FLK2.
- Direct involvement offences are POCA ss.327–329 (concealing, arrangements, acquisition/use/possession); non-direct offences include failure to disclose (ss.330–332) and tipping off (s.333A); authorised disclosure plus appropriate consent is the central defence to ss.327–329.
- Independent legal professionals are in the regulated sector when participating in the financial or real property transactions listed in MLR regulation 12; customer, simplified and enhanced due diligence, including beneficial ownership and PEP measures, then apply.
- Purely contentious work that is not one of the transactional activities listed in the Regulations commonly falls outside the Regulations while remaining inside POCA.
- The SRA is the professional-body supervisor for authorised solicitor firms under the Money Laundering Regulations 2017.
Direct and non-direct POCA offences and defences
FLK1 asks you to separate direct involvement in laundering from non-direct reporting and tipping-off offences.
| Offence | Section | Mental element (core) | What the solicitor actually does wrong | Central defence |
|---|---|---|---|---|
| Concealing, disguising, converting, transferring, or removing criminal property from the jurisdiction | s.327 | Knowledge or suspicion that the property is criminal property (built into "criminal property") | Moving or hiding the proceeds — e.g. paying cash into client account and sending it on | Authorised disclosure under s.338 plus appropriate consent if the disclosure is before the act; reasonable excuse for intended disclosure; enforcement-function carve-out |
| Arrangements | s.328 | Enters into or becomes concerned in an arrangement which the person knows or suspects facilitates acquisition, retention, use or control of criminal property by or on behalf of another | Completing a purchase, creating a company or trust, or otherwise being concerned in the deal | Same authorised-disclosure / consent structure; Bowman v Fels for ordinary litigation |
| Acquisition, use and possession | s.329 | Acquires, uses or has possession of criminal property | Taking a fee known to be criminal property, or holding it | Same consent structure, plus acquisition/use/possession for adequate consideration (s.329(2)(c)) |
| Failure to disclose: regulated sector | s.330 | Knows or suspects, or has reasonable grounds | Does not make the required disclosure as soon as practicable | Reasonable excuse; privileged circumstances (unless furthering crime); no actual suspicion plus no specified employer training (the negligence-limb defence) |
| Failure to disclose: nominated officers in the regulated sector | s.331 | Knows or suspects, or has reasonable grounds | Nominated officer does not disclose to the NCA | Reasonable excuse / privilege structure for that officer |
| Failure to disclose: other nominated officers | s.332 | Actual knowledge or suspicion only | Nominated officer outside the s.330 scheme fails to pass it on | No objective "reasonable grounds" limb |
| Tipping off (regulated sector) | s.333A | Disclosure likely to prejudice an investigation | Telling the client about the SAR or the investigation | Did not know or suspect prejudice; limited legal-adviser defences |
Required disclosure for an employee in the regulated sector is, in the firm setting, a disclosure to the nominated officer as soon as practicable, identifying so far as possible the other person, the whereabouts of the laundered property, and the information that came to the discloser. The nominated officer's onward duty is to the NCA. Privileged circumstances (s.330(10)) cover information communicated by a client or representative in connection with giving legal advice, or in connection with legal proceedings — but not if the information is communicated with the intention of furthering a criminal purpose. "My client told me in conference that the cash is VAT fraud proceeds and asked me to complete anyway" is not a privilege defence to sitting on the report.
Adequate consideration (s.329) is why an ordinary tradesperson who is paid a market fee without suspicion is not thereby a money launderer. It is a poor fit for a solicitor who knows the funds are criminal and still takes them as costs. Do not use it as a general "my fees cleanse the money" answer.
Penalties are serious (imprisonment on indictment for the principal offences). SQE1 cares about whether the offence is committed on these facts and what you do next, not about reciting maximum terms.
