Eimer O’RourkeHead of Retail Banking

Anti-Money Laundering3rd time lucky

ICAI – 18 October 2007

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The Directive(s)

• DIRECTIVE 2005/60/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 26 October 2005

• on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing

• COMMISSION DIRECTIVE 2006/70/EC of 1 August 2006• laying down implementing measures for Directive

2005/60/EC of the European Parliament and of the Council as regards the definition of ‘politically exposed person’ and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis

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The basics remain the same ….

• Customer due diligence – –Identifying and verifying the customer’s identity –obtaining appropriate information in respect of the

proposed business relationship–And ongoing monitoring of the business relationship

(including scrutiny of transactions) to ensure that transactions conducted are consistent with institution’s knowledge of the customer, customer’s business.

• Appropriate record keeping• Appropriate training• Reporting Suspicions

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The most important provision ….

The institutions and persons covered by this Directive shall apply each of the customer due diligence requirements set out in paragraph 1, but may determine the extent of such measures on a risk-sensitive basis depending on the type of customer, business relationship, product or transaction. The institutions and persons covered by this Directive shall be able to demonstrate to the competent authorities mentioned in Article 37, including self-regulatory bodies, that the extent of the measures is appropriate in view of the risks of money laundering and terrorist financing.

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So what does it mean in practice?

• Risk-based models• Challenges• Risk variables • More emphasis on ongoing monitoring• Not zero failure

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New areas of emphasis

• Beneficial Ownership

• Simplified Due Diligence

• Enhanced Due Diligence

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Beneficial Ownership

Establishing identity of the customer, now with additional emphasis on establishing and verifying the identity of the beneficial owner.

‘beneficial owner’ means the natural person(s) who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction or activity is being conducted.

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Simplified Due Diligence

• Listed Companies

• Domestic public authorities

• Beneficial owners of pooled accounts held by notaries and other independent legal professionals

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Enhanced Due Diligence

… to apply, on a risk-sensitive basis, enhanced customer due diligence measures …. in situations which by their nature can present a higher risk of money laundering or terrorist financing, and at least in the situations set out in paragraphs 2, 3, 4:

– Where the customer has not been physically present for identification purposes

– cross-frontier correspondent banking relationships– In respect of transactions or business relationships with

politically exposed persons residing in another Member State or in a third country

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So, who are PEP’s?

‘politically exposed persons’ means natural persons who are or have been entrusted with prominent public functions and immediate family members, or persons known to be close associates, of such persons;

‘natural persons who are or have been entrusted with prominent public functions’ shall include the following:

(a) heads of State, heads of government, ministers and deputy or assistant ministers;

(b) members of parliaments;(c) members of supreme courts, of constitutional courts or of other high-level judicial

bodies whose decisions are not subject to further appeal, except in exceptional circumstances;

(d) members of courts of auditors or of the boards of central banks;(e) ambassadors, chargés d'affaires and high-ranking officers in the armed forces;(f) members of the administrative, management or supervisory bodies of State-

owned enterprises.

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…and family?

‘immediate family members’ shall include the following:

(a) the spouse;(b) any partner considered by national law as equivalent to thespouse;(c) the children and their spouses or partners;(d) the parents.

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…. And friends?

‘persons known to be close associates’ shall include thefollowing:(a) any natural person who is known to have joint beneficial

ownership of legal entities or legal arrangements, or any other close business relations, with a person referred to in paragraph 1;

(b) any natural person who has sole beneficial ownership of a legal entity or legal arrangement which is known to have been set up for the benefit de facto of the person referred to in paragraph 1.

• Recital: “it does not presuppose active research on the part of the institutions and persons covered by the Directive”.

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…. And what do you have to do about

PEP’s?(a) have appropriate risk-based procedures to determine whether

the customer is a politically exposed person;

(b) have senior management approval for establishing business relationships with such customers;

(c) take adequate measures to establish the source of wealth and source of funds that are involved in the business relationship or transaction;

(d) conduct enhanced ongoing monitoring of the business relationship.

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Domestic Legislation

…….awaited

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Guidance Notes

• Cross sectoral project underway• Deloitte• High level filters:

–Plain English–Non prescriptive–Reflects RBA as a 1st principle –Value adding – provision of feasible concrete examples where

appropriate.–International competitiveness/benchmarking–Does it see past retail customer?–Does it see past face to face customer?–Does it see past paper based processes?–Emphasis on true KYC and monitoring rather than on up front ID–Common core and sectoral annexes

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Further considerations

•Reporting – infrastructure for a permission to transact/consent regime

•Supervision – e.g. non deposit taking lenders•Existing customers•Identifying individuals; financial inclusion, address verification, ML10’s

•DPC v AML•Lead in time

Eimer O’RourkeHead of Retail Banking

Thank You