Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time."

I am pleased to present the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill 2013 to the House today. The primary purpose of this Bill is to amend the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 so as to align certain provisions more closely with international standards, in particular those contained in the recommendations of the Financial Action Task Force, FATF. The Bill also aims to amend other provisions to reflect the experience gained from the operation of the Act since 2010. The legislation that we have in place to tackle money laundering and terrorist financing is already robust, effective and of the highest standard. This Bill will merely strengthen some of these provisions.

I would ask the House for its co-operation in ensuring the speedy passage of this Bill so that it may become law by the middle of June. This will allow us to inform the FATF at its June plenary of the legislative changes that have been made to the existing statutory framework. It will also enable the introduction of other necessary legislative measures that I intend to bring as amendments to the Bill at subsequent Stages of our deliberations.

The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 which came into operation in July of that year represented a radical overhaul of the system that was then in place. The Act responded to changes in how crime is committed and how the proceeds of crime are laundered. We all know that some criminals are quite sophisticated in the way they operate and adept at recognising opportunities for exploiting financial systems for their own benefit. Money laundering by its nature can be a quite complex crime; it happens in countries throughout the world and does not respect national boundaries. It is a global phenomenon which can only be addressed in any meaningful way with by an international response.

On both the European and wider international stage significant work has been, and continues to be, carried out with the objective of preventing and tackling money laundering. The Financial Action Task Force, FATF, is an intergovernmental body whose purpose is the development and promotion of policies to combat money laundering and terrorist financing. The FATF standards, known formally as recommendations, are applied by its 36 members. More than 180 countries participate in its efforts through a global network of regional bodies. As part of its mandate FATF carries out evaluations of member states' compliance with its recommendations. Ireland was evaluated in 2006 and placed in what is known as the regular "follow-up process". FATF reviewed the 2010 Act after its enactment and has suggested a number of technical changes to it. In February 2011 the Department of Finance, which represents Ireland at FATF, submitted an action plan to FATF identifying action to be taken, including legislative amendments, to resolve these issues. The amendments to the 2010 Act in the Bill are, in the main, aimed at giving effect to those technical changes so that Ireland can be removed from the "follow-up process" at FATF's plenary session in June. This is an important step in protecting Ireland's reputation as a good place to do business and a country which enforces international standards in preventing and tackling money laundering.

While the current Bill is essentially a technical tidying-up exercise, I would also like to mention the ongoing work at FATF and EU level which will require us to revisit this area in the coming years. In February 2012 FATF revised its standards with the aim of strengthening and protecting the systems in place to deal with money laundering and terrorist financing. The European Commission has recently adopted a proposal for the fourth EU money laundering directive which, in the normal way, will be the subject of discussions with member states with a view to adoption by the European Parliament and the Council of Ministers. The purpose of this proposal is to replace the third EU money laundering directive, strengthen the EU's defences against money laundering and to give effect to the revised FATF recommendations. The first meeting of the Council Working Group to consider the proposal takes place next week under the Irish Presidency of the European Union. I wish the Department of Finance officials involved every success in their work.

The Bill under consideration today addresses FATF concerns with the current legislation as evaluated under the old FATF recommendations. While it would be preferable to legislate for the new recommendations now, that cannot be done until the final shape of the fourth EU directive is known, as it is the fourth directive which will give effect in European Union law to the new FATF recommendations, and neither can we afford to postpone making the amendments to the 2010 Act contained in the current Bill. I am advised by the Department of Finance that any prolongation of Ireland's stay in the FATF "follow up process" beyond June of this year could have negative consequences for our international standing. The Bill, therefore, is an interim measure. It provides for some technical adjustments to the 2010 Act to enhance our compliance with current international standards, but we will have to review the systems we have in place once the proposed fourth EU directive is enacted, and I expect, inevitably, revisit the issue in this House.

I would like, nonetheless, to mention some of the key elements of the revised FATF recommendations and the EU proposals. They include a more focused risk-based approach, which will require countries to understand the money laundering risks they face, and to ensure the right systems are in place to respond to them. It will necessitate the focused use of enhanced customer due diligence, CDD, measures where there is higher risk. I will digress briefly to explain that customer due diligence refers to the types of measure which banks and other designated persons must apply to assure themselves of the identity of a customer and the nature of his or her business. People will be familiar with banks seeking some form of ID, such as a passport, and proof of address, as in a telephone bill, before opening an account. In relation to commercial customers, these measures might include details of the ownership of a company and information on its business model. I apologise for the use of abbreviations and acronyms, but I will save the House considerable time if I refer to CDD from now on instead of customer due diligence.

