AML legislation in Europe is primarily driven by the European Commission and on 26 June 2017 the Commission published a press release highlighting the urgency of the existing AML rules to be implemented in each Member State by adoption of the Fourth AML Directive.
26 June 2017 was the deadline for implementing this Directive and the Commission has written to Ireland and 16 other EU countries that are late implementing the Directive. The only EU nations to provide full confirmation to Brussels that the measures were implemented on time were the UK, France, Germany, Italy, Spain, Slovenia, Sweden, Austria, Belgium, the Czech Republic and Croatia. Apparently, it is unusual for so many countries to miss the official entry into force of an EU law.
Implementation of this Directive is quite urgent and once in Irish law it will introduce the following changes:
- reinforce the risk assessment obligation for banks, lawyers, and accountants;
- set clear transparency requirements about beneficial ownership for companies (some of this has already commenced). This information will be stored in a central register, such as commercial registers, and will be available to national authorities and obliged entities
- facilitate cooperation and exchange of information between Financial Intelligence Units from different Member States to identify and follow suspicious transfers of money to prevent and detect crime or terrorist activities;
- establish a coherent policy towards non-EU countries that have deficient anti-money laundering and counter-terrorist financing rules, and
- reinforce the sanctioning powers of competent authorities.
A separate June 2017 report from the European Commission, identified 40 products and services that are particularly vulnerable to targeting by terrorists and other criminals seeking to launder money. They include crowdfunding platforms, virtual currencies, online gambling, real estate and charities/non-profit organisations.
To hear more about the latest AML developments and how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Act, 2010, come to our next Anti-Money Laundering course on Tuesday 28 November 2017.
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‘The specialist nature of the knowledge and services provided by the accountancy service providers makes them vulnerable to being sought out and exploited by those who seek to launder the proceeds of crime or evade tax. It is recognised in international risk-based guidance that accountancy service providers may be sought to assist in the structure and design of transactions intended to conceal the nature and origin of funds.’
So says the first ever National Risk Assessment published jointly in October 2016 by the Department of Justice and Equality (DoJE) and the Department of Finance. The assessment covers the main risk areas of the many sectors in Ireland that are subject to the provisions of the Criminal Justice (Money Laundering and Terrorist Financing) Act, 2010.
The report identifies the fact that very few (80 out of a total of 21,682 AML reports) suspicious transaction reports (known as STRs) were made by the accountancy profession, according to a separate report called the 2015 Annual Report on Money Laundering and Terrorist Financing from the DoJE, given the size of the sector. As a result, (among other risk factors) the sector is assessed as Medium-High risk.
Among the accountancy services identified, by the National Risk Assessment report as vulnerable to the risk of money laundering and terrorist financing are:
- Company and trust formations;
- Insolvency services;
- Providing financial advice;
- Providing tax advice;
- Handling client money;
- Managing client assets and financial accounts;
- Investment business services;
- Auditing financial statements; and
- Company secretarial services.
This first ever National Risk Assessment has been produced ahead of the international inspection of Ireland being carried out by the FATF in December 2016 called the Mutual Evaluation Review. This review can have significant international positive or negative reputational impact potential for Ireland as a financial centre, in a post-Brexit world.
To hear more about how to be on the alert for suspicions of money laundering and terrorist financing under the Criminal Justice (Money Laundering and Terrorist Financing) Act, 2010, come to our next AML course on Monday 28 November 2016.
It would seem fair to assume that after eleven years the profession has got to grips with the anti-money laundering (AML) regulations. However they remain one of the key problem areas encountered on regulatory inspections.
Perhaps the obvious reason for failing to focus on AML procedures is that firms can’t raise a fee note for such work. Some view AML as an unwelcome and onerous regulation that puts barriers in the way of helping clients, and adds no value. Consequently, some firms give scant attention to AML procedures.
However, AML regulations are a global reality, one that firms have to get to grips with. If you establish appropriate procedures, they do not need to be regarded as onerous.
There was an exemption in the implementation of the Criminal Justice Act, 1994 (that came into effect for accountancy firms in the Republic of Ireland from 15 September, 2003) that meant that customer due diligence (ID checks) were not required for clients in place at that date. However, the subsequent 2010 legislation removed that same exemption. A further piece of legislation called the Criminal Justice Act, 2013 updates certain parts of the 2010 law.
The 2010 law, called the ‘Criminal Justice (Money Laundering and Terrorist Financing) Act, 2010’, came into effect from 15 July 2010 and abolished the 1994 law while it re-implemented most of its requirements and added others. Firms should now therefore have due diligence for every client and retain that documentation for at least five years after the last business transaction with that client. See the latest guidance from the professional accountancy bodies at the Consultative Committee of Accountancy Bodies – Ireland, (CAAB-I), ‘ Anti-Money Laundering Procedures Republic of Ireland’ dated September 2010. (http://www.cmf.ie/picts/Anti-Money%20laundering%20procedures%20ROI.pdf)
In many cases firms will have documentation that will satisfy the due diligence requirements (e.g. a Revenue Commissioners tax demand or Department of Social Protection correspondence and details of a client’s personal bank statement or pension scheme). If this is not the case simply ask to see your client’s photo-driving licence and take a copy, or use some other form of electronic verification to get the evidence you need, using sources like C6 (http://www.c6-intelligence.com/) or Veriphy (http://www.veriphy.co.uk/), provided the client is assessed as ‘low’ risk. Politically Exposed Persons (PEPs) as defined in the legislation (which includes relatives and business associates of such persons) must be specifically identified and treated as high risk, which means additional evidence and explanations must be documented about their financial transactions and sources of wealth. Legislation is expected in 2015 to expand the definition of PEPs to include locally resident persons who are politically exposed.
The customer due diligence procedures should be risk-based. While most firms complete some form of risk assessment, many go on to ignore it with regards to the amount of AML checking they undertake. This often leads to excessive checking for some clients and insufficient checking for others. Forms need to be completed to document the risk assessment and evidence gathering process and to show its subsequent regular review and action taken, following review.
For most clients, this is not an issue as their structure is simple and ownership is clear. However, it can be a major issue when you have structures involving anonymity, such as trusts or companies in Panama, Delaware BVI and Cayman Islands, or other offshore as well as some onshore territories using ‘bearer shares’ (the latter regarded as ‘high’ risk).
The legislation requires any client using anonymous structures or clients that you have not met face to face, to be treated as high risk. You must have the same level of identification for high risk beneficial shareholders as you do for the client’s principals/directors. Without evidence to support this beneficial ownership you cannot act and continuing to do so may lead not only to breach of the legislation but also to unnecessary professional indemnity risks.
Keeping information up to date
Often firms might have done a blitz when the new laws first came in, in 2003 or 2010, but have done little since. You must regularly review the evidence you have to confirm that it is still accurate and up to date. If there have been changes in ownership, the principals or the nature of the business then you must update your records. If everything is still valid, no updates are necessary.
The regulations require staff to receive training and evidence must be retained that the staff have understood the training (so some form of written quiz is necessary). This should form part of your induction programme for all new staff. You also have to provide ongoing training to staff in recognising and dealing with suspicious transactions and keep records of these regular updates and the names of staff attending.
AML regulations are here to stay and failure to comply can have regulatory consequences. Therefore, it makes sense to implement procedures to ensure compliance, but with the minimum effort required.
For more information contact John at 00 353 86 839 8360 or at email@example.com