REGULATORY IMPACT ASSESSMENT
1. Title of the Proposal
thDirective 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 rdlaundering and terrorist financing, the 3 Money Laundering Directive.
2. Description of policy context, objectives and options
Ireland’s current anti money laundering regime derives from the first EU Money
Laundering Directive (1991) as amended by the second Directive (2001). These
Directives in turn are based on the recommendations of the Financial Action Task
Force on Money Laundering (FATF) – the main international anti-money laundering
organisation established by the G7 in 1989. Current Irish legislation requires the
Financial Sector and other designated bodies (lawyers, accountants, auctioneers, tax
advisers, and dealers in high value goods) to
? Identify their customers
? Report suspicious transactions to the Garda Siochana/Revenue Commissioners
? Keep records
? Have procedures in place, including staff training.
Explicit statement of the objectives that are being pursued
The objective of the proposed legislation is to strengthen Ireland’s anti money
laundering and anti terrorist funding legal framework by requiring the Financial Sector
and other affected bodies to take additional measures to identify their customers
particularly where situations of higher risk have been identified. More specifically the
draft legislation will
? Consolidate existing anti money laundering legislation which has been amended
on numerous occasions rd? Transpose the 3 Money Laundering Directive into Irish Law – Transposition
deadline 15 December 2007.
rdThe transposition of the 3 Money Laundering Directive will bring Ireland into line with the most recent revision of the recommendations of the FATF, ensuring that Irish
practice is in line with International standards. The principal new elements required by rdthe 3 Money Laundering Directive are
? Introduce a requirement for ongoing customer due diligence
? Require designated bodies to identify non-domestic politically exposed persons
? Require identification of beneficial ownership of legal entities; such as
companies and trusts
? Introduce the concept of a risk based approach to the requirements of the
? Extend money laundering obligations to Trust & Company Service Providers
? Introduce registration/licensing of Trust & Company Service Providers
? Have in place a system of compliance monitoring by non Financial Designated
persons (lawyers, accountants, auctioneers, dealers in high value goods etc).
? Provide greater protection for employees making suspicious transaction reports
rd Money Laundering Directive does not require major change in Transposition of the 3
the existing regulatory framework which for the most part operates under the Financial
Regulator. The new regulatory elements involve the requirement to licence or register
those trust or company service providers who are not already regulated as solicitors,
accountants or financial service providers. This category is understood to consist of
fewer than 100 company formation agents.
3. Identification of the various policy options
Option 1: No Change Policy
This option would involve no change to the legislation or guidance currently in place.
Given the requirement to transpose the Directive into National law a no change policy is
not a realistic option. In addition, any suggestion of a less than rigorous regulatory
environment could result in Ireland being seen as a haven for money laundering with
adverse implications for the reputation of the Irish financial services industry.
Option 2: Making Changes required without legislation
This option would involve no change to the current legislation and instead incorporate
requirements of the Directive in to guidance for each sector. Realistically this is not an
option due to our obligation as an EU Member State to transpose the Directive into
national law. Current Sectoral Guidance constitutes recommendation as to good
practice and does not have the legal standing of primary or secondary legislation
although it can be taken “account of “ by a court in determining whether “a designated
body or a member of staff has failed to make a report to the Gardaí and the Revenue
rdOption 3: Transpose the 3 Money Laundering Directive & update Guidance rdIn order to fulfil Ireland’s obligations imposed by the 3 Money Laundering Directive the
appropriate approach to implementation is primary legislation, supplemented by
Guidance. It should also be noted that Ireland’s current anti-money laundering regime
was criticised by the FATF for what it regarded as an over reliance on guidance as
distinct from legislative requirements.
4. Identification of costs, benefits and impacts
Risks and assumptions
Any option other than full transposition by legislation carries a significant risk of damage
to Ireland’s reputation as a well regulated financial centre. It would also carry the risk of
prosecution by the Commission for non-implementation of the Directive.
