Criminal Justice (Money Laundering and Terrorist Financing)(Amendment) Bill 2013 Second Stage – Dáil Éireann - 18 April 2013 Draft Speech Minister for Justice, Equality and Defence, Alan Shatter TDA Cheann Chomhairle,
I am pleased to present the Criminal Justice (Money Laundering and
Terrorist Financing) (Amendment) Bill 2013 to the House today.
Introduction
The primary purpose of this Bill is to amend the Criminal Justice (Money
Laundering and Terrorist Financing) Act 2010 so as to align certain
provisions more closely with international standards, in particular those
contained in the recommendations of the Financial Action Task Force (FATF).
The Bill also aims to amend other provisions to reflect the experience
gained from the operation of the Act since 2010. The legislation which we
have in place to tackle money laundering and terrorist financing is already
robust, effective and of the highest standards. This Bill will merely
strengthen some of these provisions. I would ask the House for its
co-operation in ensuring the speedy passage of this Bill so that it may
become law by the middle of June. This will allow us to inform FATF at its
June Plenary of the legislative changes which have been made to the
existing statutory framework. It will also enable the introduction of
other necessary legislative measures which I intend to bring as amendments
to the Bill at subsequent stages of our deliberations.
The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010
which came into operation in July of that year represented a radical
overhaul of the system that was then in place. The Act responded to
changes in how crime is committed and how the proceeds of crime are
laundered. We all know that some criminals are quite sophisticated in the
way that they operate and adept at recognising opportunities for exploiting
financial systems for their own benefit. Money laundering by its nature
can be a quite complex crime; it happens in countries throughout the world
and does not respect national boundaries. It is a global phenomenon which
can only be addressed in any meaningful way with by an international
response.
Background to Changes Being Introduced
On both the European and wider international stage significant work has
been, and continues to be, carried out with the objective of preventing and
tackling money laundering. The Financial Action Task Force (FATF) is an
inter-governmental body whose purpose is the development and promotion of
policies to combat money laundering and terrorist financing. The FATF
standards (known formally as recommendations) are applied by its 36
members. Over 180 countries participate in its efforts through a global
network of regional bodies. As part of its mandate FATF carries out
evaluations of Member States’ compliance with its recommendations. Ireland
was evaluated in 2006 and placed in what is known as the regular “follow-up
process”. FATF reviewed the 2010 Act after its enactment and have suggested
a number of technical changes to it. In February 2011 the Department of
Finance (which represents Ireland at FATF) submitted an Action Plan to FATF
identifying action to be taken, including legislative amendments, to
resolve these issues. The amendments to the 2010 Act in the Bill are, in
the main, aimed at giving effect to those technical changes so that Ireland
can be removed from the “follow-up process” at FATF’s plenary in June.
This is an important step in protecting Ireland’s reputation as a good
place to do business and a country which enforces international standards
in preventing and tackling money laundering.
While the current Bill is essentially a technical tidying-up exercise I
would also like to mention the ongoing work at FATF and EU level which will
require us to revisit this area in the coming years.
In February, 2012 FATF revised its standards with the aim of strengthening
and protecting the systems in place to deal with money laundering and
terrorist financing. The European Commission has recently adopted a
proposal for the 4th EU Money Laundering Directive which, in the normal
way, will be the subject of discussions with Member States with a view to
adoption by the European Parliament and the Council of Ministers. The
purpose of this proposal is to replace the 3rd EU Money Laundering
Directive, strengthen the EU’s defences against money laundering, and to
give effect to the revised FATF recommendations.
Indeed the first meeting of the Council Working Group to consider the
proposal takes place next week under the Irish Presidency. I would like to
wish the Department of Finance officials involved every success in their
work.
Need for a Bill at this Time
The Bill under consideration today addresses FATF concerns with the current
legislation as evaluated under the old FATF recommendations. While it
would be preferable to legislate for the new recommendations now; that can
not be done until the final shape of the 4th EU Directive is known as it is
the 4th Directive which will give effect in EU law to the new FATF
recommendations. Neither can we afford to postpone making the amendments to
the 2010 Act contained in the current Bill. I am advised by the Department
of Finance that any prolongation of Ireland’s stay in the FATF “follow up
process” beyond June of this year could have negative consequences for our
international standing. This Bill is therefore an interim measure. It
provides for some technical adjustments to the 2010 Act to enhance our
compliance with current international standards, but we will have to review
the systems we have in place once the proposed 4th EU Directive is enacted.
Further Changes to Come
I would like, nonetheless, to mention some of the key elements of the
revised FATF recommendations and the EU proposals. They include a more
focused risk-based approach – this will require countries to understand the
money laundering risks they face and ensure the right systems are in place
to respond to them. It will necessitate the focused use of enhanced
Customer Due Diligence measures where there is higher risk.
