The law in Ireland on anti-money laundering (AML) and the countering of the financing of terrorism (CFT) is governed by the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the 'Act').
Under the Act the Central Bank of Ireland is responsible for the effective monitoring of money laundering in credit and financial institutions in the State. It is also empowered to take the appropriate measures to secure compliance with the Act. The Act sets out detailed procedures and protocols that credit and financial institutions must follow in order to effectively monitor money laundering/terrorist financing.
The Central Bank recently published a report based on on-site inspections of Credit Unions of various sizes throughout the country (the "Report"). The Report provides a detailed insight into the common mistakes made by Credit Unions when combating money laundering and terrorist financing.
Board of Directors
The Board and Senior Management of each Credit Union play a pivotal role in the fight against money laundering and the financing of terrorism. In preparing the report the Central Bank uncovered several issues in relation to the manner in which some Credit Union boards approached this issue such as:
- a lack of awareness of AML/CFT issues or the law in this area;
- a lack of discussions relating to the requirements of the Act; and
- some boards were not aware of certain business practices i.e. large cash lodgements.
The Report has made it clear that the Central Bank expects AML/CFT issues to appear on the agenda of board meetings and that boards should be proactive in discussing and assessing these issues. It also expects records to be kept of all discussions and decisions in this area.
Policies and Procedures
Under section 54(1) of the Act, all Credit Unions are required to adopt policies and procedures to prevent and detect the commission of money laundering and terrorist financing. The Central Bank uncovered a number of inadequacies with the structures and procedures in place throughout many Credit Unions. The main issues identified were as follows-
- failure to have in place adequate procedures which are reflective of the money laundering/terrorist financing risk of the Credit Union;
- failure to adhere to policies/procedures;
- failure to review and approve policies/ procedures.
The Report emphasises that the Central Bank expects a risk assessment to be carried out by Credit Unions and robust system to be implemented and closely adhered to.
Money Laundering Reporting Officer (MLRO)
Each Credit Union is also required to appoint a Money Laundering Reporting Officer (MLRO) to ensure all issues relating to AML/CFT are dealt with properly. The Central Bank expects the MLRO to provide regular and comprehensive information to the relevant Credit Union board, provide training to staff and have appropriate time to devote to the role.
The Central Bank expects Credit Unions to carry out risk assessments in order to properly implement AML/CFT policies. The Central Bank found that although the majority of Credit Unions carried out risk assessments, the quality of these assessments varied considerable and in many cases were not sufficient. Credit Unions generally did not demonstrate awareness of risks pertaining to their Credit Union, nor did they proactively determine their risk appetite and implement appropriate controls. The core issues were as follows:
- inadequate completion of assessment;
- failure to classify members according to their risk level;
- failure to implement controls on a day to day basis after assessment;
- lack of involvement of the board in implementing controls.
The Act makes a provision under section 54(6) which requires Credit Unions to keep staff up to date and provide on-going training in relation to the law on money laundering/terrorist financing. Several issues were highlighted in the Report including:
- staff still not receiving relevant/regular training;
- a lack of additional training for the MLRO;
- a lack or incomplete records in relation to training.
The Central Bank expects Credit Unions to source relevant training for staff, initially for new hires and at least annually for all other staff. It requires training content to be updated regularly and should be assessed by an examination. It also demands enhanced training for the MLRO and training records to be maintained.
Section 55 of the Act requires Credit Unions to keep records of procedures implemented when verifying the identity of various members. It also specifies that Credit Unions should keep records of transactions with their members. Once again the Report uncovered issues in this area mainly:
- no policies in place to maintain records relating to suspicious transaction reporting etc; and
- lack of adherence to policy regarding scanning various documentation.
Customer Due Diligence
Before establishing a business relationship or carrying out a transaction, Credit Unions are required to identify and verify all members of the business relationship. The Central Bank expects accurate procedures to be in place for doing so. As a result of sampling of Customer Due Diligence (CDD) files across the various Credit Unions the following issues were identified:
- some ID documents were missing from files;
- some members' files could not be located for review;
- some documents not legible;
- some CDD procedures in place were not detailed enough.
The Central Bank expects clear and detailed procedures in relation to CDD to be in place. It wants Credit Unions to verify a minimum of two officials/signatories/directors and obtain appropriate documentation to support this. When dealing with companies they require checks to be carried out to verify that the company is bona fide registered in the State.
A good practice observed by the Central Bank in a number of Credit Unions, was the procedure of photographing members and the member's photo appears on the tellers screen when the individual presents at the counter.
The Central Bank is aware of the fact that proof of address will generally not be available for minors and expects Credit Unions to verify a minor's identity through passports or birth certificates. The general assumption is that minor accounts are low risk. However, during inspections it was noted that numerous minor accounts had substantial balances. It wants Credit Unions to monitor such accounts to make sure they coincide with the individuals' means.
Politically Exposed Persons
The Act makes reference Politically Exposed Persons (PEP) and what it expects in relation to such persons. A PEP is defined as person who is, or has at any time in the preceding 12 months been, entrusted with a prominent public function for example politicians, judges, Ambassadors, etc. A PEP is expected to be subjected to enhanced due diligence procedures although the Report found that many Credit Unions had limited knowledge of provisions relating to PEPs and had little training in this area.
High Risk Scenarios
If a Credit Union is engaging in a high risk transaction it is expected to adopt enhanced AML/CFT procedures appropriate to the risk. Example of such transactions would be large cash lodgements from local businesses in exchange for a Credit Union cheque. The Central Bank identified various problems with this practice, in particular it highlighted the following-
- some cases showed that no independent background check was carried out on whether the business was cash intensive; and
- some cases showed that the board was not even aware of the practice.
Although the Central Bank did observe many examples of good practice throughout the Credit Union industry, it also identified widespread and common deficiencies with regard to compliance with the Act. The Central Bank expects all Credit Unions to carefully consider the issues raised in its Report and to use the Report to inform the development of their AML/CFT frameworks. The main issues identified in the Report include:
- failure to implement the requirements of the Act in a timely manner;
- lack of awareness of AML/CFT at board level;
- inadequate procedures in place in relation to CDD;
- failure to conduct risk assessments;
- engaging in non-standard practices without Board approval;
- failure to implement training systems in relation to AMF/CFT issues;
- lack of procedures for reporting suspicious transactions.
How We Can Help
AMOSS can assist Credit Unions with the development of procedures and protocols to ensure complete compliance with all relevant obligations under the Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.