Other aspects of the new FATF recommendations and the EU proposals are as follows: more transparency in relation to ownership and control of companies, trusts and other legal

persons; clarification of the rules on CDD to ensure a better knowledge of customers and a better understanding of their business; expansion of provisions dealing with politically exposed persons to cover national as well as international organisations; including tax offences as a predicate offence for money laundering; and more effective international co-operation.

I mention the new EU proposals so the House may be aware of them, but also because they touch on what are described as politically exposed persons, or PEPs, if I may be excused from using another acronym. I am conscious that PEPs in this context are different from PIPs in the context of the insolvency legislation. Today, we will have a mixture of both PEPs and PIPs, but that is nothing to do with money laundering. The 2010 Act already provides for PEPs who reside outside of the State. PEPs include senior judges, Ministers, Members of Parliament and senior officials. The three of us present in this House who are elected representatives are regarded as politically exposed persons. In that context it is not the exposure to the electorate that is necessarily envisaged.

PEPs and their immediate family members and close associates are subject also to a number of additional CDD measures. These measures include, for example, a requirement to provide a designated person such as a bank with information on the source of wealth and funds underpinning transactions. The Mahon tribunal in its final report recommended an extension of PEPs controls to domestic PEPs. In its response to the tribunal's report, the Government signalled its acceptance in principle of the recommendations in this area. However, asthe proposed fourth directive contains proposals on the extension of controls to domestic PEPs such as ourselves, any Irish legislation on the issue will have to await the enactment of the directive to ensure that it is properly compliant with the finalised directive at EU level.

I will now outline the provisions of the Bill, which is a short Bill consisting of only ten sections. Section 1provides that "Act of 2010" means the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010. As I mentioned earlier, the Bill amends existing legislative provisions in that Act. Section 2 provides for amendments to the definition of "occasional transaction" which is contained in section 24 of the 2010 Act. The current definition provides that an occasional transaction, in relation to a customer of a designated person, means a single transaction or series of transactions that are or appear to be linked to each other and the total amount exceeds €15,000. The rationale for this definition is to ensure that obligations in the Act such as CDD, which apply when there is a business relationship, also apply once a transaction or series of transactions reach this threshold. Section 2 provides for the lowering of this threshold in two situations, one relates to private members' gaming clubs where the value concerned in a transaction reaches €2,000. Lowering the threshold aligns the amount more closely with the approach taken in the third money laundering directive in relation to casinos, although I emphasise that these clubs are not casinos and such a change does not affect their status.

The second situation relates to wire transfer funds and section 2 provides for the application of the definition of "occasional transaction" in such cases when an amount of €1,000 is reached. The provision will also apply to beneficial owners. The current situation is that the threshold for "occasional transactions" at which customer identification, including identification of beneficial owners is required, is €15,000. While Council Regulation 1781/2006 on information on the payer accompanying transfers of funds requires money transmitters to obtain information on the sender, that is, name, address, account or other identification number, for any transmission of €1,000 or more, this does not include beneficial owners.

This amendment will provide that identification of customers and beneficial owners must be carried out for amounts of €1,000 or more in the case of wire transfer of funds.

Section 3amends section 33(1)(c) of the Act of 2010. Section 33 forms part of Chapter 3 of Part 4 which deals with Customer Due Diligence, CDD, and sets out the circumstances when CDD measures must be taken, for example, when establishing a business relationship with a customer where existing documentation or information may not be adequate. The purpose of the amendment in the Bill is to align the wording contained in section 33(1)(c) more closely to international standards. It will not result in any substantial changes to obligations in the Act. It provides that CDD applies prior to carrying out any service for the customer if the designated person has reasonable grounds to suspect that the customer is involved in, or the service, transaction or product is for the purpose of, money laundering or terrorist financing.

Sections 4 and 5 amend sections 34 and 36 of the Act of 2010 which relate to the application of simplified CDD. The Act provides that a designated person is not required to apply the CDD measures specified in section 33(2) if the customer or product is a specified customer or specified product, as defined in section 34. Such customers and products are considered to be at low risk for money laundering or terrorist financing; hence the approach that the full range of CDD measures are not required. However, it is important to note that the monitoring obligations still apply in such cases and simplified CDD cannot be applied if there is a suspicion of money laundering or terrorist financing or where there are doubts about the veracity or adequacy of information or documentation previously obtained. The purpose of the amendments is to make it explicit in the legislation that a designated person must take the necessary measures to establish that the particular customer or product is one to which such provisions can be applied.

