I am pleased to be back in Seanad Éireann for the first time since the summer recess. I hope everyone is in good form and I look forward to a very interesting, robust and co-operative term in the area of justice. The purpose of this very important legislation is to transpose, in large part, the fourth EU money laundering directive. It will also bring Irish law into line with the recommendations of the Financial Action Task Force, FATF, an international standard setting body. We know that by targeting the proceeds of crime we can remove the incentive for the commission of acts of serious and organised crime such as human trafficking, drug trafficking and fraud. That is why we make it a crime to help to transfer or disguise the origin of illegal gains and why we have set up bodies like the Criminal Assets Bureau, CAB, which can freeze moneys obtained through criminal activity. We know that these measures are very effective. Internationally, it is recognised that preventative measures also play an important role. In the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 and before that in the Criminal Justice Act 1994, we required gatekeepers such as banks and other businesses which can be used for money laundering or terrorist financing to take certain actions. They have to know their customers and monitor their transactions for suspicious activity and when they see something suspicious, there is an onus on them to report it.
Money laundering and terrorist financing are cross-border phenomena. We have a globalised, open economy and criminals will exploit this to move proceeds from one country to another.
For this reason, the European Union has long had legislation in this area. Internationally, the recommendations of the Financial Action Task Force, FATF, are applied by 35 member jurisdictions. The FATF monitors and evaluates compliance by those members. EU legislation and the FATF recommendations are frequently updated to reflect new trends and to ensure that they are still relevant.
It is the fourth directive, 2015/849, that is being transposed by this Bill. The Bill amends the 2010 Act to bring it in line with the new directive. Members of this House may be aware that Ireland is late in transposing this directive, the deadline for which was June 2017. The directive is extremely complex legislation whose subject matter spans a number of Departments and agencies. An enormous amount of consultation and collaboration was required. The complexity also led to a lengthy drafting process with the Office of the Attorney General. Unfortunately this has meant that, despite every effort being made to progress the legislation, we are faced with infringement proceedings. The difficulty of the task is reflected in the fact that Ireland is one of 20 member states that were unable to transpose this directive by the deadline of June of last year. In July of this year the European Commission referred Ireland, with two other member states, to the Court of Justice in respect of the infringement of that deadline. My officials are continuing to engage with the Commission on this process and have referred the matter to the Office of the Attorney General for further advice. It is worth noting that any proceedings before the court are likely to be late next year at the earliest, while it is intended that the directive will be fully transposed before the end of this year.
I emphasise that there are already robust and extensive anti-money laundering laws in Ireland. The existing 2010 Act runs to 122 sections, with 82 of those sections concerning designated persons and the obligations of such persons. This legislative framework is supported by a strong operational capability. There is a range of bodies active in combatting money laundering and terrorist financing including An Garda Síochána, the Criminal Assets Bureau, the Central Bank and my own Department. The anti-money laundering steering committee brings together relevant Departments and agencies to co-ordinate the national response to risks relating to money laundering and terrorist financing. In that regard, I acknowledge the great success of the Garda in recent times and in the past couple of years. We are oftentimes quick to be critical of An Garda Síochána and to point out the need for further resources and the need for a greater level of engagement, but we are not so quick to acknowledge the great work that is being done. In that regard, I acknowledge, in particular, the leadership of Assistant Commissioner John O'Driscoll and his team in the light of ongoing operations, some of which are producing very favourable and positive results.
In its most recent evaluation report for Ireland, the FATF found that Ireland has a generally sound and substantially effective legal and institutional anti-money laundering framework. This new legislation with which we are dealing this afternoon will update and enhance that framework and will address many of the remaining gaps identified in the evaluation.
As well as ensuring Ireland fulfils its EU and international obligations, the Government is committed to tackling white collar crime in all its forms. The Bill forms part of the package of measures announced last November that I, together with the Minister for Finance and the Minister for Business, Enterprise and Innovation, am working on in order to combat white collar crime. The Minister for Finance and his officials share responsibility for the transposition of this directive. As well as its role in preventing crime, anti-money laundering legislation is aimed at protecting the integrity of our financial system. The Department of Finance has been working closely with my officials on this Bill and is drawing up its own legislation to transpose provisions of the directive on beneficial ownership of trusts and in respect of bodies corporate.
Before turning to the individual provisions of the Bill, which is complex and multifaceted, I want to give a general overview of its contents. The main change brought about by this Bill is a more pronounced switch to a risk-based approach. This means that, first, the businesses concerned, which the legislation calls "designated persons", must assess the risks of money laundering and terrorist financing involved in carrying out their business. They must have policies and procedures in place to mitigate these risks and must determine the risk attaching to each customer transaction on a case by case basis, taking into account relevant factors. They must also carry out whatever due diligence measures are warranted by that level of risk. This represents a more targeted, and therefore more effective, application of the measures by the designated person. The proposed law also recognises the reality that many businesses today operate in group structures across borders. It makes a number of amendments in that regard.
The Bill expands on the requirements on Irish companies to ensure their subsidiaries overseas apply high anti-money laundering standards. If a group implements policies and procedures properly, its subsidiaries are not subject to some restrictions that normally apply in respect of high-risk third countries.
