Mr. Brendan Bruen:

I will start. I thank the committee for its invitation. I am joined by my colleagues, Mr. Brendan McVeigh and Ms Sinéad Reynolds from the Department of Finance.

International standards in respect of anti-money laundering are set and monitored by the Financial Action Task Force, FATF. FATF is an intergovernmental body with 39 members, including Ireland, and a large number of observers and associate members. Over 200 countries commit to implementing its standards.

EU standards generally reflect those of FATF and are currently set out in the fourth anti-money laundering directive of 2015, as updated by the fifth directive in 2018. Ireland is bound by these directives and implements them through the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010. That Act has been amended several times, most recently in 2021.

A politically exposed person, PEP, is defined by FATF as "an individual who is or has been entrusted with a prominent public function". 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 (ML) 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 and their family members and close associates in 2003. In 2012 FATF expanded these requirements to domestic PEPs in line with the United Nations Convention against Corruption.

EU requirements for PEPs are now set out in Articles 20 to 23 of the fourth directive, which broadened the application of the EU regime to include domestic PEPs. It 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 also be included on the basis of their holding a prominent public function.

Relevant entities - for example, financial institutions - are then obliged, first, to have in place appropriate procedures to determine whether a customer or the beneficial owner of the customer is a PEP and, second, to apply enhanced due diligence to business relationships with PEPs, including obtaining senior management approval for establishing or continuing business relationships; taking adequate measures to establish the source of wealth and source of funds involved in relationships or transactions; and 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 on PEPs for financial institutions. This guidance is available on the Central Bank's website. Notably, it provides:

Firms should take adequate measures to establish the source of wealth and source of funds which are to be used in the business relationship in order to satisfy themselves that they do not handle the proceeds of corruption or other criminal activity.

The measures which Firms should take to establish a PEP's source of wealth and source of funds will depend on the degree of risk associated with the business relationship. Firms should verify the source of wealth and the source of funds based on reliable and independent data, documents or information.

When determining the source of wealth and source of funds, Firms should, at least consider:

- The activities that have generated the total net worth of the customer ...; and

- The origin and the means of transfer for funds that are involved in the transaction.

In July 2021 the European Commission published a detailed legislative proposal to replace the fourth directive. That proposal includes replacing the existing directive-based system with a combination of directives and regulations, with a "single rulebook" implemented via a regulation which would be directly applicable across the European Union. That rulebook would largely supersede the national provisions I have set out, which are likely to be repealed as part of the transposition. A new European Union authority, the anti-money laundering authority, AMLA, would lead AML regulation across the bloc. The package remains under negotiation and is handled at ECOFIN. Colleagues in the Department of Finance lead on those negotiations and can address questions the committee may have about the broader package. While the package itself is very substantial and will significantly affect how AML regulation is implemented, the specific requirements set out on PEPs in Articles 32 to 36 of the proposed regulation, as published, are broadly similar to those currently in place. AMLA is tasked with issuing guidelines on assessing the levels of risk associated with particular categories of politically exposed persons, their family members or persons known to be close associates.

The regulation also reaffirms that the requirements relating to PEPs and their family members and close associates are of a preventative, not criminal, nature and should not be interpreted as stigmatising PEPs as being involved in criminal activity. Refusing a business relationship with a person simply on the basis of his or her being identified as a PEP would clearly be contrary to the spirit of the regime.

I am conscious that, with the time available, I have only scratched the surface. I am, of course, happy to answer members' queries in more detail.