Section 6amends section 37 of the Act of 2010 which deals with Politically Exposed Persons, PEPs. This provision applies to a PEP residing outside of the State who has been entrusted with a prominent public function at any time in the preceding 12 months. A designated person is required to apply enhanced CDD measures to such persons, which includes obtaining approval from senior management before entering into a business relationship and determining the source of wealth and funds. The amendments to section 37 contained in section 6 provide that such measures must also be applied to an existing customer who becomes a PEP. It also explicitly provides that enhanced ongoing monitoring must be applied to all PEP customers. I propose to bring forward some drafting and technical amendments on Committee Stage to clarify this provision further.

Section 7amends section 39 of the Act of 2010 which deals with the application of additional CDD measures, that is, enhanced CDD, to a customer or beneficial owner where there is a higher risk of money laundering or terrorist financing. The current legislative provision provides for the option of applying enhanced CDD by the designated person. The amendment to section 39 provides that enhanced CDD must be applied by the designated person where there are reasonable grounds to believe that there is a heightened risk of money laundering or terrorist financing. This approach is also reflected in the amendments to section 54, which relate to policies and procedures.

Section 8 amends section 54 of the Act of 2010 which deals with the internal policies and procedures that a designated person must put in place with a view to preventing and detecting money laundering and terrorist financing. In addition to the general obligations contained in section 54, certain issues are specifically mentioned in order to highlight their importance and to ensure that action is taken on them. Section 8 provides for the inclusion of policies and procedures dealing with the additional measures to be taken in accordance with section 39, that is, enhanced CDD and also dealt with in section 7 of this Bill. It also includes a specific requirement for designated persons to implement policies and procedures on keeping their customers' documentation and information up to date and on potential risks arising from technological developments.

Section 9 amends section 71 of the Act of 2010 to extend the type of directions that a State competent authority may issue to a designated person, thereby increasing and improving existing enforcement powers. Section 71 currently provides that a State competent authority may, by notice in writing, direct a designated person for whom it is a competent authority to discontinue or refrain from specified conduct. The new provision will enable a State competent authority to also issue positive directions, that is, to direct a designated person to take specific actions or establish specific processes or procedures that, in the opinion of the State competent authority, are reasonably necessary for the purposes of complying with any specified provision in this Part of the Act. The new provision will also now provide that such directions may be issued to a class of designated persons. This power will enable State competent authorities to recognise and cater for the different compliance issues that might arise as between the different businesses or sectors for which they are responsible.

I will now outline a number of proposed amendments to Bill to be introduced on Committee and Report Stages. I intend to introduce a number of amendments to deal with the threat to life and property posed by explosive devices which make use of mobile communications technology in their construction or activation. As this issue is not directly related to money laundering, it may necessitate a change in the title of the Bill to something more general, such as the Criminal Justice Bill 2013. The purpose of these amendments will be to allow for a direction to issue to mobile communications service providers to cease service provision in a limited geographical area in order to prevent death or damage to property. The provision will contain safeguards to ensure that any interference with services is limited to the extent necessary to deal with the threat. Deputies might be interested to know that it is my understanding that this type of measure for which we intend to make statutory provision is what occurred in Boston this week, when two atrocities took place and steps were taken to prevent the use of mobile phones over a period of time. As these provisions are outside of the scope of the current title of the Bill, it will be necessary to amend the title of the Bill. In order that the full House will have an opportunity to consider these new elements of the Bill, I am advised that they should be introduced on Report Stage rather than during the Select Committee debate.

In addition to those proposed amendments, I hope that it may be possible to bring forward, as Committee Stage amendments, some provisions which were contained in the general scheme, as published last year. Because of the pressure on the Office of the Parliamentary Counsel arising from the increased burden of troika-related legislation, it was not possible to include them in the Bill as originally published. Their inclusion in the list of Committee Stage amendments is still subject to that caveat. These amendments include a provision to transfer the authorisation and monitoring of Trust or Company Service Providers, TCSPs, which are subsidiaries of credit or financial institutions to the Central Bank; an amendment to the existing record-keeping provisions so that records may be stored outside the State; an amendment to section 17 of the Act of 2010 dealing with court orders; an amendment to section 35 of the Act of 2010 related to the monitoring of unusual and complex transactions; and amendments to sections 104 and 109 dealing with the registers for TCSPs and Private Members' Gaming Clubs.

In conclusion, I look forward to hearing the contributions of Deputies during this debate and I hope that the House will support the passage of the Bill. I commend the Bill to the House.

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