AML Guidance and Requirements in Ireland for Designated Persons

What is Anti-Money Laundering?

Money laundering is a type of financial crime. It involves taking criminally obtained proceeds (dirty money) and disguising their origins, so they’ll appear to be from a legitimate source. Anti-money laundering (AML) refers to the activities designated persons perform to achieve compliance with legal requirements to actively monitor for and report suspicious activities.

Money laundering has been treated as a very serious offence since the passing of the Criminal Justice Act in 1994. The Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021 updated Irish anti-money laundering and terrorist financing legislation and brought it in line with the requirements of EU legislation to prevent money laundering. Ireland is also obliged to implement certain recommendations of the Financial Action Task Force (FATF), the international anti-money laundering and anti-terrorist financing body.

Why is Anti-Money Laundering Important?

The estimated amount of money laundered globally in one year is 2% to 5% of global GDP. Money laundering often accompanies illegal activities and is common within organised crime.

Anti-money laundering is closely related to counter-financing of terrorism (CFT), which designated persons use to combat terrorist financing. AML regulations combine money laundering (source of funds) with terrorism financing (destination of funds).

Beyond the moral imperative to fight money laundering and terrorist financing, firms also use AML measures for:

• Compliance with regulations that require them to monitor customers and transactions and report suspicious activity.
• Protection of their brand reputation and shareholder value.
• Avoidance of civil and criminal penalties that could be levied because of noncompliance or negligence.
• Reduction of costs related to fines, employee and IT costs, and capital reserved for risk exposure.

Many countries as well as economic and political partnerships, such as the European Union—have enacted, and continue to update, laws and regulations to combat money laundering and counter-terrorism financing (CTF).

While AML laws and regulations differ by country, they invariably require firms to maintain a robust set of policies as a means of achieving compliance. Such policies provide a detailed explanation of the people, processes, and technology a financial institution has in place to prevent the reintroduction of illicit funds into the financial system.

What is a Designated Person?

The Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 to 2021 Act places obligations on designated persons to guard against their businesses being used for money laundering or terrorist financing purposes.

Section 25 of the 2010 Act defines the term ‘‘designated person’’ as any person working in Ireland in any of the following capacities:

A credit or a financial institution (this includes funds and fund service providers, money lenders, insurance companies, money transmission or bureaux de change businesses, An Post and virtual asset service providers) unless specifically excepted

1. An auditor, external accountant, tax adviser, or any person who professionally provides assistance or advice on tax matters,
2. A relevant independent legal professional,
3. A trust or company service provider,
4. A property service provider, where the monthly rent handled exceeds €10,000,
5. A casino,
6. A person who directs a private members club at which gambling activities are carried out.
7. A person trading in goods in respect of transactions involving the receipt of cash of at least €10,000, whether in one transaction or in a series of transactions that are or appear to be linked to each other
8. A person trading in works of art involving more than €10,000 (or acting as an intermediary in such trading), whether in one transaction or in a series of transactions that are or appear to be linked to each other
9. A provider of gambling services, including bookmakers and online gambling companies
10. Any other person of a prescribed class

The 2010 Act also establishes a number of competent authorities who monitor designated persons and secure compliance with the requirements of the Act.

• The Central Bank of Ireland for credit institutions, financial institutions or trust or company service providers
• The designated accountancy bodies for auditors, external accountants or tax advisers
• The Law Society of Ireland for solicitors
• The Legal Services Regulatory Authority for barristers
• Designated accounting bodies for accountants, including: The Association of Chartered Certified Accountants and Chartered Accountants Ireland,
• The Property Services Regulatory Authority for property service providers
• The Minister for Justice for any other designated person (administered by the Anti-Money Laundering Compliance Unit)

What are the Obligations of Designated Persons?

The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 as amended requires all designated persons to:

• Carry out risk assessments in respect to their business (Section 30A Business Risk Assessment).
• Conduct ongoing monitoring in relation to the customer or transactions based on the customer’s risk (Section 30B Customer or Transaction Risk Assessment).
• Not carry out any service for the customer without first having identified and verified the identity of the customer and beneficial owner involved in the service (Section 33 Customer Due Diligence).
• Examine the background and purpose of all transactions that are or appear to be, complex or unusual (Section 36A Examination of background and purpose of certain transactions).
• Apply enhanced due diligence if a customer or a beneficial owner is a politically exposed person (PEP) (Section 37 Enhanced Due Diligence).
• Report suspicious transactions to An Garda Síochána (the Financial Intelligence Unit) and the Revenue Commissioners (Section 42 Suspicious Transaction Reporting).
• Have specific policies, controls and procedures in relation to their business to prevent and detect the commission of money laundering and terrorist financing (Section 54 AML/CTF Policies, Procedures and Controls).
• Ensure that all persons involved in the conduct of the business are instructed on the law relating to money laundering, that training records are maintained and that appropriate ongoing training is provided (Section 54 (6) Staff Training).
• Maintain documented Business Risk Assessment, customer risk assessment, AML Policies & Procedures, customer due diligence records, training records, PEP checks and information regarding suspicious transaction reporting or any decisions made on the matter (Section 55 Record Keeping).

