DUBLIN: The Central Bank of Ireland (CBI) issued a letter on 12th October 2012 to all regulated companies discussing the findings of the inspections they had conducted to review industry compliance with the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 ("CJA 2010"). The inspections were conducted as part of Ireland's ongoing obligations as a member of the Financial Action Task Force (FATF). Membership of FATF is key to the future success of Ireland's international financial services industry, and the CBI's comments should be considered in light of this.

The letter notes how the inspections have revealed a significantly lower level of compliance than the Central Bank expected, and thus prompted the CBI to issue the letter to all regulated companies. The letter also outlines how the CBI expects companies to act where they identify similar shortcomings in their own anti-money laundering and counter terrorist financing ("AML / CTF") processes.

The key take-aways from the letter are as follows:

  • It is imperative that the company has adequate documentation in place to clearly demonstrate how the Board of Directors and Senior Management oversee the AML/CTF process. This is particularly important for funds where a delegated model is in place. The AML/CTF process must be continually reviewed by the Board and Senior Management of the company. The Board and Senior Management are responsible for compliance with the CJA 2010.
  • There needs to be documentary evidence and procedures in place to clearly demonstrate compliance with the CJA 2010.  Any shortcomings in these procedures should be addressed by companies as a matter of priority.
  • Companies need to keep fully up to date on changes to AML / CTF requirements both at local Irish level and internationally.
  • The main control failures identified from the inspection were
    • Delays in implementing procedures to ensure compliance with CJA 2010
    • Where the AML / CTF process was delegated an adequate oversight programme was not in place
    • There was no documentary evidence of how and why companies had applied the risk based approach. The CBI will seek documentary evidence of how the Board and Senior Management satisfied itself that an appropriate risk based approach has been implemented.
    • Material gaps in AML / CTF procedures:  Again the importance of being able to clearly demonstrate how compliance with the CJA 2010 has been achieved is stressed in the letter.  The Board and Senior Management must oversee these procedures continually for appropriateness and effectiveness.
    • Lack of training:  the letter specifically noted the lack of AML / CTF training for Directors and Senior Management.
    • Failures in the Customer Due Diligence process ("CDD"):  Procedures for identifying customers were not compliant with the CJA 2010, in particular controls around verification of customer identity prior to establishing a relationship and providing a service.  Also, where reliance was placed on a third party to complete part of the CDD process, companies had failed to satisfy the conditions outlined in Section 40 of the CJA 2010.  In practice, letters of reliance / undertaking did not contain the necessary declarations as stipulated in the CJA 2010.   These letters are very common in the funds industry.
    • Delays in filing suspicious transaction reports.
  • The Central Bank said it will continue to carry out these themed inspections. 
    Directors and Senior Management need to fully understand the implications of non-compliance which include criminal and civil penalties. 

Recommendations for Fund Boards

Carne has been working closely with its clients to ensure that Fund Boards meet the stipulated requirements of the CJA 2010. Each Board should have an AML policy in place outlining clearly how the Board ensures compliance with the CJA 2010. The policy should cover the following areas:

  • Details of the types of investors in the funds and the distribution channels used.
  • Assessment of the AML / CTF risks for the fund.
  • A list of the key parties to the fund and their respective responsibilities for ensuring compliance with the CJA 2010.
  • Demonstrate how the Board oversees each of the parties / delegates, including reporting received and the frequency of same. This should also include details of the due diligence carried out by, or on behalf of, the Board, of the AML / CTF process in place at the administrator, in order to ensure compliance with the CJA 2010 and other changes to local and international AML regulations.
  • Ongoing training.
  • The role of the Money Laundering Reporting Officer (MLRO).
  • Procedures for blocking subscription and redemption activity from investors where Customer Due Diligence (CDD) has not been completed.
  • PEP screening and approval process

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.