The amendments made by the Bill also extend the scope of existing obligations in other ways. For example, some measures which only applied to banks will apply to other financial institutions. There are extra measures that must be applied to the beneficiaries of life assurance policies. Measures applying to politically exposed persons will now apply to those resident in Ireland as well as those resident abroad.
Of great importance in the global fight against money laundering and terrorist financing is the role of the financial intelligence unit. The unit in Ireland is part of An Garda Síochána. It is responsible for receiving suspicious transaction reports from designated persons and analysing them so that it can be used to combat crime. The directive expands the remit of the financial intelligence units and requires them to have access to all of the information they need to carry out their functions. Taking into account the transnational nature of money laundering, it emphasises co-operation and information sharing between the financial intelligence units of different member states. All of this is provided for in the Bill.
I intend to move several amendments to the Bill in this House. Most of these amendments will be technical in nature but several more substantive items are included. Of particular note is an amendment to delete section 23 of the Bill and repeal section 43 of the 2010 Act. These sections require mandatory reporting of all transactions with certain high-risk third countries. The financial intelligence unit has stated that this provision will unnecessarily increase the number of reports filed and cause problems for banks and non-governmental organisations working in affected areas. The amendment will be subject to Government approval.
Also of note is an amendment to introduce a fitness and probity regime for the owners of private members gaming clubs. This amendment, which transposes a provision of the directive, will require those who hold a directional function and the beneficial owners of such clubs to apply to An Garda Síochána or the Minister for Justice and Equality for a certificate of fitness. It will be a criminal offence to carry on such activities without that certificate of fitness.
Turning to the individual provisions of the Bill, sections 1 and 2 contain the usual provisions setting out the Short Title, commencement provisions and interpretation section.
Sections 3 to 5, inclusive, amend the definitions in the 2010 Act. For the most part, this is to bring them into alignment with the definitions in the directive. In many cases, references to financial services legislation are being updated. An important amendment is that which lowers the threshold for the application of the Act to high-value goods dealers. Currently, they come within the Act if the value of the goods is in excess of €15,000, and this amendment will bring that down to €10,000. There is an amendment in section 5 relating to legal professionals to make it clear that the Act only applies to them where they are carrying out certain services. This amendment was made by the Criminal Justice Act 2013 but was not commenced as a technical change needed to be made.
Sections 6 to 9, inclusive, amend the definition of "beneficial owner” to bring it in line with the new directive. When carrying out customer due diligence, a designated person must also check the identity of any beneficial owner associated with the customer. This includes, for example, a major shareholder in a company or the beneficiary of a trust. The definition of "beneficial owner" will now be broader than under current law and will include, for example, the trustee of a trust.
Sections 10 to 19, inclusive, are the core provisions of the Bill. Section 10 inserts two new sections in the 2010 Act concerning risk. Designated persons will now be explicitly required to carry out an assessment of the risks of money laundering and terrorist financing inherent in carrying out their business. They are also required to assess the risk of money laundering and terrorist financing in regard to a customer or a transaction, taking into account factors such as the purpose of an account or the regularity of transactions. They must have regard to guidance and the national risk assessment.
Sections 11 to 19, inclusive, concern customer due diligence. Section 33 of the 2010 Act contains the main obligations to identify and verify the identity of customers and beneficial owners. Some small changes are made to that section. For example, there are additional requirements relating to the identification of the beneficiaries of life assurance policies. There is an exception to the rule that designated persons must cease carrying on business with a customer if they cannot carry out customer due diligence.
There is an exception to the rule that designated persons must cease carrying on business with a customer if they cannot carry out customer due diligence that applies to legal and other professionals in certain circumstances. Simplified due diligence can be carried out where the customer is considered to be low risk. If simplified due diligence is applied, the designated person must keep a record of the transactions and reasons for applying it and carry out sufficient monitoring. There is also a specific exemption for electronic money which applies under certain conditions. On the other hand, where there are factors which suggest high risk, extra measures must be taken. Customers in what are deemed to be high risk third countries are one such category. Politically exposed persons are another. As I mentioned, if a bank or other designated person has a customer who holds certain important public offices, if he or she is resident abroad, the designated person must take extra precautions. He or she must obtain senior management approval for the relationship and check the source of funds and wealth. This also applies to the family members of the person concerned. The need to combat corruption requires paying special attention to the details of such persons. In the Bill, as required by the directive, these provisions are being extended to politically exposed persons resident in Ireland who will also be subject to the checks. They will include, for example, Deputies, Senators and senior judges, but the need for caution will not stop at these specific categories. Designated persons will have to take an overall view of a customer and apply additional measures, if necessary. Failure to do so will be an offence punishable by an unlimited fine and up to five years in prison.
Section 20 makes some changes lo the circumstances where a designated person can rely on a third party to carry out customer due diligence.
