Criminal Justice (Money Laundering and Terrorist Financing) Act 2010
Planning for the implementation of the Fourth EU Anti-Money Laundering Directive (EU 2015/849) (AMLD4) that must be transposed into the national law of member states by 26 June 2017 is now under active consideration in most firms. The FATF inspection at the Central Bank late last year and the recent requirement for all Irish firms to create and maintain a Beneficial Ownership Register from 15 November 2016 are all timely reminders to firms to ensure that they have procedures and practices in place to both recognise and manage risks of money laundering and the financing of terrorism in the business.
The activity of money laundering involves the intentional or reckless conversion of tainted property, generated from “criminal conduct”, into clean property, so that the criminal origin of the tainted property is difficult to trace. Typically this involves the concealment of the origins of illegally obtained money, by means of various transfers involving foreign banks and/or legitimate businesses. This may also involve concealing or disguising the true nature and ownership of the property. The Criminal Justice Act defines “Criminal conduct” and this definition encompasses all offences, whether minor or serious, and includes offences such as robbery, drug trafficking, fraud, tax evasion and corruption. The Act requires all individuals and firms to put in place policies to combat money laundering, to ensure that financial service providers do not inadvertently get involved in this criminal activity. Knowing the client is one of the essential elements of any ‘Anti Money Laundering Procedure’.
Customer Due Diligence (CDD) Personal Customers
It is essential that financial firms know who their customers are and what the nature of the business relationship is over the lifetime of that relationship. This will help prevent legitimate accounts from being used by anyone other than the legitimate account holder and help prevent criminals setting up anonymous accounts to launder criminal proceeds.
The main obligations imposed are Customer Due Diligence, Reporting Suspicious Transactions, Record Keeping and Internal Procedures and training. The firm is required to establish and verify the customers’ identity, identify and verify the official owner, gather information on the purpose and intended nature of the business relationship and monitor the customer dealings.
When establishing and verifying a Personal Customers identity, the entity must gather documentation that will establish and confirm the name, date of birth and address for all parties involved in the transaction. This can be done using what is known as the one plus method: one piece of photographic identification, such as a passport or driving license and a utility bill or revenue document for address linking the individual to a usual place of residence.
Customer Due Diligence (CDD) Corporate Clients.
For Corporate entities the firm must record the name and legal form of the client, for example whether the firm is limited and where the office has been registered. In line with S.I. No. 560 of 2016 E U (Anti – Money Laundering: Beneficial Ownership of Corporate Entities) Regulations brokers are required to record the names of beneficial owners (anyone is a natural person) who is the ultimate beneficial owner, or controls the entity either directly or indirectly. A shareholding of greater than 25% or an ownership interest of more than 25% is an indication of direct ownership. Where a Trust is involved the entity must establish and identify who is entitled to an interest of at least 25% of the trust capital or has control over the trust.
Information on the purpose and intended nature of the business relationship
The scope of the business relationship should be clear from the nature of the product or service offered by the customer. However brokers may need to acquire further information or clarify details prior to getting involved with a new customer. The broker should focus particularly on any elements of the business that could potentially create an exposure to the risk of money laundering or terrorist financing. Clarifying the source of funds and understanding the clients’ accounts and pattern of business of transactions help in defining the nature of the proposed business or enterprise. Where the Broker has any concerns in relation to the bona fides of the customer or has any suspicion of money laundering or terrorist financing a ‘Suspicious Transaction Report’ should be made to both the Gardaí and the Revenue Commissioners. CDD should also be applied if there are doubts about the legitimacy of previously obtained customer information. Any transactions involving one or more linked transactions totalling €15,000 should be subjected to special scrutiny, with very clear rationale and guidelines for the handling of such amounts.
Fact finding and knowing your client are both part of Customer Due Diligence and are only the first part of Anti Money Laundering and Countering the Financing of Terrorism assessment procedures. Comprehensive AML & CFT policies also include consideration of the nature of the financial product or service and the type of transaction involved. Measures are required to categorise low medium and high risks in terms of the country or geographic area of operation, including risks associated or linked to areas subject to UN Sanctions will be considered in subsequent articles. Although General Insurance Brokers are usually considered in a low risk category minimum standards are required in every office to build awareness, embed proportionate procedures and appropriate practices to prevent money laundering and the financing of terrorism and of course those brokers involved in Life Pensions and Investments will have far greater focus on AML/CFT. In addition Brokers are required to carry out relevant staff training, report suspicious transactions and keep records to demonstrate that preventative measures are in place and in operation for all transactions.