Written by Holly Whitehead on Friday September 8, 2017
Ireland is an important regional and international financial hub and is included in the IMF’s 29 systematically important financial centres. This is evidenced in the sheer number of banks looking to move some of their operations from London to Dublin in the wake of Brexit.
This does mean however that Ireland is going to need a strong and robust anti money laundering/combating the financing of terrorism (AML/CFT) national framework to deal with the influx in business, and to ensure that an increase in financial crime doesn’t follow.
Luckily, the FATF Mutual Evaluation Report (MER) for Ireland has just been released and, along with an analysis of the country’s level of compliance with the FATF 40 Recommendations (and the level of effectiveness of Ireland’s AML/CFT system), come recommendations on how the said system can be strengthened.
On the whole, this MER was largely positive and states that Ireland has ‘a generally sound legislative and institutional AML/CFT framework’. On the other hand, Ireland’s first National Risk Assessment (NRA) published in October 2016 showed that while the country ‘appears’ to have a robust understanding of money laundering (ML) risks, more could be done to identify its international ML risks. It asserts that this is especially important due to the fact that Ireland is a ‘highly interconnected economy’ with ‘a large financial sector in relation to GDP’. Again, something to be cognisant of in the aftermath of Brexit and the probable move of financial institutions to Dublin.
Encouragingly, the MER recognises that Ireland has installed measures not long ago to improve its understanding of risks and that it demonstrates a considerable level of effectiveness in several areas. However there are further measures and resources needed for a fully effective AML/CFT system that is proportionate to the risks that Ireland faces.
The report acknowledges that Ireland has a thorough range of reporting entities for the purposes of its AML/CFT system but advises that there are some deficiencies when it comes to politically exposed persons (PEPs), correspondent banking and higher risk jurisdictions. Additionally, it was reported that although the Central Bank of Ireland performs well with regards to supervising financial institutions in the country, the Department of Justice and Equality are under-resourced to be able to supervise designated non-financial businesses and professions (DNFBPs) effectively.
Ireland has a single police force which the financial intelligence unit (FIU) is embedded within. The issues identified with regards to the abilities and resources of the FIU in the previous MER, for example a lack of sophisticated IT software, haven’t been resolved. Despite this, law enforcement agencies did demonstrate that they were able to appreciate the importance of financial intelligence and used it consistently in predicate crime investigations.
Encouragingly, during the on-site visit for this MER, Ireland was taking action to strengthen its IT capacity and prioritising their ability to further financial analysis expertise by hiring further forensic accountants. Ireland also revealed its intention to put policies in place to protect the independence of the FIU.
The MER states that these actions will ‘not only enhance Ireland’s operational capabilities, but also enhance its understanding of ML risks’.
Money Laundering Investigation and Prosecution
Although Ireland has a strong legislative framework for pursuing money laundering, this hasn’t translated into a positive outcome when it goes to trial. This could be due to the reluctance of prosecutors to test the AML laws or a conservative approach by the courts which discourages the investigation of complex money laundering cases.
Furthermore, Ireland hasn’t demonstrated fully the ability to identify, investigate and prosecute a wide range of money laundering offences and considering, as alluded to earlier, its position as an important regional and international financial centre, the MER advises that authorities should be taking more action and conducting more analyses of complex, professionally-enabled money laundering schemes.
The report shows some concern in addition to the fact that although there has been some success with guilty pleas for money laundering in Ireland, there have been no convictions after a trial.
Terrorism, Terrorist Financing and Sanctions
The authorities in Ireland are experienced in dealing with domestic terrorism issues and have also demonstrated an understanding of international terrorist financing issues. Despite this however, Ireland has had no prosecutions or convictions for terrorist financing.
The MER found that the system in Ireland for targeted financial sanctions is generally well-rounded, however, shortcomings in the EU system mean that there may be a delay in freezing assets and additional work needs to be done to implement comparative measures with regards to non-profit organisations (NPOs) which are vulnerable to terrorist financing.
On a positive note, just like with AML issues, national coordination on targeted financial sanctions is robust.
Beneficial Owners and Legal Persons
Although the report states that Ireland’s understanding of the money laundering and terrorist financing risks associated with gatekeepers and vulnerabilities related to legal persons and arrangements needs consideration, it is currently receiving the required attention.
Methods to increase the access to beneficial ownership are also presently being strengthened and the report advises this should be a priority ‘considering international risks in this area’.
Priority Actions for Improvement
Recommendations to strengthen Ireland’s AML/CFT system include the following.
So, all things considered, this is a pretty good outcome for Ireland in its latest MER, especially considering the outcomes of two recent MERs on Denmark and the Bahamas. It was found in Denmark’s MER that they don’t have any national AML/CFT strategies or policies and only have a maximum penalty of one and a half years for ordinary money laundering; an interesting position considering Denmark are ranked number one on Transparency International’s Corruption Perceptions Index. The Bahamas were praised for their financial institutions and DNFBPs being well aware of their regulatory AML/CFT obligations and therefore able to apply strong customer due diligence (CDD) procedures. However it was noted that financial institutions not part of a large international group didn’t demonstrate adequate awareness of their specific AML/CFT risks. Additionally, it was found that the number of suspicious transaction reports (STRs) filed by financial institutions is limited, particularly as the financial sector in the Bahamas is of a considerable size and there is an extensive presence of inherently higher risk activities in the country, for example, trusts and private banking.
If Ireland can make the changes suggested in this MER, it puts them in good stead for the likely influx of banks moving some of their operations to the country when Brexit occurs in just under two years’ time.
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