Regulators turn the screw on AML

By James Treacy, Managing Director, StubbsGazette

Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) measures have been at or close to the top of bank compliance agendas for the past few years. This has been apparent as national and supra-national authorities have left the industry in no doubt as to their resolve in pursuing breaches of ever more onerous legislation.

This new resolve dates from 2012 and the record fine of USD 1.92 billion imposed by the US authorities on the then world’s largest bank for its role in aiding money laundering by various Mexican drug cartels. In June 2015 the bank was fined a further USD30 million by the Swiss authorities for “organizational deficiencies” that enabled its clients to launder cash.

This anti-AML and CFT sentiment has spread globally, undoubtedly related to public distaste for the activities of drug cartels and terrorist groups such as ISIS. These groups have demonstrated an astonishing ability to build quasi-states out of their activities, something that could only take place without extraordinary financial nous more than likely linked to the formal financial system. Disclosure of widespread massive tax evasion through various offshore centres in both the corporate and personal spheres have also fuelled anger.

Ireland’s Central Bank is typical of this new world and has ramped up legislation considerably in recent years. The Criminal Justice (Money Laundering and Terrorist Financing) Act of 2010 (CJA 2010) is the bedrock that brought the EU’s Third Money Laundering Directive into law.

The Act sets out legal provisions to ensure technical compliance and effective implementation of international standards relating to AML and CFT. In the words of the Central Bank the Act:

• Defines broadly the offence of money laundering.

• Defines designated persons and beneficial owners that come under the provisions of the Act.

• Provides for Directions, Orders and Authorisations relating to investigations.

• Sets out customer due diligence, reporting, internal policies and procedures, training and record keeping requirements of designated persons.

• Provides for monitoring of designated persons.

In a globalized financial services marketplace where reputation is all, the Bank most recently issued its report on Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector in November last year. Given that the Irish Funds sector is a major success story with Irish domiciled funds having a net asset value of EUR1.8 trillion, it is not surprising that the Central Bank should be at pains to guard against the sector’s reputation.

The Central Bank’s report on AML in the Funds sector identified a number of issues for the sector to address. One of these was “deficiencies in the on-boarding process of Politically Exposed Persons, including the failure to sufficiently identify, verify and document Source of Funds and Source of Wealth.”

The credit union sector is not immune from these developments. In May 2015 the Central Bank issued its Report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Credit Union Sector.

While the report noted that one of the unique features of the movement, the Common Bond, assists credit unions in knowing their members, this “does not minimise or reduce the obligations of credit unions pursuant to the CJA 2010.”

“Credit unions need to use this knowledge to comprehensively assess the money laundering and terrorist financing risk in their business and implement the recommendations of this report as appropriate to the nature, scale and complexity of that business,” the Bank reported. “The number and nature of issues identified during the inspections of the credit union sector suggest that credit unions in Ireland need to significantly improve their AML/CFT policies, procedures, systems and controls to ensure compliance with the CJA 2010.”

Among the issues identified by the Bank were:

Failure to implement the requirements of the CJA 2010 in a timely manner.
Lack of oversight of AML/CFT issues at Board level;
Inadequate policies, procedures and processes in relation to Customer Due Diligence (CDD) for new and existing members, on-going monitoring and classification of risk;
Non-adherence to stated AML/CFT policies;
Failure to conduct adequate Money Laundering/Terrorist Financing risk assessment of the business;
Engaging in non-standard practices without appropriate Board oversight and approval and without proper policies, procedures and systems and controls in place. For example, accepting large cash lodgments from local businesses, or lodgment of business proceeds to members’ personal accounts, without considering and documenting any risks associated with these practices or any additional due diligence or on-going monitoring requirements which may apply;
Lack of documented procedures to identify and verify beneficial owners where warranted, for example in the case of business customers, clubs and societies etc.;
Failure to have adequate systems and controls, procedures and documentary evidence of on-going monitoring of transactions;
Failure to define Politically Exposed Persons (PEPs) within policies. Lack of systems and formal processes for identifying, verifying and monitoring PEPs;
Failure to ensure the provision of appropriate training to the Board members, staff and volunteers at all levels, as well as enhanced training for staff in key AML/CFT and FS roles;
Inconsistent and/or undocumented approaches for the reporting of Suspicious Transaction Reporting (STR) by staff to the Money Laundering Reporting Officer (“MLRO”), or the process for onward reporting to the relevant authorities.
Lack of a documented timeframe for reports to be received and reported and failure to reference the penalties for not reporting or the offence of ‘tipping-off’ within the AML Policies.

The Central Bank findings give an indication of the challenges faced by Credit Unions in satisfying the AML/CFT requirements of the Central Bank. StubbsGazette is pleased to have for some time been a key source for financial institutions intent on verifying their clients’ bona fides and legitimacy and now we have massively expanded the scope of our search facilities to assist financial institutions in meeting their regulatory obligations in AML/CFT,

Due Diligence – what you need to know

StubbsGazette will shortly be making available to its subscribers a comprehensive database specifically designed towards providing background checks to identify potentially compromised individuals for the purposes of anti-money laundering and countering the financing of terrorism. Specifically, the following categories will be highlighted.

Heads & Deputies State/National Government

Presidents,Taoiseach etc

National Government Ministers

This category contains a country’s government ministers, for example, Minister of Finance, Minister of Foreign Affairs etc.

Members of the Dail, Seanad, Stormont Assemby etc

This category contains members of the bodies/assemblies making up the national legislature

Senior Civil Servants–National Government

This category contains the uppermost levels of the regional civil service. Titles vary depending on the country concerned, but include those like Secretary General etc.

Embassy and Consular Staff

Watchlist aims to cover the top two positions at a country’s foreign representations and the top position at a country’s consulates.

Senior Members of the Defence Forces

Senior Members of the Police Services (Garda Siochana, PSNI)

Senior Members of the Secret Services

Senior Members of the Judiciary

State Corporation Executives

State Agency Officials

Heads & Deputy Heads of Local Government

Religious Leaders

Political Party Officials

International Organisation Officials

City / Town Mayors

Political Pressure and Trade Union Officials

International NGO Officials

Local Public Officials

Local Councillors etc.

International Sporting Organisation Officials

Relatives or Close Associates (RCA)

Apart from establishing the need to identify Politically Exposed Persons (PEPs), Anti‐Money Laundering regulations stipulate relatives or close associates of PEPs should be monitored to the same extent as Politically Exposed Persons

Sanctions Lists (SAN), Other Official Lists (OOL), Other Exclusion Lists (OEL)

Risk & Compliance profiles contain the names of individuals, companies, organisations, aircraft, banks and vessels contained in over 900 current international official lists covering 60 jurisdictions. Lists published by the U.S. Office of Foreign Assets Control (OFAC), the United Nations and the European Union are included.

Top Judgments Registered

01.01.1970

Daniel Grehan
Address: Bateman's Row, Shoreditch, London EC2A 3HH, UK
Amount: €312,000,000.00

01.01.1970

Raymond Grehan
Address: Bateman's Row, Shoreditch, London EC2A 3HH, UK
Amount: €312,000,000.00

23.10.2011

Jim Mansfield
Address: Tassaggart House, Garters Lane, Saggart, Dublin 24
Amount: €214,122,346.00

23.10.2011

Jim Mansfield
Address: Tassaggart House, Garters Lane, Saggart, Dublin 24
Amount: €74,014,965.00

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