International standards in respect of anti-money laundering are set and monitored by the Financial Action Taskforce (FATF). FATF is an inter-governmental body with 39 members, including Ireland, and a large number of observers and associate members. Over 200 countries commit to implementing their standards.
As the Deputy will be aware, EU standards generally reflect those of FATF and are currently set out in the Fourth Anti-Money Laundering Directive from 2015, as updated by the Fifth AML Directive in 2018. Ireland is bound by these Directives and has transposed them through the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, as amended.
Under the Directive, designated persons, including financial institutions, are obliged to conduct ongoing monitoring of their business relationships using a risk-based approach. Part of this risk based approach is an obligation to apply enhanced customer due diligence to those entrusted with prominent public functions (politically exposed persons – PEPs).
FATF states:
Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for the purpose of committing money laundering offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing.
FATF emphasises that PEP status is intended to apply higher vigilance, rather than suggesting that individuals are involved in suspicious activity.
FATF first issued requirements covering foreign PEPs, their family members and close associates in 2003. In 2012, FATF expanded these requirements to domestic PEPs in line with United Nations Convention against Corruption.
This is reflected in Articles 20-23 of the Fourth Directive, which broadened the application of the EU regime to include domestic PEPs. This came into force in Ireland in 2018.
The definition of ‘politically exposed person’ in the Directive specifies several categories of PEP – including, for example, heads of state, members of parliament, members of the governing bodies of political parties, supreme court judges, ambassadors and others. This definition is open: while the categories stated must be included, other persons may be considered a PEP on the basis of them holding a prominent public function.
Relevant entities (e.g. financial institutions) are obliged to:
(a) have in place appropriate procedures to determine whether the customer or the beneficial owner of the customer is a PEP;
(b) apply enhanced due diligence to business relationships with PEPs, including:
(i) obtaining senior management approval for establishing or continuing business relationships;
(ii) taking adequate measures to establish the source of wealth and source of funds that are involved in business relationships or transactions;
(iii) conducting enhanced ongoing monitoring of those business relationships.
These measures also apply to family members or persons known to be close associates of politically exposed persons.
The Central Bank of Ireland publishes guidance for financial institutions in respect of PEPs. This guidance is available on the CBI’s website.
