The offence of money laundering, and the associated anti-money laundering ("AML") measures are set out in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the "2010 Act") which implemented the Third EU Money Laundering Directive (Directive 2005/60/EC) (the "3AMLD") into Irish law. The 3AMLD gave effect to certain recommendations of the international Financial Action Task Force ("FATF"). Ireland had previously been the focus of criticism by FATF which, in its June 2006 'mutual evaluation report', rated Ireland as only partiallycompliant with certain core and key FATF recommendations (therefore placing Ireland in a 'follow up process'). Further, the date on which the 2010 Act was enacted (15 July 2010) was more than two years after the implementation deadline set by the 3AMLD.

FATF published a revised set of recommendations in February 2012 and the European Commission (the "Commission") published a review of the 3AMLD in April 2012. FATF's intention is to evaluate the conformity of jurisdictions to those revised recommendations towards the end of 2013. As a result, on 31 January 2013, the Minister for Justice published the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2013 (the "Bill") (the heads of which had been published in 2012), designed to amend certain provisions of the 2010 Act for the purposes of:

  • enabling Ireland to enhance its cooperation with the FATF recommendations, and
  • reflecting experience gained since the introduction of the 2010 Act

As it proceeded through the Houses of the Oireachtas, the name of the Bill was changed to the Criminal Justice Bill 2013 as the Minister for Justice, Equality and Defence (the "Minister") incorporated additional provisions, unrelated to AML, into the Bill (as a new Part 3) dealing with the cessation of mobile communications services in response to serious threats.

Enactment

The Bill was signed into law by the President as the Criminal Justice Act 2013 (Act No. 19 of 2013) on 12 June 2013 (the "2013 Act"). Part 2 of the 2013 Act sets out the amendments to the 2010 Act and the majority of the provisions of Part 2 took effect from 14 June 2013 (see the paragraph entitled 'Commencement' below).

Changes introduced by the 2013 Act

Definition of "occasional transaction":

The 2013 Act amends the definition of "occasional transaction" so that, where there is no business relationship between the customer and the designated person:

  • where the designated person is a private members' gaming club, transactions between it and its customers will be treated as "occasional transactions" (with customer due diligence ("CDD") obligations being triggered) once the amount or value reaches €2,000
  • once a wire transfer of funds reaches €1,000 it will also be an "occasional transaction" for CDD purposes
  • the CDD obligation will be triggered in all other cases once the €15,000 threshold is reached, rather than exceeded

General CDD:

The circumstances in which an obligation to apply CDD arises have been amended slightly to conform with international standards – rather than requiring that a designated person have "reasonable grounds to believe that there is a real risk" that the customer is involved in, or the service, transaction or product is for the purpose of, money laundering or terrorist financing, that person must have "reasonable grounds to suspect" such involvement or purpose.

Simplified CDD:

Under the 2010 Act a designated person could apply simplified CDD if the customer or product was a "specified customer" or "specified product". The 2013 Act amends this requirement to make it clearer that the designated person must take "such measures as are necessary to establish" whether the exemption applies. This should remove previous uncertainty regarding what (if any) evidence a designated person needed to have that simplified CDD could be applied. Institutions will now need to: (a) have evidence that a person/product qualifies for simplified CDD and (b) hold such evidence on its records for the relevant period.

Politically Exposed Persons ("PEPs"):

The 2013 Act widens the enhanced CDD obligations on designated persons in relation to PEPs. The 2010 Act required that enhanced CDD be conducted where a customer was a PEP. As amended by the 2013 Act, the 2010 Act now requires that enhanced CDD also be carried out where an existing customer becomes a PEP. Further, a business relationship with a PEP must now be monitored on an ongoing basis. In practice, institutions will need to screen their existing client base against the various commercial PEP registers with reasonable frequency and to take action to apply enhanced CDD measures where necessary.

Additional CDD:

Prior to the enactment of the 2013 Act, the 2010 Act provided that where a designated person believed there to be a higher risk of money laundering or terrorist financing, it was allowed to apply additional CDD to a customer or a beneficial owner. The 2013 Act now makes this a mandatory obligation.

Policies and Procedures:

The 2013 Act expands the matters that must be included in a designated person's policies and procedures to detect and prevent money laundering and terrorist financing as follows:

  • measures in relation to keeping customers' CDD documents and information up-to-date
  • details of enhanced CDD measures and the circumstances in which they are to be taken
  • measures to be taken to prevent the risk of money laundering or terrorist financing which may arise from technological developments such as the use of new products and new practices, and the manner in which related services are delivered

Designated persons are now also required to review and update their existing policies and procedures.

