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Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2018: Second Stage (Continued)

Thursday, 10 May 2018

Dáil Éireann Debate
Vol. 968 No. 8

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(Speaker Continuing)

[Deputy Charles Flanagan: Information on Charles Flanagan Zoom on Charles Flanagan] The Department of Finance has been working closely with my officials on this Bill and is drawing up its own legislation to transpose provisions of the directive on beneficial ownership of trusts and bodies corporate.

Before turning to the individual provisions of the Bill, which is complex and multifaceted, I would like to give a general overview of its content. The main change brought about by the Bill is a more pronounced switch to a risk-based approach. This means, first, that the businesses concerned, which the legislation calls designated persons, must assess the risks of money laundering and terrorist financing involved in carrying out their business. They must have policies and procedures in place to mitigate these risks. They must determine the risk attaching to each customer or transaction, on a case-by-case basis, taking into account relevant factors. They must then carry out whatever due diligence measures are warranted by that level of risk. This represents a more targeted and, therefore, more effective application of measures by the designated person.

The proposed law also recognises the reality that many businesses today operate in group structures across borders and it makes a number of amendments in this regard. The Bill expands on requirements on Irish companies to ensure that their subsidiaries overseas apply high anti-money laundering standards. If a group implements policies and procedures properly, its subsidiaries are not subject to some restrictions that normally apply in respect of high-risk third countries.

The amendments made by the Bill also extend the scope of existing obligations in other ways. For example, some measures which previously only applied to banks will now apply to other financial institutions. There are extra measures that must be applied to the beneficiaries of life assurance policies. Measures applying to politically exposed persons will now apply to those resident in Ireland, as well as those resident outside the jurisdiction.

Of great importance in the global fight against money laundering and terrorist financing is the role of the financial intelligence unit. The financial intelligence unit in Ireland is part of An Garda Síochána. It is responsible for receiving suspicious transaction reports from designated persons and analysing them, so it can be used to combat crime. The directive expands the remit of the financial intelligence units and requires them to have access to all of the information they need to carry out their functions. Taking into account the transnational nature of money laundering, it emphasises co-operation and information sharing between the financial intelligence units of different member states. All of this is provided for in the Bill.

Turning to the individual provisions, sections 1 and 2 contain the usual provisions setting out the Short Title and commencement provisions and the interpretation section. Sections 3 to 5, inclusive, amend the definitions in the 2010 Act. For the most part, this is to bring them into alignment with the definitions in the directive. In many cases, references to financial services legislation are being updated. An important amendment is that which lowers the threshold for the application of the Act to high-value goods dealers. Currently, they come within the Act if the value of the goods is over €15,000 and this amendment will bring that down to €10,000. There is an amendment in section 5 relating to legal professionals in order to make it clear that the Act only applies to them where they are carrying out certain services. This amendment was previously made by the Criminal Justice Act 2013 but was not commenced as a technical change needed to be made.

Sections 6 to 9, inclusive, amend the definition of "beneficial owner” to bring it in line with the new directive. When carrying out customer due diligence, a designated person must also check the identity of any beneficial owner associated with that customer. This includes, for example, a major shareholder in a company or the beneficiary of a trust. The definition of "beneficial owner" will now be broader than under current law and will include, for example, the trustee of a trust.

Sections 10 to 19, inclusive, are the core provisions of the Bill. Section 10 inserts two new sections in the 2010 Act concerning risk. In this regard, designated persons will now be explicitly required to carry out an assessment of the risks of money laundering and terrorist financing inherent in carrying out their business. They are also required to assess the risk of money laundering and terrorist financing in regard to a customer or a transaction, taking into account factors like the purpose of an account or the regularity of transactions. They must have regard to guidance and the national risk assessment.

Sections 11 to 19, inclusive, concern customer due diligence. Section 33 of the 2010 Act contains the main obligations to identify and verify the identity of customers and beneficial owners. Some small changes are made to that section. For example, there are additional requirements relating to the identification of the beneficiaries of life assurance policies. There is an exception to the rule that designated persons must cease carrying on business with a customer if they cannot carry out customer due diligence, and that applies to legal and other professionals in certain circumstances.

