Introduction to the Policy
Bitsmo is required under the Money Laundering Regulations 2017 to put in place appropriate systems and controls to forestall money laundering and terrorist financing. This policy contains the procedures that we have developed in order to comply with these obligations.
The Money Laundering Regulations require the entity to ensure that there is up-to-date knowledge of issues relating to Anti-Money Laundering and Counter-Terrorist Financing throughout the organisation, implement appropriate policies and procedures and receive reports of suspicious activity.
What is money laundering and terrorist financing?
Money laundering is the process through which proceeds of crime and their true origin and ownership are changed so that the proceeds appear legitimate. Terrorist financing is providing or collecting funds, from legitimate or illegitimate sources, to be used to carry out an act of terrorism.
Why is anti-money laundering and counter-terrorist financing important to Bitsmo?
Lawyers facilitate significant transactions and are gatekeepers to the legal system. The anti-money laundering (AML) and counter-terrorist financing (CTF) regime is designed to prevent our services being used by criminals. You have obligations under the AML/CTF regime to spot and report money laundering and terrorist financing. Failure to meet these obligations can lead to criminal penalties, substantial fines and untold damage to your own and Bitsmo’s reputation.
How does money get laundered?
Typically money laundering involves three stages:
The process of placing criminal property into the financial system. This might be done by breaking up large sums of cash into smaller amounts or by using a series of financial instruments (such as cheques or money orders) which are deposited at different locations.
The process of moving money that has been placed in the financial system in order to obscure its criminal origin. This is usually achieved through multiple complex transactions often involving complicated offshore company structures and trusts.
Once the origin of the money is disguised it ultimately must reappear in the financial system as legitimate funds. This process involves investing the money in legitimate businesses and other investments such as property purchases or setting up trusts.
We are most likely to become involved in the layering stage but potentially could be involved in any stage.
How do I know if my matter involves money laundering or terrorist financing?
You do not have to behave like a police officer but you do have to remain alert to the warning signs of money laundering and terrorist financing and make the sort of enquiries that a reasonable person (with the same qualifications, knowledge and experience as you) would make.
Typical signs of money laundering and terrorist financing are:
- Obstructive or secretive clients
- Instructions outside our usual range of expertise, i.e. why is the client using us?
- Clients based a long way from us with no apparent reason for using us
- Cases or instructions that change unexpectedly or for no logical reason, especially where:
- The client has deposited funds with us
- The source of funds changes at the last moment
- You are asked to return funds or send funds to a third party
- Loss-making transactions where the loss is avoidable
- Complex or unusually large transactions
- Transactions with no apparent logical, economic or legal purpose
- Large amounts of cash being used
- Money transfers where there is a variation between the account holder and signatory
- Payments to or from third parties where there is no logical connection to the client
- Movement of funds between accounts, institutions or jurisdictions without reason
- Retainers involving high risk jurisdictions (e.g. Iran, Uzbekistan, Turkmenistan, Pakistan, Sao Tome and Northern Cyprus)
- Large payment on account of fees with instructions terminated shortly after and the client requesting the funds are returned
Criminals are always developing new techniques so this list can never be exhaustive.
What is suspicious activity?
Any client activity outside the normal or expected activity should be considered unusual and must be investigated. Understanding the business or client profile is crucial. Unusual activity or transactions outside the established profile should be considered as a potential indicator of suspicious activity. Investigations should establish the reasons for the unusual activity or transaction. This may either remove or confirm your suspicion. If it is confirmed, you must report it to Bitsmo. Failure to do so is an offence that could result in five years imprisonment.
What to do if you have a suspicion?
Report it to Bitsmo. Do not carry out the transaction or proceed unless you have consent from Bitsmo. They will review the suspicion and, if required, submit a Suspicious Activity Report (SAR) to the National Crime Agency (NCA). Only Bitsmo or deputy may submit an SAR to the NCA. Once you have reported your suspicion to Bitsmo, they will send you an acknowledgement within 24 hours. If more information is required, Bitsmo will request it from you.
If Bitsmo gives you consent to proceed with a transaction, then that consent only applies to that specific transaction. If the client requests further activities or transactions, further consent is required from Bitsmo even if you do not have a suspicion.
