AML and Treating Customers FairlyTuesday 10 March

1
The Financial Regulators changing role in AML
and Financial Crime

• Presenter
• Brendan Nagle

2
Third Money Laundering Directive status

• Parliamentary Counsel currently working on
  producing a Bill from Department of Justice
  Scheme.
• Quick reminder of the shape of the law on AML
  FATF international recommendations ? EU
  Directives 2005/60/EC and 2006/70/EC ? Irish
  Primary Legislation supplemented by Core and
  Sectoral Industry Guidance Notes
• The key point is that Financial Regulator is to
  become a competent authority for the purposes
  of the Directive
• Role-changing article 37 means Regulators will be
  responsible for ensuring that credit and
  financial institutions have adequate AML-CTF
  infrastructures in place.

3
Financial Regulators current role

• Has been limited to making suspicious transaction
  reports to FIU.
• There has been some scrutiny, in the course of
  RFSP inspections of compliance with the Guidance
  Notes but unlike FSA, AML has not been part of
  Financial Regulators core mandate.
• Financial Regulator would of course have made
  reports to the Garda Síochána and Revenue
  Commissioners where suspicions arose of offences
  being committed under the CJA94.

4
Financial Regulators proposed role Main
(Draft) Provisions

• Definitions Head 2 of Department of Justice draft
  'scheme will to designate the Financial
  Regulator as a Competent Authority for the
  purposes of the new legislation.
• Head 28 will transpose the key, role-changing
  article 37 of the Directive (text of article/head
  attached in slide note)
• Article 37 of the Directive requires Member
  States Competent Authorities to take necessary
  measures to ensure compliance with the
  requirements of the Directive. (Art.37 is
  attached to this slides notes).
• Accordingly, the law will require us to use the
  powers listed in following slide to ensure credit
  and financial institutions establish AML-CTF
  infrastructures appropriate to combat the money
  laundering or terrorist financing risks posed by
  their businesses.

5
Financial Regulators proposed role Main
(Draft) Provisions Provisions

• Head 34 will permit the Financial Regulator to
  appoint authorised officers with standard
  inspection powers
• Head 29 will allow the Financial Regulator to
  issue written requests for records.
• Head 30 will allow the Financial Regulator to
  issue directions
• Head 31 will allow the Financial Regulator to use
  its administrative sanction powers

6
Distinction between our role and that of the FIU

• Suspicions of actual, indictable ML activity -
  Gardai and the Director of Public Prosecutions
  will remain responsible for the investigation and
  eventual prosecution of indictable offences of
  laundering money, or financing terrorism.
• Findings of infrastructural deficiencies - The
  Financial Regulators role will be to
• raise awareness of combating ML-TF in industry
• encourage adoption of proper AML-CTF procedures
• administratively sanction (where necessary)
  credit or financial institutions failures to
  establish adequate AML-CTF infrastructures

7
Raising awareness see new site

• Local law and resources are at
• Useful international guidance paper for your
  industry see Appendix C in particular for your
  AML manuals

8
Whats this got to do with ethics, fairness and
service to customers?

• On the downside - there may be an
  access-restricting effect, but here, financial
  Regulator has requested inclusion of text of the
  Guidance Notes, which ensure access to financial
  services.
• On the upside, the 3rd directives new CDD and
  ongoing monitoring requirements may remind
  firms of the need to detect ID theft and
  preventing abuse of vulnerable customers.
• Discussion point Is CDD an additional
  administrative burden, or is it just a different
  angle on CRM. Knowing your customer and good
  customer relations management are one and the
  same.

9
Cases

• Internet bank - Blue-rinse lady and Deutche
  Bundespost.
• High value goods - Car show room case just
  before the Ireland France match
• Life assurance 1990 UK case, life assurance
  sales agent was convicted of violating a UK
  anti-money laundering legislation. Money
  laundering scheme - over USD 1.5 million
  deposited with bank. The second phase layering
  process involved the purchase of single premium
  insurance policies. Agent won his companys award
  for sales efforts. His supervisor was also
  charged with money laundering. Case illustrates
  how an insurance company can be exposed to
  negative publicity and possible criminal
  liability by a corrupt employee.
• I.D. Thief Abraham Abdallah

10
Measures to prevent financial crime 1. CDD
risk based

• Identify your customer and verify his/her/its
  identity using reliable, independent source
  documents, data or information
• Determine whether the he/she/it is acting on
  behalf of another person, and then taking
  reasonable steps to obtain sufficient
  identification data to verify the identity of
  that other person
• identify the (ultimate) beneficial owner of your
  customer. Understand the ownership and control
  structure of corporate customers
• Be clear on the purpose and intended nature of
  new business relationships
• Conduct ongoing due diligence on customers and
  scrutinise transactions throughout the course of
  that relationship so as to check they are
  consistent with the your (the insurers)
  knowledge of the customer and his her its
  business and risk profile.

11
CDD continued

• The extent of Customer Due Diligence varies
  according to risk profile of customer, the
  business relationship and transaction.
• Enhanced due diligence is called for with respect
  to higher risk categories. Decisions taken on
  establishing relationships with higher risk
  customers and/or beneficial owners should be
  taken by senior management. Subject to national
  legal requirements insurers may apply reduced or
  simplified measures in the case of low risk
  categories.

12
Measures to prevent financial crime 2. Maintain
records

• Keep them secure for five years
• Electronic Storage

13
Measures to prevent financial crime 3. Train
staff

• MLRO in place?
• AML Manual (however brief)?
• What are they to watch out for?
• Whats the risk profile of your customers?
• Is simplified due diligence or enhanced due
  diligence possible / required in some instances?
• Desk-top training / seminar?

14
Measures to prevent financial crime 4. Make
reports to FIU

• Insurers should ensure that
• there is a clear procedure for staff to report
  suspicions of money laundering and the financing
  of terrorism without delay to the compliance
  officer
• there is a clear procedure for reporting
  suspicions of money laundering and the financing
  of terrorism without delay to the FIU, and
• all staff know to whom (internal or external)
  their suspicions should be reported.

15
Questions
16
Thank you