Implications of the FATF mutual evaluation report on Ireland
The Financial Action Task Force (FATF) has published its mutual evaluation report (MER) on Ireland following its assessment of the country's anti-money laundering and counter-terrorist financing (AML/CFT) system.
The FATF has also published an executive summary of the report and a presentation of the main findings, ratings and priorities. The MER provides a summary of the AML/CFT measures in place in Ireland as at the date of the FATF's on-site visit in November 2016. It analyses the level of effectiveness of Ireland's AML/CFT regime as well as its level of technical compliance with the FATF recommendations and provides recommendations on how the system could be strengthened.
Encouragingly, the MER concludes that "Ireland has a sound and substantially effective regime to tackle money laundering and terrorist financing … ". Moreover, the MER highlights that "National coordination mechanisms … and the Private Sector Consultative Forum (PSCF) were fruitful in broadening the understanding of its ML [money laundering] and TF [terrorist financing] risks across all relevant agencies and with the private sector."
Generally, Ireland is seen as having a good understanding of the ML/TF risks it faces. It has broadened this understanding to relevant agencies and the private sector through effective national cooperation and coordination. Ireland's national risk assessment (NRA) demonstrated an appreciation of the risks it could face from beyond its borders, but given its position as an important regional and international financial centre, the MER notes that it could further refine its understanding of international ML risks.
Both the Central Bank of Ireland (CBI) and the Department of Justice and Equality (DoJE) follow a risk-based approach in the supervision of their respective sectors and have established good cooperation with financial institutions and designated nonfinancial businesses and professions (DNFBPs).
Coordination, cooperation and the use of financial intelligence are seen as strong points of the Irish AML/CFT framework. A range of competent agencies routinely access financial information on short notice to assist in their investigations. Irish authorities have also demonstrated that they cooperate internationally on ML/TF issues and are handling an increasing number of requests for assistance. Ireland has sound laws to pursue ML and asset confiscation but has not yet achieved convictions after trial and is viewed as only moderately successful in confiscating criminal proceeds. Ireland prioritises counter-terrorism efforts and has secured terrorism-related convictions but the MER concludes that it should more actively pursue the prosecution of TF.
Ireland demonstrated that it has a generally sound AML/CFT framework but it must implement further measures, including additional resources to ML investigations. Some of these measures are forthcoming and will further strengthen the effectiveness of Ireland's efforts to tackle ML/TF.
- The MER has set out priority actions for Ireland to strengthen its AML/CFT system and we can expect a number of actions to be implemented as soon as possible:
- Ireland's understanding of risks will be expanded to include a more comprehensive range of quantitative data, such as those in relation to international cooperation (both formal and informal).
- Ireland's next NRA will include improved linkages with its threat and vulnerabilities assessment and give greater consideration to the cross-border ML/TF risks.
- Financial institutions (FIs) and DNFBPs (in particular) will be expected to deepen their understanding of ML/TF risks, particularly in relation to cross-border ML/TF issues.
- Ireland will more actively pursue TF prosecutions in line with its risk profile, with a view to securing TF convictions.
- Ireland will seek to prosecute a wider range of ML cases, including both domestic cases and those with an international component, relating to professional ML schemes and complex financial products, in line with its risk profile.
- Ireland will ensure that adequate resources are allocated to the dedicated ML investigation teams.
- Irish authorities will enhance efforts to pursue the proceeds of crime moved offshore.
- Ireland will review and strengthen its asset confiscation legislation, procedures and policies in relation to international asset freezing, seizing, confiscation and sharing of assets. Authorities will need to ensure that the expansion of their remit to cover mid-level criminality does not affect the focus on, and resources committed to, targeting high-level organised crime figures and complex financial crime.
- Focused and proportionate measures will be applied to non-profit organisations (NPOs) identified as being vulnerable to TF abuse.
- Ireland will ensure that there are adequate procedures in place to safeguard the role of the Financial Intelligence Unit (FIU) and ensure its independence.
- Ireland will take further steps to ensure competent authorities can have timely and accurate access to beneficial ownership information including from FIs and DNFBPs. Ireland will take the necessary steps to facilitate the operation of the central register of corporate beneficial ownership.
- The DoJE will expand its monitoring of entities under its remit, and increase its resources accordingly.
- Supervisors, in particular for DNFBPs, will further focus on ensuring compliance with politically exposed persons (PEPs) and targeted financial sanctions (TFS) obligations.
- The Law Society and designated accountancy bodies will be expected to apply effective, proportionate and dissuasive sanctions for non-compliance with AML/CFT requirements.
- Ireland will amend its legislative framework to address the technical deficiencies noted in the Technical Compliance Annex of the MER, such as for some DNFBPs, and in relation to PEPs and high-risk countries. Many of these issues will be captured when the Fourth Anti-Money Laundering Directive (4MLD) is implemented.
Based on the MER, we can expect the following recommended actions to be taken by CBI:
- CBI will continue to enhance its ML/TF risk understanding of individual FIs. It will also continue to develop a greater number of quantitative factors, to capture evolving ML/TF risk in the financial sector.
- CBI will further strengthen its licensing process, for example, by extending the criminal background check requirement for directors, senior management, qualifying shareholders as appropriate, and in particular for non-Irish applicants to an Irish FI, e.g., by implementing mandatory screening of names of directors, senior management, qualifying shareholders against the Garda Siochana database.
- CBI will continue to take dissuasive sanctions against FIs that do not comply with their AML/CFT requirements and, where appropriate, sanction individual senior management.
The MER has also set out recommended actions in respect of financial preventive measures (based on findings that the implementation of CDD measures could be strengthened and that some FIs have an over-reliance on local community networks and knowledge):
- FIs and DNFPBs (in particular) should seek to deepen their understanding of ML/TF risks, particularly with regard to cross-border ML/TF risks.
- Authorities are encouraged to work more closely with FIs and DNFBPs (in particular), to strengthen understanding and controls in relation to CDD (especially PEPs and higher-risk customers).
- Certain FIs and DNFPBs should seek to use and develop better (and more sophisticated) AML/CFT tools (especially for PEPs and TFS).
- Where appropriate, FIs should adopt a more systematic (automated) method of transaction monitoring.
- Authorities should provide more feedback and guidance to reporting entities on STRs, e.g., typologies, red flag indicators and the quality of STRs.
As part of the follow-up process Ireland has an obligation to report to FATF on progress in two years. There will be another onsite visit in five years to check progress on moderate outcomes.
This article was first published in Thomson Reuters Regulatory Intelligence on 21st September 2017.