Simplified due diligence can be carried out where the customer is considered to be low risk. If simplified due diligence is applied, the designated person must keep a record of the reasons for applying it and carry out sufficient monitoring. There is also a specific exemption for electronic money which applies under certain conditions.

On the other hand, where there are factors suggesting high risk, extra measures must be taken. Customers in what are deemed to be high-risk third countries are one such category and politically exposed persons are another. As I mentioned, at the moment, if a bank or other designated person has a customer who holds certain important public offices, and they are resident abroad, the designated person must take extra precautions. They must get senior management approval for the relationship and check the source of funds and wealth. This also applies to the family members of these people. The need to combat corruption requires paying special attention to these persons. In this Bill, as required by the directive, these provisions are being extended to politically exposed persons resident in Ireland, so they will also be subject to these checks. This will include, for example, Members of Dáil Éireann and senior judges, but the need for caution will not stop at these specific categories. Designated persons will have to take an overall view of their customer and apply additional measures, if necessary. Failure to do so will now be an offence punishable by an unlimited fine and up to five years in prison.

Section 20 makes some changes to the circumstances where a designated person can rely on a third party to carry out customer due diligence. Sections 21 to 23, inclusive, concern the functions of Ireland's financial intelligence unit, FIU. This unit is part of An Garda Síochána and these sections place its functions on a statutory footing. They give the FIU the powers to obtain information that it needs to tackle money laundering and terrorist financing. Under this Bill, the FIU can also give information on request to certain bodies and it can share information with FIUs in other member states. The FIU and the Revenue Commissioners will have the power to obtain additional information from a designated person after the person has reported a suspicious transaction.

Section 24 amends section 51 of the 2010 Act. This concerns the offence of “tipping off', in other words, telling someone that they are being investigated for money laundering. This alters one of the defences to the offence so that it applies where financial institutions share the information within a group.

Section 26 relates to the policies and procedures that designated persons must put in place to prevent and detect money laundering and terrorist financing. The new section expands on the matters that must be included in these policies. They must, for example, have policies on measures to be taken to prevent the risk which may arise from new technologies.

Sections 27 and 28 concern the keeping of records. Section 27 allows An Garda Síochána to require that a designated person retains records relating to customer due diligence beyond the current five-year period if they are required for the investigation or prosecution of money laundering or terrorist financing. Designated persons must delete any personal data held solely for the purposes of this section after the end of the retention period. Section 28 extends an existing requirement in regard to keeping information on business relationships.

Sections 29 and 30 require a group of companies to have common anti-money laundering policies. If an Irish company has a subsidiary in another country, it must ensure that it applies adequate anti-money laundering measures. If the subsidiary is in another EU member state, it has to make sure that it complies with local anti-money laundering laws. If it is in a third country where the laws do not allow the implementation of the group's policies and procedures, it must take additional measures. If these measures do not address the risk, action can be taken by the competent authority.

Section 31 extends a prohibition on entering into a correspondent relationship with a shell bank so that it now applies to all financial institutions. Section 32 makes an amendment which will make the Legal Services Regulatory Authority a State competent authority, which means it has extra supervisory powers for money laundering purposes.

Section 33 substitutes the section creating a defence of due diligence to the offences under this part of the Act. There is no longer provision for guidelines to be made to be taken into account here.

Section 34 inserts a section which requires certain designated persons to register with the Central Bank. This is for entities which the Central Bank supervises for money laundering purposes but which are not otherwise authorised by or registered with it.

Section 35 amends the penalties that can be applied by the Central Bank under its administrative sanctions procedure to bring them in line with the directive. As well as its usual penalties, it can impose a €5 million monetary penalty on a natural person for breaches of certain provisions of money laundering legislation. It can also impose a penalty of twice the benefit obtained from the breach.

Section 36 substitutes Schedule 2 to the 2010 Act which lists some of the financial services and activities subject to the Act.

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