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What is Client Due Diligence?

Customer Due Diligence (CDD) is the process used by designated persons to collect and evaluate relevant information about a customer or potential customer.

Customer due diligence measures are a key part of anti-money laundering requirements. They ensure that firms know who their clients are and ensure that they do not accept clients unknowingly who are outside their normal risk tolerance, or whose business they will not understand with sufficient clarity to be able to form money laundering suspicions when appropriate. If a firm does not understand its client's regular business pattern of activity it will be very difficult to identify any abnormal business patterns or activities. In addition, firms must be in a position to supply the client's identity in the event that the firm is required to submit an external report to FIU Ireland and the Revenue Commissioners.

The level of CDD measures, that a Firm is required to apply depends upon the nature of the relationship between the Firm and its customer, the type of business conducted, and the perceived money laundering or terrorist financing risks.

CDD should comprise the following:

• Identifying the customer and verifying the customer’s identity on the basis of documentation received.
• Identifying, where applicable, the Ultimate Beneficial Owner and taking adequate and risk-based measures to verify their identity so that the designated person is satisfied as to the identity of the beneficial owner.
• Obtaining information on the purpose and intended nature of the business relationship.
• Conducting ongoing monitoring of the business relationship.

Risk-Based Approach to Money Laundering

Irish legislation allows designated persons to apply aspects of the customer due diligence requirements on a risk-sensitive basis depending on:

• The nature of the product being sold;
• The delivery mechanism or distribution channel used to sell the product;
• The profile of the customer; and
• The customer’s geographical location and source of funds.

Customer due diligence (CDD) can be divided into three categories

• Simplified Due Diligence (SDD) applies to low-risk customers and products.
• Enhanced Due Diligence (EDD) applies to high-risk third countries, a relationship/transaction that presents higher risk and Politically Exposed Persons (PEPs).
• Standard Due Diligence must be applied to all remaining customers and products.

The importance of a risk-based approach is to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate to the risks identified. To adopt a risk-based approach is to:

• Recognise the existence of risk(s)
• Undertake an assessment of the risk(s)
• Develop strategies to manage and mitigate the identified risks

An effective risk-based approach will allow firms to exercise reasonable business judgment with respect to their customers.

What are Politically Exposed Persons (PEPs)?

Individuals who have or have had, a high political profile, or hold or have held, public office, or are currently performing or have performed a prescribed function (as determined by the Minister for Justice) can pose a higher money laundering risk to Firms as their position may make them vulnerable to corruption.

This risk, and therefore EDD requirements for PEPs, also extends to members of their immediate families and to known close associates. Firms should note that PEP status itself is intended to apply higher vigilance to certain individuals and put those individuals that are customers or beneficial owners into a higher risk category. It is not intended to suggest that such individuals are involved in suspicious activity.

What is an Ultimate Beneficial Owner?

An Ultimate Beneficial Owner or UBO is defined in Article 3(6), EU 4 Anti-Money Laundering Directive (AMLD), as any natural person(s) who ultimately owns or controls a legal entity, either through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in the entity, including through bearer shareholdings or through control via other means.

In Ireland, regulated entities and designated persons have obligations to report their beneficial owners to central registers. The central register of beneficial ownership of companies (RBO) was signed into law (April 2019) by the Minister for Finance and is there to improve corporate trust and transparency in Ireland and the EU by making it clear to law enforcement agencies, regulatory authorities, designated persons, businesses and the general public who ultimately owns and controls Irish companies.

The aim of the EU AML Directives is to deter money laundering and terrorist financing and to help law enforcement and regulatory authorities to identify those ‘natural persons’ who hide their ownership or control of Irish companies/societies for the purpose of facilitating illegal activities.

These include:

• ownership (directly or indirectly) of more than 25% of the company/society's shares
• controlling (directly or indirectly) more than 25% of the company/society's voting rights
• control via other means including the criteria of control used for the purpose of preparing consolidated financial statements, such as through a shareholders' agreement, the exercise of dominant influence or the power to appoint senior management.

You Focus on your Clients, We Focus on your AML

Although the AML obligations on firms are significant, there are technology options available that allow you to be effective, compliant and to improve your internal processes. The adoption of technology does not necessarily mean taking on a large or expensive project.

For example, within AML HQ we have developed a one-stop AML portal that helps your team to achieve compliance through convenience. Our portal provides smart processes to help your team efficiently onboard clients with a risk-based approach that automatically creates the records and reports to demonstrate due process and compliance. Our service includes:

• A set of policies, controls and procedures that you can use out of the box, or further tailor to suit your firm.
• Digital risk assessments to easily complete firm and client risk assessments so that you can apply appropriate due diligence.
• Client onboarding tools that allow you to identify and verify corporate and private clients and meet your CDD obligations.
• Our AML training hub ensures that all staff are appropriately aware of their obligations and trained to apply the AML policies, controls and procedures as adopted by your firm.
• Access to instant reports that provide audit-ready extracts and compliance gap analysis.

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