The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010

The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the “Act”) was passed into law on 5th May 2010. Kevin Lavin explains how the risk-based approach to customer due diligence will require a revision of how designated persons undertake their responsibilities with respect to anti-money laundering and terrorist financing checks. He further examines how the Act will impact trust and company service providers.

The Act requires designated persons within its application to identify not only their customers, but also the beneficial owners behind the customer. The designated persons should undertake specific effective customer due diligence measures at the outset of a business relationship and certain other measures to monitor business activities during the course of the business relationship. Furthermore, the requirement to be satisfied with regard to the adequacy of documents that were previously obtained could require firms to ensure that their historical files reach the standards specified by the Act.

Identification and Customer Due Diligence

The designated person is required to make an assessment of the extent of due diligence needed. However, the requirement to seek identity at the outset can be relaxed if there is no real risk of money laundering or terrorist financing, especially in cases where this would disrupt the normal conduct of business. Normal due diligence would not be required if the customer was a listed company trading securities on a regulated market in the EEA or in a third country with similar disclosure requirements to those in community legislation. Bank accounts may be opened for customers prior to the completion of identity verification; and the identification of beneficiaries under a life assurance policy may be delayed until the time of payout.

Enhanced due diligence is mandated when dealing with customers for whom a significant money laundering or terrorist financing threat exists. These include transactions with individuals where the transaction is not face-to-face, those that involve Politically Exposed Person's or originate in a country flagged by the Financial Action Task Force as constituting a serious threat of money laundering and terrorist financing activity.

As previously referred to, the Act requires designated persons to identify the beneficial owners of businesses and trusts with whom they do their business. Specific guidance in relation to companies and partnerships is provided, whereby the Act focuses on anyone who holds in excess of a 25% interest in those entities. The beneficial owner in relation to the estate of deceased persons in the course of administration is the executor or administrator of the estate concerned.

Monitoring Activity and Reporting

Although the Act stipulates that designated persons may rely on other designated persons to certify the identity of customers, ultimate responsibility remains with the designated person for any failure on the part of the third party to apply the identification requirements.

The Act also mandates for designated persons, directors, officers and other employees to report knowledge or suspicion, or reasonable grounds for suspicion of money laundering or terrorist financing. In this regard, financial transactions will still be scrutinised so as to identify suspect patterns of activity in a portfolio and transactions out of the norm.

Trust and Company Service Providers

The Act mandates that persons carrying on business as a trust or company service providers will require authorisation. The application for authorisation of trust and company service provider includes the name of the proposed holder of the authorisation and is on a Form specified by the Minister. There is a requirement in the Act that in order to carry on business as a trust or company service provider the principal person or beneficial owner of the business must pass a "fit and proper" test. The criteria to be met in passing this test include the absence of any previous convictions with respect to Anti Money Laundering offences or convictions for fraud, dishonesty or breach of trust. If the requisite authorisation from the Minister is not held by the trust or company service provider, there is a risk of criminal sanction.

Conclusion

It is believed that the Act will have a three-month lead-time by which all regulated financial institutions will have to comply with its requirements.