Irish politicians and their families are to be subject to an enhanced degree of scrutiny by banks as part of a new EU directive to combat money laundering and terrorist financing following recent attacks.
Three Irish banks were hit with multimillion euro fines in recent months after a Central Bank review of the sector exposed breaches to laws aimed at countering money laundering and terrorist financing.
In October, Ulster Bank was fined €3.3 million for "significant failings" in its framework, while AIB was fined €2.3 million in April, and Bank of Ireland was fined €3.2 million last month.
Speaking at an event hosted by the Banking Payments Federation of Ireland on Friday, Central Bank director of enforcement Derville Rowland said the review showed banks "need to work harder" to ensure compliance.
Among the “serious” issues identified were incomplete risk assessments; the failure to report suspicious transactions without delay; and shortcomings in customer due diligence processes, including the identification of “politically exposed persons”.
A politically exposed person is an individual who is or has been entrusted with a prominent public function. Many hold positions that can be abused for the purpose of laundering illicit funds or other offences such as corruption or bribery.
Ms Rowland said a number of changes to the EU directive covering this area were currently being negotiated at a political level following “persistent terrorist attacks”.
“These changes are being driven by the recognition of the need for heightened vigilance in this area, in the aftermath of persistent terrorist attacks,” she said.
“Implementing a risk-based approach specific to the individual firm’s business and assessing higher and lower risk scenarios is one of the key changes required.
“There is an extension of the meaning of what constitutes a politically exposed person to include domestic politically exposed persons. This means that domestic politicians and their families will be subject to enhanced customer due diligence measures.
“There is also the introduction of a register of beneficial owners that will require information on beneficial owners of companies and trusts to be stored in a central register.
“A statutory instrument has already been introduced setting out the requirement to collect this information and further legislation will be introduced to set up a central register.”
The failings by Ulster Bank, AIB and Bank of Ireland have now been “remedied”, she said, and the banks had “significantly improved” their anti-money laundering control frameworks. “However, there is no room for complacency,” she said.
“The number and nature of issues identified strongly suggested that more work is required by the banks to effectively manage money-laundering and terrorist-financing risks.
“The Central Bank requires that robust anti-money laundering controls must continue to be in place and maintained by all firms under our supervisory remit so that they are well placed to respond to the ever-changing threats.
“Compliance with anti-money laundering requirements is and will remain a key Central Bank priority and we will take action in circumstances where firms fail to comply.
“Financial firms must invest in and maintain strong anti-money laundering compliance frameworks to help protect the integrity of the financial system and prevent it being used for money laundering and terrorist financing.”
One of the Central Bank’s key expectations for an effective anti-money laundering control framework is that it is based on a risk-assessment specific to the firm’s business rather than a “tick box” approach.
“That is not fit for purpose and will not meet regulatory expectations,” said Ms Rowland. “We will not accept this approach from supervised firms.”
