Training 2012
AML Directive Designated Persons Customer Due Diligence Reporting Obligations Record Keeping Training Enforcement
EU 3rd AML Directive
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The 3rd AML Directive (2005/60) is an EU directive that was implemented into Irish law by the Criminal Justice (Money Laundering & Terrorist Financing) Act, 2010. Repealed the previous AML provisions of the Criminal Justice Act 1994.
Prevention of the use of the financial system for money laundering and terrorist financing
What is money laundering? Property that is the proceeds of any ‘criminal conduct’ “A person converting, transferring, handling, acquiring, possessing, or using the property” and
“knows or believes (or is reckless as to whether or not) the property is the proceeds of criminal conduct”
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Property is any physical or intangible item or entity that is owned by a person.
The property being laundered does not have have to be of high value as the Act does not contain a minimis provision
Attempting to turn ‘dirty’ money and property into ‘clean’ money and property that appears to be unconnected to criminal conduct.
To do this successfully criminals need the financial system.
That is why the CJA 2010 imposes a number of obligations on financial services providers in relation to preventing, detecting and reporting suspicions of money laundering and terrorist financing.
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Once inside the legitimate financial system, the financial proceeds of criminal conduct can move between financial institutions and into different forms and be used to create legitimate sources of income and wealth, and hence disguise the true source and nature of the funds.
“...assets of every kind, whether corporeal or incorporeal, moveable or immovable, tangible or intangible, and legal documents or instruments in any form including electronic or digital, evidencing title to or an interest in such assets�. 3rd AML Directive
Robbery Illegal Drugs Fraud Tax Evasion Corruption
Being Reckless Knowledge or Belief “The person knows or believes...the property is (or probably is) the proceeds of criminal conduct
‘A person is reckless ...if the person disregards, in relation to property, a risk of such a nature and degree that, considering the circumstances in which the person carries out any act...the disregard of that risk involves culpability of a high degree
The provision or collection of funds, by any means, directly or indirectly, with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out any of the offences that fall under the term of terrorism.
Attacks upon persons’ lives that could cause death; Attacks upon the physical integrity of a person; Kidnapping or hostage taking; Causing extensive destruction to a Government or public facility, a transport system, an infrastructure including an information system; Seizure of an aircraft, ships or other means of public or goods transport.
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...the provision or collection of funds, by any means, directly or indirectly, with the intention, that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out terrorist offences...
Customer Due Diligence Reporting Record Keeping Training Internal Procedures
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Who are designated persons?
Financial Institutions Credit Institutions Others
Life Assurance Companies; Payment Service Companies; Insurance and Investment Intermediaries; MIFID Investment Firms; Collective Investment Fund providers; An Post
Banks Building Societies
Auditors Tax Advisors Accountants Independent Legal Professionals Trust or Company Service Providers Property Service Provider Casinos Private Member’s Clubs
Barristers, Solicitors, Notaries
Planning and executing transactions for clients:
Buying or selling land or business properties Managing the money, securities or other assets of clients Opening or managing bank savings or securities account Organising contributions necessary for the creation, operation or management of companies Creating, operating or managing trusts, companies or similar structures or arrangements
Trust and company service providers Auctioneers Casinos
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Sell goods where payment is made in cash in one transaction or a number of linked transactions for â‚Ź15,000 or more.
Example: Car Dealer, Antique Dealer
What is Customer Due Diligence? ◦ Identify and verify the customer ◦ Identify and verify beneficial owners ◦ Establish purpose and independent nature of the business relationship ◦ Monitor customer dealings
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Who is the customer? Name Address Date of Birth
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One piece of photographic evidence e.g. Passport or driving licence
One piece of evidence of address e.g. Utility bill or bank statement
Must be ‘current’ i.e. not passed it’s expiry date. In the absence of a specific expiry date, the document was issued within 12 months of the date of submission for verification purposes.
No more than 6 months old Same address as that stated on application forms and fact find c/o addresses not acceptable
Visual likeness against the customer. Does the date of birth on the evidence match the apparent age of the customer. Is the ID valid. Is the spelling of names the same as other documents provided by the customer.