Due diligence requirements (MLR 2017)
The Regulations bite on a firm that is a relevant person. An independent legal professional (regulation 12) is a firm or sole practitioner who by way of business provides legal or notarial services to other persons when participating in financial or real property transactions concerning: buying or selling real property or business entities; managing client money, securities or other assets; opening or managing bank, savings or securities accounts; organising contributions for the creation, operation or management of companies; or creating, operating or managing trusts, companies, foundations or similar. Pure contentious work that is not those transactional activities is commonly outside the Regulations — and still inside POCA.
When the Regulations apply, the firm must:
- complete a firm-wide risk assessment (regulation 18);
- maintain policies, controls and procedures (regulation 19) and, where appropriate to size and nature, an independent audit function and a nominated officer (regulation 21);
- train relevant employees (regulation 24);
- apply customer due diligence (CDD) (regulations 27–28);
- keep records, generally for five years after the end of the business relationship (regulation 40).
The SRA is the professional-body supervisor for authorised solicitor firms under the Regulations.
CDD (regulation 28) means: identify the customer and verify identity from a reliable independent source; identify the beneficial owner where there is one and take reasonable measures to verify that identity (control through more than 25% of shares or voting rights is the usual company starting point, plus control by other means, and a senior managing official if no one else is identified); assess and where appropriate obtain information on the purpose and intended nature of the business relationship; and conduct ongoing monitoring. The extent of the measures must reflect the firm's regulation 18 risk assessment and the risk of the particular case.
When CDD is required (regulation 27) includes: establishing a business relationship; carrying out an occasional transaction of the current threshold (£12,000 or more, including linked operations, for a person who is not in one of the special high-value categories); suspecting money laundering or terrorist financing; or doubting previously obtained identification data. CDD must generally be complete before the relationship is established or the transaction is carried out. If you cannot complete CDD, regulation 31: you must not establish or continue the relationship or carry out the transaction, and you must consider a SAR.
| Level | When | What you actually do |
|---|---|---|
| Simplified due diligence (regulation 37) | Genuinely low risk after assessment (for example some listed companies or public authorities) | You still identify and verify; you may adjust the extent, timing or type of measures. It is not a nil-CDD button |
| Standard CDD (regulations 27–28) | Default for regulation 12 work | Identity, verification, beneficial ownership, purpose, ongoing monitoring |
| Enhanced due diligence (regulations 33–35) | High-risk situations, including high-risk third countries, complex or unusually large transactions, and politically exposed persons (PEPs), their family members and known close associates | Extra information on customer, beneficial owner, source of funds and wealth, purpose; senior-management approval; enhanced monitoring. A UK domestic PEP is not automatically treated as presenting the same risk as a non-domestic PEP; other risk factors still matter |
Worked CDD file. You are instructed on the purchase of a restaurant company. The buyer is a newly formed BVI company. CDD: identify and verify the company, drill to the beneficial owner behind the 25% test, understand why a BVI vehicle is buying a high-street restaurant, and obtain source-of-funds evidence. If the beneficial owner is a foreign PEP, EDD and senior-management approval are required. If the client will not identify the owner, you do not complete; you consider a SAR; you do not "use the BVI certificate of incorporation as enough".
Exam traps
- Reporting first to the client, the SRA, or the local paper rather than the nominated officer / NCA.
- Completing because a SAR has been sent, despite a live DAML refusal or moratorium.
- Tipping off by explaining that the NCA has been notified.
- Treating Bowman v Fels as a blanket transactional defence.
- Assuming litigation files are outside POCA because they may be outside MLR 2017.
- Skipping beneficial-ownership checks on a company client.
- Treating simplified due diligence as "no checks".
- Forgetting that AML is FLK1 Legal Services, not a pervasive FLK2 ethics substitute.
A solicitor is asked to complete a company sale knowing and suspecting that the price is criminal property, and does so without any authorised disclosure or consent. Which POCA offence is the best fit?
When must an SRA firm that is acting as an independent legal professional on a freehold purchase apply customer due diligence under the Money Laundering Regulations 2017?