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Anti-money Laundering: An Irish Update
David Potts reviews the impact of the latest anti-money laundering regulations in the Republic of Ireland.
Accountants in the Republic of Ireland are key gatekeepers for the financial system, facilitating vital transactions that underpin the Irish economy. They play an important role in keeping citizens and society safe from money laundering and terrorist financing and have a significant role to play in ensuring that their services are not used to further a criminal purpose.
Accountants’ day-to-day work will be affected by the new regulations, which respond to public calls to counter terrorist financing and address significant lack of beneficial ownership transparency, as well as acting to implement the EU Fifth Anti-Money Laundering Directive.
Whilst many of the changes will not directly affect accountancy firms in Ireland, such as an expansion of the scope of the regulated sector, there are key areas that firms and individuals must address in their policies and procedures; namely, changes to due diligence regulations and high-risk factors.
New legislation
On 22 April 2021, the Minister for Justice in the Republic of Ireland signed a commencement order in respect of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021. The Act amends the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the 2010 Act) and transposes the Fifth Anti-Money Laundering Directive into Irish law.
Although the Act transposes most of the new elements of Fifth Anti-Money Laundering Directive, regulations outline in more detail requirements in respect of the register of beneficial ownership of express trusts, which amend the 2010 Act s 35, and in respect of prominent public functions under s 37(12).
Virtual asset service providers The anti-money laundering (AML) regulatory regime has been extended to financial and credit institutions acting as virtual asset service providers and providing the following services:
● exchange between virtual assets and fiat currencies;
● exchange between one or more forms of virtual assets;
● transfer of virtual assets from one virtual asset address or account to another;
● custodian wallet providers; and
● participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset.
Firms providing virtual asset services are now classed as “designated persons” for the purposes of the 2010 Act and are required to comply with anti-money laundering/ combating the financing of terrorism (AML/ CFT) obligations, including: carrying out a firmwide risk assessment; undertaking customer due diligence; carrying out ongoing client monitoring; and filing suspicious transaction reports.
New and existing virtual asset service providers are required to register with the Central Bank of Ireland (CBI) for AML/CFT purposes, with existing providers having three months from the date of commencement to register.
For the CBI to approve an application for registration, it must be satisfied that:
● the firm’s AML/CFT policies and procedures are effective in combating the money laundering and terrorist financing risks associated with its business model; and
● the firm’s management and beneficial owners are “fit and proper”.
The CBI will maintain a Register of Virtual Asset Service Providers. It has been granted supervisory powers in terms of the beneficial ownership of virtual asset service providers, including placing a restriction on the acquisition of beneficial interest in providers without prior approval of the CBI in writing.
Additional changes to designated persons
The 2010 Act creates three new additional “designated persons” required to apply AML measures during their business and undergo supervision by an appropriate body:
● letting agents (in respect of transactions for which the monthly rent is at least €10,000);
● high-value art dealers and intermediaries (in respect of transactions of at least €10,000 in value); and
● tax advisers (the scope of persons who fall within the definition of tax advisor is extended to include “any other person whose principal business or professional activity is to provide, directly or by means of other persons to which that other person is related, material aid, assistance or advice on tax matters”).
Beneficial ownership: new obligations
Prior to the establishment of a business relationship with a customer, a designated person is required to ascertain that information concerning the beneficial ownership of a customer is entered in the relevant beneficial ownership register. (These comprise an entity’s express trust register; the Central Register of Beneficial Ownership of Companies and Industrial Provident Societies; and the Central Register of Beneficial Ownership of Irish Collective Asset-management Vehicles, Credit Unions and Unit Trusts.)
A designated person must not engage in a business relationship until the beneficial ownership information is obtained (unless the designated person is a financial institution). A financial institution may open an account ahead of obtaining the information but cannot allow any transactions to occur. Where the beneficial owner is recorded as being a senior managing official, a designated person will be required to verify the identity of that person, keep records of the steps taken and record any difficulties encountered in the verification process.
Beneficial ownership: express trusts
The 2010 Act prepares for new regulations on the beneficial ownership of express trusts, providing for certain definitions, including for “relevant trust”, subject to the regulations, and “excluded arrangements” (such as pension schemes, retirement funds and employee share schemes) which are exempted.
Politically exposed persons
The definition of a politically exposed person has been broadened by the 2010 Act to include “any individual performing a prescribed function”. The Minister for Justice is empowered to issue guidelines in respect of functions considered to be “prominent public functions”.
The initial broad scope of the proposed AML measures meant that this section of the 2010 Act was one of the most debated in the Oireachtas (the Irish national parliament), with many TDs and senators expressing their dissatisfaction with the proposed wording for politically exposed persons. However, enhanced customer due diligence measures apply to a politically exposed person’s family members and “close associates” and EU member states do not have discretion in how these measures are applied. The Irish government agreed to the insertion of a sub-section permitting the minister to issue guidelines “for the purpose of facilitating the consistent, effective and risk-based application of this section”.