Does the address match the address given on the photo ID, application forms and fact find Does the name of the customer match with the name on the photo ID What is the date on the document provided
You must always give consideration to the fact that documents may be forged. Check documents provided: ◦ Fuzzy, unclear letters or numbers – in particular the name, date of birth, expiry date ◦ Bumpy, rough or uneven surface texture over the information ◦ Tattered edges or any evidence that might suggest the laminated surface has been tampered with ◦ Tattered or uneven edges around the photograph ◦ Has the document expired
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Who is the beneficial owner of the customer?
The individual(s) who ultimately owns or controls the customer or on whose behalf the customer is carrying out a transaction
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An individual is deemed to be a beneficial owner of a company if that individual: â—Ś Owns or controls more than 25% of the shares or voting rights in that company; or 25%
25%
25%
25%
â—Ś Otherwise controls the management of the company.
In the case of a partnership an individual is deemed to be a beneficial owner of that partnership if the individual: ◦ Owns or controls more than 25% of the voting rights in that partnership; or ◦ Owns or controls more than 25% of the capital or profits of the partnership; or ◦ Otherwise controls the management of the company.
A designated person may be required to ‘obtain information’ on the purpose or intended nature of the business relationship with the customer, prior to the establishment of the relationship. In most cases it will be self evident from the nature of the product or service sought by the customer.
Are the customer transactions consistent with the knowledge of the customer and their business and transaction patterns?
CDD requires ongoing monitoring of the designated persons dealings with an existing customer by scrutinising transactions and the source of wealth and funds for those transactions to determine whether or not they consistent with: The persons knowledge of the customer and the customer’s business and transaction patterns; and Any knowledge that the person may have that the customer may be involved in money laundering or terrorist financing.
#1 Identify & Verify the Customer
#2 Identify & Verify the beneficial owner
#3 Obtain information on the purpose and intended nature of the business relationship
#4 Monitor Customer Dealings
Prior to establishing a business relationship
Before carrying out one or more linked transactions totalling â‚Ź15,000 or more
Prior to providing service where a suspicion of money laundering or terrorist financing
Doubts about veracity of previously obtained customer identification information
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The most common time when CDD needs to be applied is before establishing a business relationship with a new customer
Identity can be verified during the course of the business relationship if the designated person has grounds for believing that verifying the identity prior to the establishment of the business relationship would interrupt the ‘normal conduct of business’ and there is no real risk of money laundering or terrorist financing. However, identity must be established as soon as reasonably practicable.
A bank can allow the opening of a bank account with a new customer but no transaction can take place on the account until the customer’s identity is verified The verification of the identity of the beneficial owner of a life assurance policy can be deferred until the earlier of a claim on the policy or the exercise of a right under the policy
Verification would interrupt normal conduct of business
Opening of a bank account
Verify beneficiary of life assurance policy before a claim is paid out
Can apply certain CDD measures on a risk sensitive basis depending on: ◦ ◦ ◦ ◦
Type of customer Business relationship Type of product Transaction Designated Persons must be able to demonstrate that the extent of their CDD measures is appropriate to the risks of money laundering and terrorist financing
Country / Geographic
Countries subject to UN sanctions, embargos etc. Countries which fund terrorists Countries identified as lacking adequate money laundering laws Customer
Unusual transactions Not typical to customer of that type No commercial rationale for product or service sought Product / Service
Services involving cash, precious metals etc. Products which facilitate easy use by third parties
Low Risk Product
Life Assurance Medium Risk Product
Life Assurance Savings Plan High Risk Product
Lump Sum Investment Bond
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In certain circumstances a designated person may rely on third parties to undertake CDD with a customer on its behalf. However, in such a case the designated person is still ultimately responsible for any failure to apply the relevant CDD measures. Must have an agreement with the third party that consents to our firm relying on them to undertake CDD.
Customer
Third Party
Arrangement / Agreement with third party
Designated Person satisfied that third party will forward any requested documents
Designated person responsible if CDD is not applied
Designated Person
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The third party can be required by the designated person to make available to it immediately: â—Ś Relevant information about the customer which the third party obtained when applying CDD measures. â—Ś Relevant copies of any identification and verification data and other relevant documents on the identity of the customer or beneficial owner which the third party obtained when applying the CDD measures.
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When a designated person is relying on a third party to carry out CDD with the client, the designated person may seek a Certification of Verification of Identity form from the third party and/or copies of the underlying documentation used by the third party to verify the customer’s identity.
