1.  Introduction

This briefing note outlines the position of designated persons under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, which entered into force on 15 July 2010. This legislation, which amends and strengthens the previous anti-money laundering (AML) and counter-terrorist financing (CFT) regime, implements the 3rd Money Laundering Directive, and reflects recommendations of the Financial Action Task Force.

The new regime replaces the previous regime under 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 in customer due diligence and what promises to be a more rigorous monitoring and enforcement regime, principally involving the Minister for Justice and Law Reform and the Central Bank.

A number of bodies carrying out activities susceptible to being misused by money launderers and financers of terrorism are designated persons under the regime and will have to carry out customer due diligence, report suspicious transactions, abstain from “tipping-off”, make and keep records, introduce appropriate policies and procedures, and train staff. They must also ensure that they are not themselves guilty of underlying money laundering or terrorist financing offences. Specific rules apply to the various categories of designated person. These are not addressed in detail in this note.

The Minister for Justice and Law Reform may, after consulting with the Minister for Finance, approve guidelines for designated persons on the application of these provisions. Guidance notes for each of the designated bodies have been, or will soon be, issued, replacing existing guidance. Following such guidance will be key to assuring compliance.

2.  Defining the Designated Person

The Act lists a number of categories of “designated person”:

• Credit Institutions;
• Financial Institutions;
• Auditors, External Accountants and Tax Advisers;
• Independent Lawyers (Solicitors, Barristers and Notaries) carrying out certain activities;
• Trust or Company Service Providers;
• Property Service Providers (including Estate Agents and Auctioneers);
• Casinos;
• Effective Directors of Private Members’ Clubs (only in respect of gambling activities);
• Traders in goods (only in respect of cash transactions of at least €15,000).

Most of these categories are already designated persons. New categories are trust and company service providers, property services providers (though estate agents and auctioneers were covered as separate categories), casinos, effective directors of private members’ clubs, and traders in goods (formerly only dealers in high value goods).

3.  Money Laundering and Terrorist Financing Offences

Money laundering is broadly defined and involves a wide range of acts in relation to the proceeds of any criminal conduct. Knowledge, belief or recklessness as to the origin of property can result in an unlimited fine and/or imprisonment for up to 14 years. Terrorist financing offences are defined in the Criminal Justice (Terrorist Offences) Act 2005. An offence may be committed where the person concerned intends or knows that funds will be used for terrorist purposes. Conviction can result in an unlimited fine and/or imprisonment for up to 20 years.

4.  Preventing the Carrying Out of Services and Transactions

The Act enables senior members of the Garda Síochána and District Court judges respectively to direct and order persons not to carry out services or transactions where money laundering or terrorist financing is suspected.

5.  Customer Due Diligence

The Act contains detailed provisions on customer due diligence, covering standard, simplified and enhanced due diligence. The Act takes a new risk-based approach to this requirement, enabling the designated person to focus on transactions and business relationships with higher levels of risk.

Identifying Customers: The designated person must identify the customer and verify his identity on the basis of documents or information that it believes can be relied on to confirm identify. This includes (official) documents from a government source or a class/classes of documents prescribed by the Minister. The precise documentation or information required will differ between different types of customer and the designated person will have to refer to applicable guidance. There are more onerous requirements where an individual customer does not present in person for verification of identity.

Identifying Beneficial Owners: As well as identifying the customer, the designated person must also identify any beneficial owner connected with the customer and take measures reasonably warranted by the risk of money laundering or terrorist financing to verify identity and to understand the ownership and control structure of the entity involving the beneficial owner. Detailed provisions define beneficial owners in relation to bodies corporate, partnerships, trusts, estates and other entities or legal arrangements.

When Should Customer Due Diligence Take Place? The relevant identification measures should be applied before:

• establishing a business relationship with the customer;
• carrying out an occasional transaction;
• carrying out any service for the customer if there are reasonable grounds for believing that there is a real risk of money laundering or terrorist financing;
• carrying out any service where information already obtained is thought unreliable or inadequate.

