On 5 May 2010, the Third-Anti Money Laundering Directive (2005/60/EC) (the "Third AML Directive") was finally transposed in Ireland by the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 ("the Act"). The aim of the Third AML Directive is to widen the scope of previous anti-money laundering and terrorist financing legislation based on the revised recommendations of the Financial Action Task Force ("FATF").
The Department of Justice and Law Reform has confirmed that the commencement date for the Act will be 15 July 2010, except for Chapter 9 of Part 4 (Authorisation of Trust and Company Service Providers). This leaves a very short time frame for all designated persons to comply with the new requirements.
The responsibilities of designated persons in relation to the prevention and detection of money laundering and terrorist financing has widened significantly with the implementation of the Act. The purpose of this memorandum is to consider the implications of the increased responsibilities on designated persons, which include credit institutions, financial institutions, life assurance companies and intermediaries providing life assurance and other investment related services, auditors, external accountants, tax advisors, independent legal professionals, trust or company service providers, property service providers, casinos, private members' clubs in relation to gambling activities and any person who is trading in goods in cash for a total of at least €15,000 (whether this is a one off transaction or a series of transactions which appear to be linked to each other).
The Act introduces the following important changes for designated persons:
the definition of money laundering has been widened to include the proceeds of any criminal conduct, however minor; the terminology of "know your customer" has been replaced by "customer due diligence" (CDD); the level of CDD required will be determined using a risk based approach. This can range from "simplified" where there is a low risk of money laundering or terrorist financing to "enhanced" where there is high risk of money laundering or terrorist financing; there are enhanced obligations to identify the "beneficial owner" whereby the designated person must ensure that it takes reasonable measures to understand the ownership and control structure of the client; there is a new requirement to identify non domestic politically exposed persons ("PEPs") as defined in the Act - i.e. those persons in a prominent public position and their families or close associates; those persons who meet the definition of "trust and company services provider" will need to be authorised; a Guard at superintendant level or higher and/or a District Court judge has the power to direct a designated person not to carry out a specified service for a specific timeframe where a customer is subject to investigation; the number of offences which can arise under the Act are significantly greater than under the previous legislation; the Minister for Justice and Law Reform, in conjunction with the Minister for Finance, can approve Guidance Notes to be used by designated persons. A Court can have regard to the Guidance Notes when determining if a designated person took all the appropriate measures. We will now examine some of the more significant changes.
A Risk Based Approach to Customer Due Diligence
To be in a position to determine what is the appropriate level of customer due diligence, designated persons will be required to assess the risk of money laundering or terrorist financing by conducting an internal risk assessment which considers factors such as the:
nature of the customer base; nature of the products or services to be provided; methods of distribution; and geographic areas of operation. The risk assessment will need to take into consideration the...