Simplified Customer Due Diligence (SCDD) Low Risk of Money Laundering or Terrorist Financing
Standard Customer Due Diligence (CDD) Standard Customer Due Diligence Requirements
Enhanced Customer Due Diligence (ECDD) Higher Risk of Money Laundering or Terrorist Financing
A designated person is not generally required to establish and verify the identity of a customer or beneficial owner of a customer before commencing a business relationship or carrying out a transaction for the customer, if the customer is one of the following: An EU Credit Institution A company listed on a regulated market (e.g. Official List of the Irish Stock Exchange) An Irish or EU public body (e.g. ECB). However, if there is a real risk of money laundering or terrorist financing or doubts about the veracity of documents previously submitted, then verification of identity is required.
Simplified Customer Due Diligence can also be applied in the case of certain financial products, deemed to have a low risk of money laundering or terrorist financing.
Life Assurance and similar savings plans
Insurance policies issued to pension schemes
Pension & Superannuation Schemes
•Annual Premium < €1,001 •Single Premium < €2,501
•No Surrender Clause •Can’t be assigned
•Provides Retirement Benefits for employees •No assignment of members’ interests
Low Risk
Where the customer has not been physically present for identification purposes Business relationship or single transaction with a Politically Exposed Person (PEP)
In any situation which by its nature presents a higher risk of money laundering
Establish identity by obtaining additional documents, data or information to verify the customer’s identity
Use additional measures e.g. ‘welcome call’ to a home or business telephone contact number provided
Require first payment from customer’s bank account
A politically exposed person is a person who is or has, at any time in the preceding year, been entrusted with a prominent public function: ◦ In a State other than in Ireland; ◦ For a Community Institution (e.g. The European Parliament); or ◦ An International Body (e.g. United Nations); or ◦ Is an immediate family member or ‘known close associate’ of such a person.
Require prior approval from senior management to establish a business relationship with a PEP
Take measures to establish the source of wealth and funds for transactions
Requirement
Old AML System
New AML System
Identify the Customer Identify the Beneficial Owner Obtain information on business relationship Risk based approach to CDD CDD on existing customers Simplified CDD Enhanced CDD for PEPs
Yes No No
Yes Yes Yes
No No Yes, only for life policies No
Yes Yes Yes Yes
Report to Gardai and
Revenue Commissioners
A designated person who knows, suspects or has reasonable grounds to suspect, on the basis of information obtained in the course of carrying on business as a designated person, that another person has been or is engaged in an offence of money laundering or terrorist financing must make a report to the Gardai and Revenue Commissioners.
Being unable to apply CDD to a customer, due to the customer failing to provide requested documents or information, is reasonable grounds for a designated person to suspect the offence of money laundering or terrorist Financing.
Where a designated person has reasonable suspicions that a proposed transaction is related to money laundering or terrorist financing, they must NOT carry out that transaction, until AFTER they have made their report to the Garda and Revenue Commissioners. However, in certain circumstances the designated person can carry out the transactions before making a report.
When can you carry out a transaction before a suspicious transaction report is made to the Gardai and Revenue Commissioners? ď ˝
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If it is not practicable to delay or stop the service or transaction from proceeding; or If the designated person is of the reasonable opinion that failure to proceed with the transaction or service may result in the other person suspecting that a report may be (or have been) made or that an investigation may be commenced or in the course of being conducted. Report must be made as soon as reasonably possible!
Read Section 10 ‘Reporting Suspicions Transactions’ (page 41 of ‘Anti Money Laundering & Suspicious Transactions Procedures’) to ensure you are fully aware of your responsibilities and our firm’s internal reporting process.
Step 1: Consultation with supervisory manager or colleague; Step 2: Report to the MLRO if still suspicious; Step 3: MLRO investigation and report to Gardai and Revenue Commissioners if appropriate. MLRO = Compliance Officer
When a report is made the Gardai can direct that a service or transaction not be carried out for a period not exceeding 7 days. When a report is made the District Court can direct a designated person that a service or transaction not be carried out for a period not exceeding 28 days.
Disclosure of information â&#x20AC;&#x2DC;in good faithâ&#x20AC;&#x2122; in accordance with the CJA 2010. Designated persons, and their employees and directors, are legally indemnified in respect of any report made or information supplied to the Gardai and Revenue Commissioners in good faith in relation to a suspicion of money laundering or terrorist financing.
