In September 2019 the Central Bank of Ireland issued new “Anti-Money Laundering and Countering the Financing of Terrorism Guidelines for the Financial Sector” (the Guidelines). The Guidelines set out the expectations the Central Bank has when Firms are identifying, assessing and managing Money Laundering (ML) and Financing of Terrorism (FT) risk. The Guidelines are a result of changes to Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) risk and will result in banks and other financial institutions (collectively referred to as FI or FIs), asking for more information and documentation from trustees; whether they be licensed and regulated trustees or otherwise
Risk Based Approach Specific Guidance
The Guidelines expand on the risk based approach required by the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 (CJA) which amended the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (Act). The application of a risk based approach means that FIs will require information from trustees about all the parties to a trust to assist them in determining whether there are any high risk factors which warrant enhanced due diligence (EDD). If an FI decides that EDD is required, this could result in further documentation or information being requested, lengthening the time that it might take for an account to be opened and in some cases, a charge being applied for the EDD and the ongoing maintenance of any account. Where a high risk status is applied to an account, this can lead to increased scrutiny and in some cases may result in the account being declined if it is outside of an FI’s risk appetite. In addition, any need to conduct a review of any existing due diligence or change of bank mandate will act as a “trigger event” within an FI such that renewed due diligence, which may have to be enhanced EDD, may need to be undertaken.
EDD Specific Guidance
Sections 37 to 39 of the CJA prescribe a number of circumstances where FIs are required to apply EDD measures including; where a party to a trust is a politically exposed person (PEP), there is exposure to high-risk third countries, or the business relationship is identified as presenting a higher degree of risk for example due to the complexity of the trust and any underlying or associated arrangements.
PEP Specific Guidance
Identification of PEPs and application of EDD to PEPS is required under Section 37 of the Act. This was broadened in 2018 to include all PEPs irrespective of residency in Ireland. The Guidelines advise that EDD requirements for PEPs are also extended to immediate family and known close associates of the PEP due to the risks presented by PEP status. In practice, this means that Trustees will need to ask questions and conduct enough customer due diligence to ensure that PEPs are accurately and timely identified so that they can advise an FI of PEP exposure. It is often part of an FI’s terms and conditions that the Trustees advise of any change to the parties to the account, e.g. where a change of trustee takes place and this could include a new party to the trust who is a PEP or an existing party to the trust becoming a PEP. Where an FI is aware of PEP exposure within a trust structure, this will lead to additional information being requested in relation to the source of funds and source of wealth and so Trustees should ensure that they have this level of information readily to hand and updated periodically.
Given these enhanced AML/CFT requirements, it is clear that new and existing relationships between trusts and FIs will be subject to increased scrutiny. Familiarity with the requirements is essential to be able to respond to requests for documentation and information in a timely fashion. FIs often set specific timeframes in which responses need to be provided, particularly where a review of an existing account has identified the need for additional documentation and information, and we are familiar with instances where accounts have been subject to closure notices when the requested information has not been supplied. A professional trustee will often have developed relationships with the relevant FIs and will be cognisant of the requirements, enabling them to identify what information and documentation might be required at an early stage and importantly when it might be appropriate to challenge the requests made by an FI.
The continued drive by regulators and those that they regulate to “stamp out” or more practically minimise the risk of AML/CFT activities makes it harder for those seeking to establish a trust to have as the sole trustee(s) a family member(s). Not having a regulated person acting as a trustee inevitably increases the risk to the lay person of being found guilty of a criminal offence by virtue of the provisions of the Act and other legislation.
Sinead O’Connor & Kathryn SharmanRegulatory & Compliance ServicesDQ AdvocatesFebruary 2020
E: sinead@dq.im
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