A “business relationship” is defined as a business or commercial relationship that the designated person expects to be on-going. An “occasional transaction” will arise where, in the absence of a business relationship, the amount paid in a single transaction or in linked transactions is more than €15,000.

Verification of identity may take place during the establishment of a business relationship, but nevertheless as soon as practicable, if prior verification would interrupt the normal conduct of business and there is no real risk of money laundering or terrorist financing. 

The purpose and nature of business relationships: Where there is a business relationship – that is, a business or commercial relationship that is expected to be ongoing – there is a requirement to obtain, before the establishment of the relationship, information reasonably warranted by the risk of money laundering or terrorist financing on the purpose and intended nature of the relationship. Where the customer fails to provide such information, the designated person must not provide the service sought by the customer for as long as this failure continues.

Monitoring dealings with customers: Dealings with the customer are to be monitored (to the extent reasonably warranted by the risk of money laundering or terrorist financing) by scrutinising transactions and the source of wealth or of funds for these transactions, to determine whether these transactions are consistent with: (a) the designated person’s knowledge of the customer and its  business and pattern of transactions; and (b) any knowledge that the designated person has that the customer may be involved in money laundering or terrorist financing.

Simplified Due Diligence: There are a number of exceptions to the Customer Due Diligence obligation where specified customers or products are regarded as low risk. So-called simplified due diligence applies to specific categories of low-risk customer, including certain designated credit and financial institutions, listed companies whose securities are admitted to trading on a regulated market, Irish public bodies and other EU bodies entrusted with public functions. Low risk products cover certain low-value life assurance policies, insurance policies in respect of pension schemes, pension schemes and electronic money.

Enhanced Due Diligence: Politically Exposed Persons. Enhanced due diligence is required in respect of “politically exposed persons” (PEPs), immediate family members and close associates, where they reside outside the State. PEPs are individuals who are, or were in the past 12 months, entrusted with a prominent public function, and include specified categories of senior officials and members of administrative, management or supervisory bodies of State-owned enterprises. If, applying a risk-based approach, it is determined up front that a customer or beneficial owner is a PEP, family member or close associate, a senior manager in the designated person must give approval before a business relationship is established and the designated person must determine the source of wealth and of funds for relevant transactions.

Additional Enhanced Due Diligence Measures: The Act provides that nothing in the Chapter on Customer Due Diligence prevents a designated person from applying additional enhanced due diligence measures for the purpose of preventing or detecting money laundering or terrorist financing. This includes cases where it is considered that there is a heightened risk of such activity.

Reliance on Other Persons to Carry Out Customer Due Diligence: The designated person may rely on certain other designated persons to carry out standard due diligence (but not enhanced due diligence) and the special measures applying to business relationships. There must be an arrangement under which it has been agreed that the designated person may rely on the other to apply such due diligence measures. The designated person must also be satisfied that the other will forward documents or information relating to the customer to it, as soon as practicable after being requested to do so. The designated person may also use outsourcing service providers or agents. In all cases, the designated person remains liable for any failure to apply due diligence.

6.  Reporting

The designated person, and any person acting on its behalf, must report suspicious transactions to the Garda Síochána and the Revenue Commissioners. This obligation arises where the designated person 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 (who may or may not be the customer) is or has been engaged in a money laundering or terrorist financing offence. The report is to be made as soon as practicable using a standard reporting form. Independent legal professionals and other professional advisers (certain auditors, accountants and tax advisers) enjoy a “legal privilege” shelter from the reporting obligations.

The question of when the person will have reasonable grounds to suspect is a particularly difficult one. This situation will not arise in relation to any information received until it has been scrutinised in the course of reasonable business practice. Such reasonable grounds may arise where the customer fails to provide the requisite documents or information. Where a report has to be made, the designated person is not to proceed with any suspicious transaction before sending the report unless it is not practicable to do so, or the designated person is of the reasonable opinion that this would arouse suspicions on the part of the other person.