Must not the customer of report to the Gardai and Revenue Commissioners.
Customer Due Diligence Evidence Maintain records of customer identification and verification for at least 5 years after business relationship ends
Business Relationships and Transactions Records In the case of business relationships and transactions, the designated person must retain the original documents or copies of supporting evidence and records admissible in legal proceedings, for a period of at least 5 years following the transaction(s) or the end of the business relationship, if later.
Requires customer transaction records and customer identification records to be retained for at least 6 years.
Designated persons are required to have appropriate systems in place to be able to respond to a request from the Gardai as to whether or not the firm maintains or has maintained a business relationship with a particular customer (individual or legal entity) within the last 6 years, and if so, the nature of that relationship.
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Establish and maintain AML systems and controls Appointment of Money Laundering Reporting Officer (MLRO)
Report suspicions of money laundering or terrorist financing to the Gardai and Revenue Commissioner. Not be financially incentivised related to sales of the firm to avoid conflict of interest. MLRO Thomond Asset Management is the Compliance Officer.
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A designated person must take appropriate measures so that their relevant staff are aware of the provisions of the CJA 2010 and how to spot suspicious transactions and how to proceed if such transactions are spotted. On-going training at least annually.
Fines and/or Imprisonment
and/or
Some penalties for non compliance can be by designated persons with AML requirements can be applied personally to directors, managers and employees if they consented or connived in the non compliance.
Where a designated body fails to comply with AML obligations (i.e. Fails to properly carry out Customer Due Diligence) it amounts to an offence committed by the designated body and is punishable by a fine and/or a term of imprisonment. The penalty can also be levied on an employee, manager or director of a designated body where the offence is proven to have been committed with the consent or connivance of or to be attributable to any wilful neglect on the part of that individual.
June 2012, the Central Bank reprimanded UBS international Life Limited and required it to pay a monetary penalty of €65,000 for its failure to comply with certain requirements of the CJA 2012. The breaches identified: UBS failed to demonstrate that it had instructed any of its staff on the law in relation to money laundering and terrorist financing from 15 July 2010 (when the CJA came into force) until December 2010. UBS failed to demonstrate that it had met the requirements for placing reliance on third parties i.e. Have an agreement in place confirming that the relevant third party accepts being relied upon and that the relevant third party will provide any due diligence documents or information obtained as requested, thereby failing in its obligations in relation to identification and verification of customers. UBS failed to adopt adequate written policies and procedures in relation to the identification and reporting of suspicious transactions.
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The Central Bank’s comments on this case: “This is the Central Bank’s first administrative sanction for non-compliance by a regulated firm with anti-money laundering and counter terrorist financing laws which came into force in July 2010. Firms must adopt robust and effective policies and procedures to prevent and detect money laundering
and terrorist financing including ensuring that policies, procedures and business practices are updated in timely manner on foot of changes in regulatory requirements. Furthermore, such policies and procedures must be appropriate to the nature of, and risks associated with, a firm’s operations, including its local and international distribution models as well as the type of financial services and products sold or distributed. Firms are reminded that AML/CTF requirements must have, like other important governance issues, a home on the boardroom agenda...Where actions of a firm undermine the Centra Bank’s achievement of local statutory and international obligations the firm should expect that enforcement action will follow, especially where the breach falls within our stated Enforcement Priorities and Enforcement Strategy, to which we attach a high priority”.
You have also been provided with the firm’s Anti-Money Laundering & Counter Terrorist Financing Procedures document which provides detailed information on the law and company policy as follows: The Legislation Money Laundering Risks in the Life Assurance Sector Customer and Product Risk Categories Customer Due Diligence Identification and Verification of the Customer’s Identity Forms of Client Identification Reporting Suspicious Transactions Record Keeping Ongoing Monitoring Training Enforcement and Sanctions Compliance Contact
Read the Anti-Money Laundering & Counter Terrorist Financing Procedures document and keep as a source of reference. Contact the Compliance Officer /MLRO if unclear on any aspect of the legislation, the company policies and procedures and your responsibilities Complete the AML & CTF Test to demonstrate that you understand the law and the training you have received is adequate. Return your completed test to the Compliance Officer via email.
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