Sections 21 and 22 concern the functions of Ireland's FIU. The FIU is part of An Garda Síochána. The sections place its functions on a statutory footing. They give the FIU the powers to obtain information it needs to tackle money laundering and terrorist financing. Under the Bill, the FIU can also give information, on request, to certain bodies and can share information with FIUs in other member states. The FIU and the Revenue Commissioners will have the power to obtain additional information from a designated person after the person has reported a suspicious transaction.
I propose to introduce an amendment to the Bill in this House, subject to Government approval, to delete section 23 and the corresponding section 43 of the 2010 Act. Section 43 of the 2010 Act requires a report to be sent to An Garda Síochána and Revenue whenever a transaction connected with a place designated under section 32 is carried out. Section 23 of the Bill, as it stands, amends this requirement to reflect the fact that it will now be the European Commission which will designate countries as being high risk and that the Minister will no longer have the specific power. The FIU of An Garda Síochána had raised concerns that the effect of the section would be that it would give rise to an unnecessary number of reports being filed. This concern is also echoed in the fact that it is likely to affect any bank or NGO working in these areas. It should be noted that there is, separately, a general requirement to report any transaction connected with money laundering or terrorist financing. That requirement will continue. A total of 25,000 reports were received in 2017 under this obligation. There is also an obligation to apply enhanced due diligence in respect of customers established in high risk third countries. Given that there appears to be no law enforcement imperative for the inclusion of the section concerned and to align more fully with the directive and FATF standards, I am bringing forward an amendment to delete the relevant provisions.
Section 24 amends section 51 of the 2010 Act. It concerns the offence of "tipping off", in other words, telling someone that he or she is being investigated for money laundering. It alters one of the defences for the offence in order that it will apply where financial institutions share the information within a group.
Section 26 relates to the policies and procedures designated persons must put in place to prevent and detect money laundering and terrorist financing. The new section expands on the matters that must be included in these policies. They must, for example, have policies on measures to be taken to prevent the risk which may arise from new technologies.
Sections 27 and 28 concern record keeping. Section 27 allows An Garda Síochána to require a designated person to retain records related to customer due diligence beyond the current five-year period, if they are required for the investigation or prosecution of money laundering or terrorist financing. Designated persons must delete any personal data held solely for the purposes of this section after the end of the retention period. Section 28 extends an existing requirement in keeping information on business relationships.
Sections 29 and 30 require a group of companies to have common anti-money laundering policies. If an Irish company has a subsidiary in another country, it must ensure it applies adequate anti-money laundering measures. If the subsidiary is located in another EU member state, it has to make sure it complies with local anti-money laundering laws. If it is located in a third country where the laws do not allow the implementation of the group's policies and procedures, it must take additional measures. If these measures do not address the risk, action can be taken by the competent authority.
Section 31 extends a prohibition on entering into a correspondent relationship with a shell bank such that it now applies to all financial institutions.
Section 32 makes an amendment which will make the Legal Services Regulatory Authority a State competent authority. This means that the body will have extra supervisory powers for money laundering purposes.
Section 33 substitutes the section which creates a defence of due diligence for the offences under this part of the Bill. There is no longer provision for guidelines to be made to be taken into account here.
Section 34 inserts a section which requires certain designated persons to register with the Central Bank. It is for entities which the Central Bank supervises for money laundering purposes but which are not otherwise authorised by or registered with it. It is proposed to introduce an amendment to the Bill on Committee Stage, following section 34, for the purposes of introducing a fitness and probity regime for the owners of private members' gaming clubs, to which I referred. The provision will require both those who are effectively directing the activities, as well as the beneficial owners of such clubs, to apply to An Garda Síochána or the Minister for Justice and Equality for a certificate of fitness. An Garda Síochána or the Minister for Justice and Equality, in determining whether to grant or refuse such a certificate, may look at whether the applicant has previously been convicted of an offence related to gambling, both inside and outside the jurisdiction. It will be a criminal offence to supply false information when applying for such a certificate or to carry on managing or owning a club without a current certificate of fitness.
Section 35 amends the penalties that can be applied by the Central Bank under its administrative sanctions procedure to bring them into line with the directive. As well as its usual penalties, it can impose a €5 million monetary penalty on a natural person for breaches of certain provisions of money laundering legislation. It can also impose a penalty of twice the benefit obtained from the breach.
Section 36 substitutes Schedule 2 to the 2010 Act which lists some of the financial services and activities subject to the Act.
Sections 37 and 38 set out the factors that must be taken into account in determining whether there is a low or high risk.
Section 39 repeals certain provisions of existing law, while section 40 makes consequential amendments to other legislation.
The Bill is of great importance. By enhancing Ireland's already extensive money laundering regime, it will act as a further tool to combat global organised crime, to protect the financial system and to ensure we meet the highest international standards. With the Criminal Justice (Corruption Offences) Act, it comprises a strong legislative underpinning of the fight against so-called white-collar crime. Combating such crime is a Government priority. I look forward to hearing the views of Members and ask for their co-operation in the passage of the legislation through the House. I will be happy to take on board observations made by Senators. I say this in the context of ensuring we can agree to prioritise the legislation this session in order to enact it to meet our international obligations and that we can be satisfied that national legislation accords with what can be described as best practice.