Record-keeping by designated persons:

The 2013 Act amends the record-keeping provisions under the 2010 Act to allow for records to be stored outside Ireland – the original requirement under the 2010 Act that all records be held within Ireland was regarded as burdensome for Irish subsidiaries of international groups. This amendment to the 2010 Act was introduced to the Bill at Dáil Committee stage and provides that if the records are to be kept outside the State, the designated person must ensure that the records can be produced in the State at the request of certain persons, including a member of the Garda Síochána.

Directions:

Under the 2010 Act the Central Bank of Ireland (the "CBI") or the Minister can, by notice in writing, direct a designated person (for whom the CBI or the Minister is the competent authority) to discontinue or refrain from conduct that the CBI views as a breach of Part 4 of the 2010 Act. The 2013 Act expands on the original provision to enable the CBI or the Minister to issue written directions to such designated person to take particular action or establish particular procedures or processes that are, in its view, reasonably necessary for the purposes of complying with Part 4 of the 2010 Act.

Next Steps

Commencement:

The majority of Part 2 of the 2013 Act was commenced on 14 June 2013 pursuant to S.I. No. 196 of 2013: the Criminal Justice Act 2013 (Commencement) Order 2013, with the exception of Section 5 (Amendment of section 25 of Act of 20101), Section 15 (Amendment of section 84 of Act of 20102) and Section 16 (Miscellaneous amendments to Act of 20103).

European developments:

On 5 February 2013 the Commission published its proposal for a fourth anti-money laundering directive (the "4AMLD") as it views the current 3AMLD framework as being inconsistent with FATF's February 2012 recommendations, as not being interpreted in a consistent manner across Member States and as containing inadequacies and loopholes. For the time being, it is not clear when the 4AMLD will enter into force, and it is expected that Member States will have two years from that date to transpose its provisions into national law.

CBI focus

The 2013 Act, together with developments at a European level, come at a time when the results of recent reviews by the CBI indicate that Irish financial institutions are still getting to grips with the requirements of the 2010 Act in its original form. The CBI's 2012 Annual Report noted that, during 2012, the CBI conducted 28 AML and counter terrorist financing ("CTF") inspections of 26 financial institutions, bringing the total number of inspections completed pursuant to the 2010 Act to 72. The CBI, in an industry wide 'Dear CEO' letter dated 12 October 2012, also highlighted control failures identified during its reviews, which the CBI expects firms to rectify. In that letter the CBI had also drawn attention of those firms to the planned legislative changes (which came in the form of the 2013 Act) and recommended that they 'appropriately anticipate' those changes and future-proof systems and processes accordingly. The CBI has included AML and CFT on its list of themed reviews for 2013 - this will include desktop reviews and onsite inspections. Further, the CBI took enforcement action against two firms (an insurer and a credit union) during 2012 in respect of AML deficiencies resulting, following settlement, in fines of €65,000 and €21,000 respectively. AML and CTF remain on the CBI's list of enforcement priorities for 2013.

FATF update

FATF published its June 2013 follow-up report on 4 July 2013 in which it set out the actions that Ireland has taken in respect of recommendations in respect of which it had been partially or non-compliant in 2006. It noted that Ireland had focussed its attention on strengthening the AML/CTF legislative framework with the introduction of the 2010 Act and the 2013 Act and the issuance of 'Guidelines on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing' to expand on that primary legislation. Due to "significant progress in addressing the deficiencies identified in the 2006 mutual evaluation report" FATF removed Ireland from the regular follow-up process that it had been in since 2006.

BCBS Consultation

The Basel Committee on Banking Supervision ("BCBS") issued a consultation paper on 27 June 2013 on risk management guidelines for banks in connection with AML and CTF, taking into account FATF's February 2012 recommendations. BCBS' intention is that the guidelines will support countries' implementation of the FATF recommendations by exploring complementary areas and leveraging the expertise available in both BCBS and FATF. The consultation period closes on 27 September 2013. Comment

Given the CBI's active appetite for enforcement and the priority and resources it has allocated to AML, we strongly recommend that firms providing services in Ireland begin to take steps now to ensure that their policies and procedures are fit for purpose and reflect the requirements of the 2010 Act, as amended by the 2013 Act.

The enactment of the 2013 Act is viewed by the Irish Government as an important step in protecting Ireland's reputation as a place to do business and a country which enforces international AML standards.

The Minister has made it clear that further amendments to the Irish legislation will be required to implement the 4AMLD in due course.

Footnotes

1 Section 25 of the 2010 Act addresses the meaning of "designated person".

2 Section 84 of the 2010 Act is an interpretation section in relation to the authorisation of trust or company service providers.

3 These miscellaneous, minor amendments are to Sections 98, Section 103(1) and 104 of the 2010 Act.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.