Costs and Benefits
The cost of implementing the legislation will fall primarily on the financial sector and
other designated persons i.e. solicitors, accountants, auctioneers, tax advisers, and
cash dealers in high value goods and on regulators mainly the Financial Regulator.
Most of these bodies already carry costs in relation to the implementation and
monitoring of compliance with existing anti-money laundering rules. New costs will
arise where existing IT systems etc require revision, new guidance requires to be
issued and additional staff related costs including training are required. The bodies
affected have not been able to provide reliable estimates of the likely additional costs
involved as these costs would depend on the detailed requirements coming from the
legislation and any subsequent regulatory guidance.
The Irish Bankers Federation who represent one of the main categories within the
financial sector, have noted rd “Implementation of the 3 anti-money Laundering directive will have a significant cost impact across the sector, both in terms of once off set up costs and in terms of ongoing
costs. Primary cost drivers in this regard include
? Risk assessment model development
? Increased data capture requirements
? Increased automation of processes
? Enhanced inter-system linkages
? Purchases of commercially generated lists
? Initial and ongoing staff training…. The risk based approach, appropriately developed and implemented, will balance the
cost burden placed on individual firms and their customers with a realistic assessment
of the threat of the firm being used in connection with ML or TF……”
The main accountancy representative body – CCAB-I noted that “the anti-money
laundering regime in the Republic of Ireland and its many difficulties has already been a
very costly one for the accounting profession and if the existing difficulties are rdperpetuated whilst implementing the 3 Directive then it will be a costly regulatory
regime on an ongoing basis” CCAB-I estimate once off costs to the accountancy profession at ?27million (including ?12m for training) with ongoing annual costs of
The Law Society did not provide detailed cost estimates but noted that “it is clear, firstly,
that solicitors’ firms incur substantial costs under the existing regime and, secondly that
these will increase significantly if the Directive is implemented without taking into
account the views of the Society….” The Law Society also noted that there may be costs which are impossible to quantify if the Directive is implemented in a way that
gives rise to problems for Solicitors and their clients in areas such as the making of a
will or a trust.
5. Other impacts
Impact Comment Impacts on national competitiveness As it is not proposed to impose
obligations in excess of those required by
the Directive or by the FATF
recommendations Ireland’s competitive
position internationally should not be
affected. Impacts on the socially excluded or The transposing legislation should not vulnerable groups materially affect the position of these
groups Whether the proposals involve a The obligation to licence / register Trust &
significant policy change in an economic Company Service providers who are not market including an examination of the already regulated is not a significant policy impacts on consumers and competition change.
The obligation to monitor compliance with
the legislation by bodies affected by it is
not a significant policy change.
Impacts on the rights of citizens None Whether the proposal involves a The legislation will add to the existing significant compliance burden compliance burden in certain areas but
this may be offset to some degree by the
possibility now being given to the affected
bodies to adopt a risk based approach.
Impacts on the environment None
The Department of Justice, Equality & Law Reform and the Department of Finance rdconducted extensive consultation on the impact of the 3 Money Laundering Directive by way of bi-lateral meetings with representatives of the financial sector and other
bodies affected by the Directive. In addition an invitation was published on the
Department of Finance website requesting written submissions on the potential impacts rdof the 3 Money Laundering Directive. Thirteen written submissions were received
during this process. A summary of the comments received during the consultation
period is set out in the attached table, together with an official response.
7. Enforcement and Compliance
Enforcement of the law on Money Laundering is primarily a matter for the Garda
Siochana. The Financial Regulator and other sectoral regulatory authorities will have
responsibility for monitoring compliance with the legislation as required by Article 37 of
the Directive. It is not proposed to establish any new regulatory authority for the
purpose of implementing the Directive. Where there is no existing regulatory authority,
as for example in the case of trust and company service providers, certain accountants
/tax advisers or dealers in high value goods, it is proposed to assign the compliance
monitoring role to a new dedicated unit within the Department of Justice, Equality and
Law Reform. This is estimated to involve an additional annual cost of ?0.6 million.