The 2010 Act also permits a designated person to continue monitoring someone who was previously a politically exposed person “as long as is reasonably required to take into account the continuing risk posed by that person and until such time as that person is deemed to pose no further risk specific to politically exposed persons”.
More information on establishing whether clients should be classed as politically exposed persons, and subjected to enhanced due diligence, is available on AIA’s AML hub online and the latest AML webinar recorded on 3 June 2021.
Extension of triggers to conduct customer due diligence
The 2010 Act extends the triggers for conducting customer due diligence to include any time that a designated person is required “by virtue of any enactment or rule of law” to contact a customer for the purposes of reviewing information relating to the customer’s beneficial owners.
Enhanced customer due diligence for high-risk third countries
The 2010 Act provides a list of enhanced customer due diligence measures, which a designated person is required to apply when dealing with a customer established or residing in a high-risk third country. These involve obtaining “additional information” on the customer, beneficial owner(s), their sources of wealth, the intended nature of the business relationship, and completed or intended transactions.
A designated person is also required to obtain senior management approval for establishing or continuing such a business relationship and to conduct enhanced monitoring “by increasing the number and timing of controls applied and selecting patterns of transaction that need further examination”.
Examination of background and purpose of certain transactions
In an amendment which is focused on the financial services industry more than the accountancy sector, the 2010 Act introduces a relaxation of the requirement for designated persons to examine the background and purpose of transactions which are complex or unusually large by providing that a designated person shall do this “as far as possible”.
Low and high risk factors
Schedule 3 of the 2010 Act (low risk factors) has been amended to qualify that the specified geographical risk factors – suggesting a lower risk of money laundering and terrorist financing – refer to the place of registration, establishment and/or residence of the entity/client. Schedule 4 (high risk factors) has been amended to include additional red flags for identifying transactions that pose a higher risk of money laundering and terrorist financing.
Limiting the “tipping off” defence
The 2010 Act limits the “tipping off” defence for disclosure to those specified persons who can prove that the disclosure was made to either:
● a credit institution or financial institution incorporated in a member state, where both the institution making the disclosure, or on whose behalf the disclosure was made, and the institution to which it was made belonged to the same group; or
● a majority-owned subsidiary or branch, situated in a third country, or a credit institution or financial institution incorporated in a member state and where the subsidiary or branch was compliant with group-wide policies and procedures, including procedures for sharing information within a group.
Prior to this amendment, the defence could be applied in group situations where the institution to which the disclosure was made was “situated in a member state or a country other than a high-risk third country”. The institution must now be incorporated in a member state for this group exemption from disclosure rules to apply.
Financial Intelligence Unit feedback
The 2010 Act requires the Financial Intelligence Unit to “provide timely feedback” to a designated person, “where practicable” in respect of suspicious transaction reports made to them.
Breaches within competent authorities
A new section requires each competent authority to establish “effective and reliable mechanisms” to encourage the reporting of potential and actual breaches of the 2010 Act. These mechanisms include the provision of “one or more secure communication channels” for such reporting, which can also be used by persons “to report any threats or retaliatory or hostile actions they are subjected to for reporting suspected breaches”. AIA maintains an anonymous whistleblowing channel to receive AML disclosures at: www.aiaworldwide.com/make-a-complaint
Co-operation with member state competent authorities
The European Union (Money Laundering and Terrorist Financing) Regulations 2019 inserted a new section into the 2010 Act requiring competent authorities to take “necessary steps” to co-operate with competent authorities in other member states. The 2010 Act clarifies that co-operation with member state competent authorities may include the sharing of information where it is not prevented by law; and that the provision of assistance must not be refused on the basis that the information involves tax matters, requires the competent authority to maintain secrecy or confidentiality or that there is an inquiry, investigation or proceeding underway.
Appeal Tribunal
The 2010 Act now allows for the establishment of a permanent Appeal Tribunal and outlines how the tribunal is to be constituted, how members are to be appointed and removed, and the conditions of appointment.
Electronic money and anonymous safe deposit boxes
The 2010 Act lowers the value limit for carrying out customer due diligence on e-money instruments (such as pre-paid cards) from €250 to €150. Additionally, it removes the €500 limit exemption for domestic electronic payment instruments, reduces the cash redemption limit from €100 to €50 and adds a new requirement that a transaction cannot exceed €50 if initiated via a remote payment transaction.
The 2010 Act also makes it an offence for a credit institution or financial institution, acting as an acquirer, to accept a payment carried out with an anonymous prepaid card issued in a foreign state that does not fall within the exemptions. The existing prohibition on credit or financial institutions setting up anonymous accounts or passbooks is extended to safe deposit boxes.
Guidance and support
As a money laundering supervisory body, AIA understands that compliance can be time consuming, costly and confusing.
We provide extensive guidance and support for members so we can work together to tackle economic crime and reduce the risk to you and your business. ●
For additional AML guidance, including CPD webinar recordings, see: www.aiaworldwide.com/my-aia/aml. Access the amended 2010 Act at: www.irishstatutebook.ie/ eli/2021/act/3/enacted/en/html Author bio
David Potts is the Director of Operations at the Association of International Accountants (AIA).