I will digress briefly to explain that Customer Due Diligence refers to the
types of measures which banks and other designated persons must apply to
assure themselves as to the identity of a customer and the nature of their
business. People will be familiar with banks seeking some form of ID, such
as a passport, and proof of address, such as a phone bill, before opening
an account. In relation to commercial customers these measures might
include details of the ownership of a company and information on its
business model. May I apologise now for the use of abbreviations and
acronyms, but I think I will save the House considerable time if I refer to
CDD from now on instead of Customer Due Diligence.
Other aspects of the new FATF recommendations and the EU proposals are:
· More transparency in relation to ownership and control of companies,
trusts and other legal persons;
·
Clarification of the rules on CDD to ensure a better knowledge of
customers and a better understanding of their business;
· Expansion of provisions dealing with Politically Exposed Persons to
cover national as well as in international organisations;
· Including tax offences as a predicate offence for money laundering;
and
· More effective international co-operation.
I mention the new EU proposals so the House may be aware of them, but also
because they touch on Politically Exposed Persons (or PEPs if I may be
excused another acronym). The 2010 Act already provides for PEPs who
reside outside of the State. PEPs include senior judges, ministers,
members of parliaments and senior officials. PEPs and their immediate
family members and close associates are subject to a number of additional
CDD measures. These measures include, for example, a requirement to
provide a designated person such as a bank with information on the source
of wealth and funds underpinning transactions. The Mahon Tribunal in its
final report recommended an extension of PEPs controls to domestic PEPs.
In its response to the Mahon Tribunal’s report the Government signalled its
acceptance in principle of the recommendations in this area. However, as
the proposed 4th Directive contains proposals on the extension of controls
to domestic PEPs, any Irish legislation on the issue will have to await the
enactment of the directive to ensure that it is properly compliant with the
finalised Directive.
Outline of Bill
I will now outline the provisions of the Bill which is a short Bill
consisting of only 10 sections.
Section 1 provides that “Act of 2010” means the Criminal Justice (Money
Laundering and Terrorist Financing) Act 2010. As I mentioned earlier the
Bill amends existing legislative provisions in that Act.
Section 2 provides for amendments to the definition of “occasional
transaction” which is contained in section 24 of the Act of 2010. The
current definition provides that an occasional transaction, in relation to
a customer of a designated person, means a single transaction or series of
transactions that are or appear to be linked to each other and the total
amount exceeds €15,000. The rationale for this definition is to ensure
that obligations in the Act such as CDD, which apply when there is a
business relationship, also apply once a transaction or series of
transactions reach this threshold. Section 2 of the Bill provides for the
lowering of this threshold in two situations, one relates to private
members’ gaming clubs where the value concerned in a transaction reaches
€2,000. Lowering the threshold aligns the amount more closely with the
approach taken in the 3rd Money Laundering Directive in relation to
casinos, although I would emphasise that these clubs are not casinos and
such a change does not affect their status.
The second relates to wire transfer funds and section 2 provides for the
application of the definition of “occasional transaction” in such cases
when an amount of €1,000 is reached, this will also apply to beneficial
owners. The current situation is that the threshold for “occasional
transactions” at which customer identification, including identification of
beneficial owners is required is €15,000. While Council Regulation
1781/2006 on information on the payer accompanying transfers of funds
requires money transmitters to obtain information on the sender (name,
address, account or other identification number) for any transmission of
€1,000 or more, this does not include beneficial owners. This amendment
will provide that identification of customers and beneficial owners must be
carried out for amounts of €1,000 or more in the case of wire transfer of
funds.
Section 3 amends section 33(1)(c) of the Act of 2010. Section 33 forms
part of Chapter 3 of Part 4 which deals with Customer Due Diligence (CDD)
and sets out the circumstances when CDD measures must be taken, for
example, when establishing a business relationship with a customer where
existing documentation or information may not be adequate. The purpose of
the amendment in the Bill is to align the wording contained in section 33
(1)(c) more closely to international standards. It will not result in any
substantial changes to obligations in the Act. It provides that CDD
applies prior to carrying out any service for the customer if the
designated person has reasonable grounds to suspect that the customer is
involved in, or the service, transaction or product is for the purpose of
money laundering or terrorist financing.
Sections 4 & 5 amend sections 34 and 36 of the Act of 2010 which relate to
the application of simplified CDD. The Act provides that a designated
person is not required to apply the CDD measures specified in section 33(2)
if the customer or product is a specified customer or specified product, as
defined in section 34. Such customers and products are considered to be at
low risk for money laundering or terrorist financing, hence the approach
that the full range of CDD measures are not required. However, it is
important to note that the monitoring obligations still apply in such cases
and simplified CDD cannot be applied if there is a suspicion of money
laundering or terrorist financing or where there are doubts about the
veracity or adequacy of information or documentation previously obtained.
