ANNUAL CRIMINAL JUSTICE (ANTI- MONEY LAUNDERING & TERRORIST FINANCING) ACT 2010 TRAINING JUNE 2018
What is Anti-Money Laundering & Terrorist financing? It is the process by which criminals conceal the true origin and ownership of the proceeds of drug trafficking or other criminal activity. A common misconception in relation to Money Laundering is that it only relates to theft, drug or similar offences. It might also be: ➢ Tax evasion ➢ Financial fraud and deception ➢ Theft
To be guilty of money laundering a person must know or believe the property involved is or probably is the proceeds of criminal conduct or be reckless as to whether the property is the proceeds of criminal conduct. Terrorist Financing ➢ Funds intended to finance an act of terrorism. ➢ Links between terrorist groups and organised criminal gangs. ➢ Includes converting, transferring, handling, acquiring, possessing or using the property that is the proceeds of criminal conduct. There must be intention or knowledge in providing or collecting funds for the purposes of financing terrorism, in order for there to be an offence. 3
Stages of Money Laundering There are three stages in the money laundering process: ✓ Placement – this is the physical disposal of cash; ✓ Layering – the creation of complex layers which make tracking transactions difficult; ✓ Integration – absorbing the money back into the economy as legitimate money. 4
Designated Persons Mortgage Intermediaries and intermediaries by virtue of their registration as Insurance Intermediaries who provide Life Assurance or other investment related services are deemed to be “Designated Persons” . Note: Intermediaries only operating in the General Insurance market do not fall under the CDD requirements. 5
Designated Persons must have internal policies and procedures to reflect the requirements of the legislation in relation to the following areas: ➢ Customer due diligence ➢ Reporting ➢ Record keeping ➢ Internal procedures & training (All staff including executive & non-executive directors are required to receive training in relation to AML & combating terrorist financing.) 6
What does Customer Due Diligence mean? • Identify & verify the customer. • Identify & verify the beneficial owner ( An individual who ultimately owns or controls the customer and/or on whose behalf a transaction or activity is conducted). • Establish purpose & intended nature of business relationship ( a business, professional or commercial relationship between the designated person and the customer that the designated person expects to be ongoing). • Monitor customer dealings on an on-going basis.
Beneficial Owner • Company An Individual holding 25% or more of shares or voting rights. • Partnership An Individual holding 25% or more of profits or capital or voting rights, • Trusts An individual with at least 25% of capital or has control over a trust. • Estate Executor.
Purpose & intended nature of the business relationship In most cases this will be self evident e.g. ➢ Investing in a life policy ➢ Opening bank account Ongoing monitoring Scrutinise transactions: ➢ Source of wealth or funds ➢ Consistent with knowledge of customer and the customer’s business and pattern of transactions
Customer Due Diligence Requirements Legislation allows designated persons to apply aspects of the customer due diligence requirements on a risk-sensitive basis depending on: a) The nature of the product being sold; b) The delivery mechanism or distribution channel used to sell the product; c) The profile of the customer; and d) The customer’s geographical location and source of funds.
Intermediaries are required to carry out Customer Due Diligence • Prior to establishing a business relationship with the customer. • Prior to carrying out for/with the customer any transaction which appears linked to another transaction or prior to assisting the customer in carrying out a single transaction if: (i) You do not have a business relationship with the customer; and (ii) The total amount of money paid by the customer in the single transaction or series of transactions is greater than € 15,000.
Intermediaries are required to carry out Customer Due Diligence (contd.) • Prior to carrying out any service for the customer, if you have reasonable grounds to believe that there is a real risk that the customer is involved in money laundering/terrorist financing(ML/TF). • If you have grounds to doubt the veracity of documents provided by the client.
Three categories of Customer Due Diligence (CDD) • Simplified Customer Due Diligence applies to low risk customers and products. • Enhanced Due Diligence applies to non-resident ‘Politically Exposed Persons’ deemed to be high risk. • Standard Due Diligence must be applied to all remaining customers and products .
Simplified Customer Due Diligence • Simplified Customer Due Diligence (SCDD) means that a designated person does not need to comply with the CDD obligations (as listed previously). You must obtain sufficient information about the customer to satisfy that the customer meets the criteria for Simplified Due Diligence.
Simplified Customer Due Diligence: Specified Customers • Banks and financial institutions in the State ➢ As they are themselves Designated Persons? • A Company whose shares are listed • A public body • EU agencies and bodies
Simplified Customer Due Diligence: Specified Products • Life assurance policy having an annual premium of no more than € 1,000 or a single premium of no more than € 2,500. • Pension, superannuation or similar schemes which provide retirement benefits to employees; where contributions are made by an employer or by way of deduction from an employee’s wages and the scheme rules do not permit the assignment of a member’s interest under the scheme. • Insurance policies for pension schemes if there is no surrender clause and the policy cannot be used as collateral (e.g.) Pension Term Assurance.
Enhanced Due Diligence • In practice for intermediaries, Enhanced Due Diligence applies in respect of a business relationship or transaction with non resident Politically Exposed Persons (PEP’s) . • A “PEP” is an individual who is not resident in Ireland and has been entrusted with prominent public functions or an immediate family member or a known close associate of such a person, who is not resident in Ireland. • A person is a PEP if they held a relevant office at any time within the last 12 months
Enhanced Due Diligence contd. • Designated persons must have processes in place prior to establishing a business relationship with a customer to determine whether the person may be deemed to be a “PEP” . • Intermediaries should establish whether the client is resident or non resident. • Where the client indicates that they are non resident, steps should be taken by the intermediary to establish if the customer falls within the definition of a “PEP” .
Enhanced Due Diligence contd. • Require senior management approval to establish a business relationship with a “PEP” • Take measures to establish the source of wealth and funds for transactions.
Standard Customer Due Diligence (SCDD) Applied on a risk based approach ➢ Profile of the customer ➢ Nature of product or service ➢ Distribution channel ➢ Geographical area of operation There are 3 overall levels of risk for insurance products: • Low Risk • Intermediate Risk • Increased Risk
Standard Customer Due Diligence (Low Risk) There are products due to their inherent features which are unlikely to be used as a vehicle for money laundering purposes. These are classified as “Low Risk”. The following features would indicate low risk: • Only pays out on death or diagnosis of terminal illness of policy holder. • Only pays out on medical evidence and proof is required as to loss of income. • No surrender value. • Small, regular premiums: additional payments by customer not possible. • Large premiums will normally require medical evidence. • No investment element. • Once term of policy is finished no payout and policy ceases.
Standard Customer Due Diligence (Low Risk) Examples of Products which fall into the low risk category are: ➢ Mortgage Protection, Term Life Assurance, Income protection products, Critical illness products (relating to diagnosis of a specific critical illness) and Whole of Life policies. ➢ For reduced risk level products, designated persons may accept personal cheques and other payment instruments drawn on a customer’s account (i.e. Direct Debits/Standing Orders) to satisfy the standard evidence requirement. ➢ If payment is made by bankdraft for the products above, Brokers Ireland would recommend that you get confirmation from the client, from the bank, confirming where the money is coming from.
Standard Customer Due Diligence (Medium Risk) The medium risk level is given to products whose inherent features pose some risk for the purposes of money laundering or terrorist financing. These may be products which have a facility for “top up” payments. The following features would indicate medium risk: • Long term savings plan often for retirement. • Requires at least 5 years to gain positive return on investment. • Often unable to be surrendered in first or second year, with penalties in years three to five. • Additional ’top up’ payments may be permitted.
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