The designated person may, for the purposes of facilitating the reporting requirements, establish an internal reporting procedure – involving the appointment of a “money laundering reporting officer” (MLRO). Where such a procedure is followed, employees can “pass on” the responsibility for reporting to the MLRO.

7.  Tipping-Off

The Act makes it a criminal offence for a designated person, and persons acting on its behalf, to tip-off – that is, to make any disclosure that may prejudice an investigation into money laundering or terrorist financing. There are a number of defences, covering disclosures where a direction or order to suspend a transaction has been made, intra-company/intra-group disclosures, disclosures between institutions and professionals of the same class, and cases where the person concern did not know or suspect that disclosure would have the effect of prejudicing an investigation. Legal and other professional advisers will not be regarded as tipping-off merely because they inform the client that they will cease to act, providing that they do so cease and make any requisite report.

8.  Records

A designated person must keep records evidencing the procedures applied, and information obtained in relation to customer due diligence for each customer. Records evidencing the history of transactions carried out in relation to each customer of the designated person must also be kept. These documents and records are to be retained for at least five years.

9.  Policies and Procedures

A designated person must adopt policies and procedures in relation to its business, to prevent and detect money laundering and terrorist financing. This involves adopting policies and procedures for those involved in the conduct of the business including: (a) the assessment and management of risks of money laundering or terrorist financing; and (b) internal controls, including internal reporting procedures. There are also to be overarching policies and procedures to ensure that the first set of policies and procedures are being properly managed and complied with. In preparing policies and procedures, regard is to be had to any relevant guidelines approved by the Minister.

10.  Training

Persons involved in the conduct of the business are to be instructed in the law relating to money laundering and terrorist financing. They are also to be trained on an ongoing basis on identifying a transaction or other activity that may be related to money laundering or terrorist financing, and on how to proceed once such a transaction or activity is identified.

11.  Consequences of Failure to Comply

A person who fails to comply with any of the above obligations commits a criminal offence and is 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.

It is a defence for a defendant to prove that he or she took all reasonable steps and exercised all due diligence to avoid committing the offence. In determining this, a court may have regard to any guidelines approved by the Minister. 

12.  Monitoring

The Act identifies “competent authorities” for each of the categories of designated person. These authorities are responsible for effectively monitoring the designated persons and for taking measures that are reasonably necessary to secure compliance, including reporting to the Garda Síochána and Revenue Commissioners any knowledge or suspicion that a designated person, or another person, is or has been engaged in money laundering or terrorist financing.

The Minister for Justice, Equality and Law Reform and the Central Bank are “State competent authorities” with powers to request public and other bodies to provide relevant information in relation to a designated person. Designated persons may be directed to provide information or documents, and to give explanations relating thereto, subject to the right against self-incrimination. Designated persons may also be directed to comply with obligations under the Act, with failure to comply to be treated as an aggravating factor in any future sentencing.

Authorised officers are able to enter business and other premises without a warrant (save for residential premises where permission or a court warrant is required). Once in the premises, the authorised officer can inspect the premises, require the production of documents, take copies, ask questions on the documents or business, request technical assistance in relation to data and secure all or part of premises in order to preserve records and other documents. Where the premises are a dwelling, or an authorised officer has been obstructed or prevented from entering other premises, a District Court judge may issue a warrant authorising entry, if necessary using reasonable force.

An authorised officer may be accompanied by other such officers, member of the Garda Síochána or such other persons as he considers appropriate. A person who without reasonable excuse obstructs or interferes in the exercise of an authorised officer’s powers, or fails to comply with a requirement or request of an authorised officer, is liable on summary conviction to a fine of up to €5,000 and/or imprisonment of up to 12 months. A person is not required to answer any question if to do so might tend to incriminate the person. Documents/information subject to legal privilege need not be produced.

For further information, please contact Cormac Little and Claire Waterson.