Criminal Justice (Money Laundering & Terrorist Financing) Act 2010

On 5th May 2010, the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 (the Act”) was signed into law in the Republic of Ireland. The Act transposed the Third Money Laundering Directive and consolidated all existing anti-money laundering legislation (Criminal Justice Act 1994) into one single act.

The Department of Justice & Law Reform has confirmed that the commencement orders will be signed on 15 July 2010 except for the section on Trust & Corporate Service Providers. This gives designated persons, as defined in the Act, a short amount of time to comply with the new requirements.

Changes to previous legislation

Although many of the features of the existing legislation have been retained there are a number of new and important changes. These include the introduction of a risk-based approach to customer due diligence and what will be a more rigorous enforcement regime involving the Minister for Justice and Law Reform, the Central Bank & Financial Regulator. The legislation refers to not only money laundering but also terrorist financing.

The key features of the Act include:-

The definition of money laundering has widened to include the proceeds of any criminal conduct;
The terminology of “know your customer” (KYC) has been replaced by “customer due diligence” (CDD);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” CDD where there is a low risk to “enhanced” CDD where there is a high risk of money laundering or terrorist financing ;
CCD requires the identification and verification of the identity and the ongoing monitoring of the business relationship with customers for suspicion of money laundering and terrorist financing;
There are obligations to identify the “beneficial owner” and the designated person must ensure that they take adequate measures to understand the ownership and control structure of the client;
There is a new requirement to identify politically exposed persons (“PEPs”) as defined in the act ;
Designated Persons are permitted to rely on third parties to meet the CDD requirements;
Those persons who meet the definition of “trust and company services provider” will need to be authorized by the Minister for Justice & Law Reform;
Any person who directs a private members’ gaming club to register with the Minister;
Designated persons are required to report suspicions of money laundering or terrorist financing to the Gardai Siochana and the Revenue Commissioners;
The act provides that designated persons should have internal policies and procedures, keep records for a period of 5 years and to provide training to staff on the legislation;
The Minister will approve Guidance Notes to be used by designated persons and can be used as a defence in Court by the designated person in determining if a designated person took all the appropriate measures.

Designated Person

The Act defines a designated person as any person acting in the State in the course of business carried on by the person in the State who or that is-

a credit institution unless specifically exempted
a financial institution unless specifically exempted,
an auditor, external accountant or tax adviser,
a relevant independent legal professional (Solicitors, Barristers and Notaries),
a trust or company service provider,
a property service provider (including Estate Agents & Auctioneers),
a casino,
a person who directs a private members club at which gambling activities are carried out,
a person trading in goods in respect of transactions involving the receipt of cash of at least €15,000 or
any other person of a prescribed class.

Customer Due Diligence (CDD)

The Act contains complex provisions on customer due diligence covering simplified, standard and enhanced due diligence. The Act specifies that customer due diligence should be carried out “prior to” the occurrence of the following circumstances:-

Where a business relationship is established with a customer;
Transactions with or on behalf of a customer (over €15,000 previously €13,000);
On any service for a customer if there are reasonable grounds for believing that there is a real risk of money laundering or terrorist financing;
Where there are any doubts as to the veracity or adequacy of previously obtained identification documentation.

In order to complete CDD, the designated person must complete the following:-

Identify the customer and verify his identity on the basis of documents or information that is believes can be relied on to confirm identity;
Identify any beneficial owner connected with the customer or service concerned and understand the ownership & control structure of the entity involving the beneficial owner; (Sec 26-30)
Obtain information in relation to the purpose and nature of the business relationship; and
Carrying out ongoing monitoring

Nothing in the section limits the kinds of documents or information that a designated person may have reasonable grounds to believe can be relied upon to confirm the identity of a customer.

Trust or Corporate Service Providers (Sec 84-109)

The Act provides that any person carrying out the business of a trust or company service provider (“TCSP”) will be required to obtain an authorization to carry on business as a TCSP issued by the Minister and will be classed as designated person under the Act.

A TCSP means any person whose business it is to provide any of the following:-

(a) forming companies or other bodies corporate;

(b) acting as a director or secretary of a company under an arrangement with a person other than the company;

(d) acting, or arranging for a person to act, as a partner of a partnership;

(e) providing a registered office, business address, correspondence or administrative address or other related services for a body corporate or partnership;

(f) acting, or arranging for another person to act, as a trustee of a trust

(g) acting, or arranging for another person to act, as a nominee shareholder for a person other than a company whose securities are listed on a regulated market.

A TCSP does not include any of the following:-

A member of a designated accountancy body;
A barrister or solicitor;
A credit institution or financial institution

This requirement for authorisation will apply from 15 July, 2010 and TSCP’s are required to submit their application for authorisation to the Minister for Justice & Law Reform by the 15 July, 2010. It is important to note that a person who carries on business as a “trust or company service provider” without having first obtained the required authorisation will commit an offence under subsection 87. 1 (1) of the Act will be liable (a) on summary conviction, to a fine not exceeding €5,000, or imprisonment for a term not exceeding 12 months (or both), or (b) on conviction on indictment, to a fine or imprisonment not exceeding 5 years (or both).

The Anti-Money Laundering Compliance Unit in the Department of Justice & Law Reform will process all applications for authorisation to carry on business as a trust or company service provider and each authorisation will have a term of validity of 3 years and will be renewable. Included in this process is a requirement for the application of a fit and proper test to certain persons associated with each application for authorisation.

The legislation specifies certain matters which would disqualify a person from being considered ‘‘a fit and proper person’’ for the purposes of an authorisation. In summary, these include having certain criminal convictions, refusing due payment of debt, being an undischarged bankrupt or otherwise not being a fit and proper person. The “fit and proper” test may require the Department to conduct enquiries relating to the applicant including checks against criminal convictions with An Garda Síochána, checks against financial rulings e.g. Bankruptcy and/or company law breaches.

Conclusion

The change of focus to a risk based approach will provide a challenge to all Company Secretaries who work in or advise “designated persons” to ensure they have sufficient internal policies and procedures to identify the risks facing the organization and to identify money laundering and terrorist financing.

Trust and Corporate Services Provides should act immediately and submit their application forms to the Department of Justice & Law Reform before 15 July 2010 for authorization to act as a TCSP. All designated persons should consult the guidance documentation issued and approved by the Department of Justice & Law Reform.

Should you have any questions in relation to this article or should you have any Company Law or Company Secretarial queries please contact John Murphy on 053 910 0000, [email protected]