Recent developments, including the first administrative sanctions procedure by the Central Bank of Ireland (“Central Bank”) against a credit union, highlight the importance of complying with the obligations regarding anti-money laundering and counter-terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the “CJA 2010”).

The CJA 2010 transposed the Third Anti-Money Laundering Directive into Irish law and amended and strengthened the previous anti-money laundering (AML) and counter-terrorist financing (CFT) regime. The CJA 2010 contains specific and detailed regulatory requirements which are more extensive than those contained in the Criminal Justice Act 1994.

Although many of the features of the earlier regime have been retained, there are important changes. These include the introduction of a risk-based approach to customer due diligence and a more rigorous monitoring and enforcement regime, principally involving the Minister for Justice and the Central Bank.

Central Bank AML/CFT Letter

In October 2012, the Central Bank issued a letter to all Irish regulated credit and financial institutions (including credit unions) regarding compliance with AML/CFT legislation. This followed a programme of inspections across all regulated sectors of the Irish financial services industry to monitor compliance with the CJA 2010.

The letter set out in some detail the control failures identified by the Central Bank in the course of its inspections. The letter stresses the importance of understanding the implications of non-compliance by boards and senior management and reminds firms that the Central Bank is prepared to use a full range of its regulatory tools against firms that are not in compliance with the CJA 2010.

One particular finding of the Central Bank related to what it considered “material gaps” in the provision of training to all relevant staff. The Central Bank considers “relevant staff” to include board members and senior management.  Instruction on the law and “training” is an obligation under the CJA 2010 and is deemed essential in ensuring senior management are in a position to oversee clients’ compliance with the CJA 2010. It is therefore important that Directors of credit unions and relevant staff receive appropriate training in relation to the CJA 2010. The Central Bank has expressed that it expects that policies and procedures will be up-to-date and available for inspection and that senior management (including boards of directors) can demonstrate full awareness of their responsibilities.

Sectoral Guidance Note Published

On 07 February 2013, the Department of Finance published an Anti-Money Laundering Sectoral Guidance Note for the Credit Union Sector (“Guidance”). The Guidance was drafted by the ILCU and aims to assist credit unions in complying with their obligations under the CJA 2010.

The Guidance provides information and clarity in respect of the following areas:

• Scope of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010
• Money Laundering & Terrorist Financing Risks in Credit Unions
• Assessment and Management of a Risk-based Approach
• Senior Management Responsibility
• Customer Due Diligence
• Internal Controls, Polices and Procedures
• On-going Monitoring
• Reporting – MLRO and AML Officer
• Record-keeping
• Training

The Guidance Note is not intended to be exhaustive and credit unions must always refer directly to the Act to determine their statutory obligations. Credit unions should be aware however that the Central Bank will have regard to these guidelines in any examination by it of a credit union’s compliance with the CJA 2010. The Core Guidelines published by the Department of Finance (latest edition February 2012) should also be referred to.

Enforcement & Sanctions

Failure to comply with obligations under the CJA 2010 may attract both criminal and civil sanctions.

Criminal Sanctions

A person who fails to comply with any of their obligations commits a criminal offence and may be liable: (a) on summary conviction, to a fine of up to €5,000 and/or imprisonment for up to 12 months; (b) on conviction on indictment, to an (unlimited) fine and/or imprisonment for up to 5 years.
Directors, managers, secretaries and other officers, and members of the committee of management or other controlling authorities of designated bodies, as well as persons purporting to act in any of these capacities, may be liable where they have consented to or connived in the offence, or where the offence is attributable to their wilful neglect. The offence is an “arrestable offence”, enabling members of the Garda Síochána to arrest a suspect without court warrant for questioning. Directors will also be disqualified where convicted.

Civil Sanctions

Credit unions and the persons concerned in their management who fail to take the preventive measures required by the CJA 2010 may also be subject to the CBI’s Administrative Sanctions Procedure and may be subject to a range of sanctions such as: (a) a caution or reprimand; (b) a monetary penalty; and/or (c) restrictions or directions. Late last year a credit union was the subject of such a sanction.

Recent Settlement

On 13 December 2012, the Central Bank entered into a settlement agreement with Community Credit Union Limited regarding breaches of the CJA 2010. The Central Bank reprimanded the credit union and it was required to pay a fine of €21,000. This was Central Bank’s first administrative sanction against a credit union and its second against a firm for non-compliance with AML and CTF laws. The action arose from an inspection and subsequent examination by the Central Bank.

Anti-Money Laundering Legislative Programme

On 1 February 2013 the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2013 was published. The draft Heads of this new Bill were first published in June 2012. The primary purpose of the Bill is to amend the CJA 2010 in order to align certain provisions more closely with international standards and to amend some provisions to reflect operational requirements. The proposed changes include amendments to customer due diligence (“CDD”) requirements in respect of the politically exposed persons and high risk customers and changes in respect of the content of a firm’s AML and CFT policies and procedures.

Conclusion

Anti-Money Laundering remains firmly on the Central Bank’s priority list for 2013. In its recently published Enforcement Priorities and Programme of Themed Reviews and Inspections, it stated that a programme of desktop inspections and a number of on-site inspections will be conducted throughout the year. It further stated that where serious breaches occur, regulated entities, and the personnel deemed responsible for the breaches, can expect vigorous investigation together with significant fines and sanctions.

Contributed by:  Carol Eager