The purpose of the amendments is to make it explicit in the legislation
that a designated person must take the necessary measures to establish that
the particular customer or product is one to which such provisions can be
applied.
Section 6 amends section 37 of the Act of 2010 which deals with Politically
Exposed Person’s (PEPs). This provision applies to a PEP residing outside
of the State who has been entrusted with a prominent public function at any
time in the preceding 12 months. A designated person is required to apply
enhanced CDD measures to such persons, which includes obtaining approval
from senior management before entering into a business relationship and
determining the source of wealth and funds. The amendments to section 37
contained in section 6 provide that such measures must also be applied to
an existing customer who becomes a PEP. It also explicitly provides that
enhanced ongoing monitoring must be applied to all PEP customers. I
propose to bring forward some drafting and technical amendments at
committee stage to clarify the provision further.
Section 7 amends section 39 of the Act of 2010 which deals with the
application of additional CDD measures, i.e. enhanced CDD, to a customer or
beneficial owner where there is a higher risk of money laundering or
terrorist financing. The current legislative provision provides for the
option of applying enhanced CDD by the designated person. The amendment to
section 39 provides that enhanced CDD must be applied by the designated
person where it has reasonable grounds to believe that there is a
heightened risk of money laundering or terrorist financing. This approach
is also reflected in the amendments contained in section 54 (policies
and
procedures).
Section 8 amends section 54 of the Act of 2010 which deals with the
internal policies and procedures that a designated person must put in place
with a view to preventing and detecting money laundering and terrorist
financing. In addition to the general obligations contained in section 54,
certain issues are specifically mentioned in order to highlight their
importance and to ensure that action is taken in relation to them. Section
8 provides for the inclusion of policies and procedures dealing with the
additional measures to be taken in accordance with section 39, i.e.
enhanced CDD and also dealt with in section 7 of this Bill. It also
includes a specific requirement for designated persons to implement
policies and procedures in relation to keeping their customers’
documentation and information up to date and in relation to any potential
risks arising from technological developments.
Section 9 amends section 71 of the Act of 2010 to extend the type of
directions that a “State competent authority” may issue to a designated
person, thereby increasing and improving existing enforcement powers.
Section 71 currently provides that a State competent authority may, by
notice in writing, direct a designated person for whom it is a competent
authority to discontinue or refrain from specified conduct. The new
provision will enable a State competent authority to also issue ‘positive’
directions, i.e. to direct a designated person to take specific actions or
establish specific processes or procedures that in the opinion of the State
competent authority are reasonably necessary for the purposes of complying
with any specified provision in this Part of the Act. The new provision
will also now provide that such directions may be issued to a class of
designated persons. This power will enable State competent authorities to
recognise and cater for the different compliance issues that might arise as
between the different businesses or sectors for which they are responsible.
Proposed Amendments to Bill to be Introduced at Committee and Report Stages
I intend to introduce a number of amendments to deal with the threat to
life and property posed by explosive devices which make use of mobile
communications technology in their construction or activation. As this
issue is not directly related to money laundering, it may necessitate a
change in the title of the Bill to something more general, such as the
Criminal Justice Bill 2013. The purpose of these amendments will be to
allow for a direction to issue to mobile communications service providers
to cease service provision in a limited geographical area in order to
prevent death or damage to property. The provision will contain safeguards
to ensure that any interference with services is limited to the extent
necessary to deal with the threat. As these provisions are outside of the
scope of the current title of the Bill, it will be necessary to amend the
title of the Bill. In order that the full house will have an opportunity
to consider these new elements of the Bill, I am advised that they should
be introduced at Report Stage rather than at the Select Committee.
In addition to those proposed amendments, I hope that it may be possible to
bring forward as committee stage amendments, some provisions which were
contained in the general scheme as published last year. Because of the
pressure on the Office of the Parliamentary Counsel arising from the
increased burden of Troika-related legislation, it was not possible to
include them in the Bill as originally published. Their inclusion in the
list of Committee Stage amendments is still subject to that caveat. These
amendments include:
· a provision to transfer the authorisation and monitoring of Trust or
Company Service Providers (TCSPs) which are subsidiaries of credit
or financial institutions to the Central Bank;
· an amendment to the existing record keeping provisions so that
records may be stored outside the State;
· An amendment to section 17 of the Act of 2010 dealing with court
orders;
· an amendment to section 35 of the Act of 2010 in relation to
monitoring of unusual complex transactions; and
· amendments to sections 104 & 109 dealing with the registers for TCSPs
and Private Members’ Gaming Clubs.
In conclusion, I look forward to hearing the contributions of deputies
during this debate and I hope that the House will support the passage of
the Bill. I commend this Bill to the House.