This is a suspicious activity report which financial institutions must make if they suspect something in a transaction is illegal. Law enforcement will make a decision after a SAR has been submitted. If no response has been received seven working days after the SAR was submitted, then the transaction can proceed. It may be a tipping off offence to reveal to the customer that a SAR has been submitted. A SAR should be submitted within 48 hours of a suspicion being formed.
Information that a SAR has been made should never be placed on a client file.
In most jurisdictions it is an offence for someone to tip off (inform) a person suspected of money laundering that a Suspicious Activity Report (SAR) has been made or there is a money laundering investigation taking place. There are a number of defences and exceptions that apply, but in general a tipping off offence would occur when the action is likely to prejudice an investigation that’s taking place.
A tipping off offence cannot be committed if a report has not been submitted and you liaise with clients or colleagues as part of your enquiries into an unusual activity. However, you cannot mention the word suspicious.
Money Laundering Offences
The Proceeds of Crime Act 2002 (POCA 2002) establishes a number of money laundering offences:
- The principal offences
- Failure to disclose offences
- The offences of tipping-off and prejudicing an investigation
Each offence is explained below. All money laundering offences relate to criminal property, which is property that constitutes or represents a person's benefit:
- In whole or in part
- From criminal conduct
- Whether directly or indirectly
This definition covers the proceeds of all crimes. There is no minimum limit on what is considered to be criminal property.
Criminal conduct is all conduct that constitutes an offence in any part of the US/EU or overseas.
The principal Offences
You will commit a principal money laundering offence if you:
- Conceal, disguise, convert, transfer or remove criminal property from the all relevant countries (s327)
- Enter into or become concerned in an arrangement which facilitates the acquisition, retention, use or control of criminal property for or on behalf of another (s328), or
- Acquire, use or have possession of criminal property (s 329)
You will commit an offence if you:
This includes concealing or disguising its:
You must know or suspect that the criminal property represents a benefit from criminal conduct.
You will commit an offence if you:
- Have possession of
Possession means having physical custody of the criminal property. The principal money laundering offences carry a maximum penalty of 14 years' imprisonment, a fine or both. You will have a defence to a principal money laundering offence if you submit a Suspicious Activity Report (SAR) to Bitsmo.
Failure to report
Making an SAR to Bitsmo can be a defence to a principal money laundering offence.
Failing to make a SAR to Bitsmo where you know or suspect money laundering is an offence in itself which is punishable by up to five years' imprisonment, a fine or both.
See further Reporting suspicions below.
Tipping-off and prejudicing an investigation
You will commit the tipping-off offence if you disclose to the person to whom the disclosure relates that you, or anyone else:
- Has made an SAR to Bitsmo
- Of information which came to us in the course of business
- That disclosure is likely to prejudice any investigation that might be conducted following the SAR
You will commit the prejudicing an investigation offence if you disclose that an investigation is being contemplated or carried out and that disclosure is likely to prejudice that investigation. Further, you will commit an offence if you know or suspect that an investigation is being or is about to be conducted and you interfere with documents which are relevant to the investigation. Tipping-off can only be committed after an SAR has been made. You will not commit tipping-off by discussing your concerns with or submitting a SAR to Bitsmo.
All these offences are punishable by up to five years' imprisonment, a fine or both. The existence of these offences does not prevent Bitsmo from making normal enquiries about our clients' instructions. Bitsmo is able to make enquiries in order to:
- Obtain further information to help you decide whether you have a suspicion, and/or
- Remove any concerns that you have
Your enquiries will only constitute an offence if you disclose that an SAR has been made or that an investigation is being carried out or contemplated. It is also not tipping-off to warn clients of our duties under the AML/CTF regime by providing them with our terms of business or our standard client care letter.
Terrorist Financing Offences
Terrorists need funds to plan and carry out attacks. The Terrorism Act 2000 (TA 2000) criminalises both participation in terrorist activities and terrorist financing.
In general terms, terrorist financing is:
- The provision or collection of funds
- From legitimate or illegitimate sources
- With the intention or in the knowledge
- That they should be used in order to carry out any act of terrorism
- Whether or not those funds are in fact used for that purpose
The TA 2000 establishes a similar pattern of offences to those contained in POCA 2002, i.e:
- Principal terrorism offences of:
- Use or possession
- Money laundering
- Failure to disclose offences
- Tipping-off offences
All offences carry heavy criminal penalties. Many of the provisions of POCA 2002 and TA 2000 mirror one another and the definitions are deliberately matched.
Both POCA 2002 and TA 2000 run parallel to the Money Laundering Regulations 2007 (Amended 2012), which are explained below.
The Money Laundering Regulations 2017
The Money Laundering Regulations 2017 set administrative requirements which require us to have systems and controls to forestall money laundering and terrorist financing. They implement the standards of the Fourth European Anti-Money Laundering Directive.
Client Due Diligence (CDD)/Know Your Customer (KYC)
Client Due Diligence is:
- Identifying and verifying the client's identity
- Identifying the beneficial owner where this is not the client
- Obtaining details of the purpose and intended nature of the business relationship
- Conducting ongoing monitoring of the business relationship
When will Bitsmo conduct KYC verification?
Bitsmo will carry out KYC verification:
- Before you carry out a one-off transaction for a client
- Where there is reason to believe that CDD/KYC carried out on an existing client is inadequate
- Where the client's identifying details (e.g. name and address) have changed
- Where the client has not been in regular contact with us
- Where someone is purporting to act on behalf of a client
- Where you suspect money laundering or terrorist financing
Bitsmo will also obtain and verify the names of the body corporate, its registration number, registered address and principal place of business/individuals. Reasonable measures must also be taken to determine and verify the law to which it is subject, its constitution and the names of its board of directors and senior management.
How do I conduct CDD?
You must start with assessing the risk of money laundering or terrorist financing posed by the client and complete an account verification at trade.bitsmo.io after you register.
What is ongoing monitoring?
Ongoing monitoring is an intrinsic part of the CDD/KYC process. It must be performed on all matters, regardless of their individual risk rating, in order to detect unusual or suspicious transactions.
How do I conduct ongoing monitoring?
- Scrutinise transactions undertaken (including, where necessary, the source of funds) to ensure that the transactions are consistent with your knowledge of the client, their business and risk profile
- Stay alert to changes in the client's risk profile and anything that gives rise to suspicion
- Keep documents, data and information used for CDD purposes up to date
- Go through the account verification process at trade.bitsmo.io.
Who will receive training?
All relevant staff within Bitsmo will receive training.
What does the training involve?
Training is provided through online courses.
- The law relating to money laundering and terrorist financing
- Our policy and procedures
- Guidance on detecting money laundering and terrorist financing
Is completion of training compulsory?
Completion of training is compulsory for all Bitsmo employees.
How often will training be provided?
All new joiners will receive training as part of the induction process. Further training will be provided as required.
Bitsmo will continually monitor training needs but if you feel that you need further training on any aspect of the relevant law or our AML/CTF policy and procedures, please contact Bitsmo.
Policy compliance and review
How will compliance with this policy be monitored?
Compliance will be continually monitored through any or all of the following methods:
- File audits
- Review of records maintained by Bitsmo
- Reports or feedback from staff
- Any other method
What are the consequences for failing to comply?
Failure to comply puts both you and Bitsmo at risk. You may commit a criminal offence if you fail to comply with this policy. The AML and CTF regimes carry heavy criminal penalties ranging from two years' imprisonment for failing to apply appropriate CDD/KYC measures to 14 years' imprisonment for committing a principal money laundering or terrorist financing offence. We take compliance with this policy very seriously. Because of the importance of this policy, failure to comply with any requirement may lead to disciplinary action under our procedures, which may result in dismissal.
When will this policy be reviewed?
We will review this policy at least annually as part of our overall risk management process. We will also review this policy if:
- There are any major changes in the law or practice
- We identify or are alerted to a weakness in the policy
- There are changes in the nature of our business, our clients or other changes which impact on this policy
Where can I get further advice on AML/CTF matters?
You can get further advice and guidance by contacting Bitsmo at firstname.lastname@example.org.