The draft legislation will require each Regulatory Body to report annually on the
measures it has taken to monitor compliance by the bodies for whom it is responsible.
It should also be noted that the Directive itself (Article 42) requires the Commission to thdraw up a report on its implementation by 15 December 2009 and at three-yearly
REGULATORY IMPACT ASSESSMENT
Directive 2005/60/EC on the prevention of the use of the financial
system for the purpose of money laundering and terrorist financing
Article Summary of comments made during the Official Response
consultation process Article 1: Consideration should be given to removing There is no direct equivalent in Irish Law Offence of Money the current “all crimes” predicate offence in for the Directive definition of “serious Laundering/ Terrorist favour of a limitation to serious offences as crimes”. funding required by the Directive.
There is a need to factor in the risk that This issue is dealt with in the draft bill
Designated Bodies could legitimately (Head 20) which repeats an existing
“handle the proceeds of crime” provision of the 1994 Act to the effect
Possible Solution – Offer a defence of that a designated person who has made
“action in good faith” a report and follows any directions of the
Garda Siochana does not commit an
offence. Article 2: Clarification is required on definitions for The relevant definitions are set out in the Designated Persons “Auditor”, “External Accountant”, “Tax draft Bill (Head 2)
The position of insolvency practitioners Insolvency practitioners are designated
who operate outside any regulated under Head 3 of the draft Bill.
professional body should be clarified –
there is also a competition issue here.
Remove the anomaly in S.I. No 3 of 2004 This S.I. is repealed and the relevant
which appears to limit the obligations of provisions of the draft Bill remove this
auctioneers to cases where payment is anomaly.
made in cash.
Implementing legislation should recognise This is dealt with in Head 3 (4) of the
that companies owned exclusively by a draft Bill.
regulated group entity in connection with a
professional practice which includes
providing trustee services are covered by
Article 2(3) (b).
Article 3: PEP’s – see under Article 13 Definitions
Article 4: No material comments in relation to this There are no current proposals to extend
article. the list of designated persons beyond
Extension to other those listed in the Directive. bodies
It is important from a competitiveness point The draft Bill reflects the requirements of Power of MS to of view that the authorities avoid any “gold-the Directive and does not go beyond adopt stricter plating” of the Directive’s requirements. them to any material extent. measures
Article 6: No material comments in relation to this Ban on anonymous article.
Article 7 Circumstances There is a need for maximum flexibility in Head 12 of the draft Bill provides some requiring Customer the legislation to take account of practical flexibility in this area [guidance notes will Due Diligence elements (e.g. time lag due to contact with elaborate further on this issue].
other jurisdictions, language barriers etc.)
Business may be lost due to time lags. [see
under Article 9 below]
Suggested approaches to implementation The draft Bill adopts a risk based
approach to its requirements as provided ? Seek ID on a risk sensitive basis.
for in the Directive. Institutions should focus resources
where risk is greatest.
? Ongoing monitoring of transactions
maybe more important than initial
? Eliminate a tick box approach ? It may be necessary to buy
additional, more sophisticated
Article 8 Head 12 of the draft Bill provides some ? Establishing beneficial ownership
Measures required flexibility in this area. Guidance notes will can take some time/resources -
for Customer Due elaborate further on this issue. includes need to understand
Diligence complex layers of legal documents
– what is considered acceptable
timeframe? What exactly will be
required to satisfy this obligation?
Head 18 of the draft Bill makes ? There will be a learning curve for
provision for identification by a third Designated Bodies in identifying
party beneficial ownership – is there
scope for one designated body
relying on another DB with
expertise in the area of
identification of beneficial owner?
The draft Bill adopts a risk based ? Favour approach where basic
approach. requirements of Article 8 will be in
primary legislation with the details
in guidance/regulation. A risk
based approach needs to be
embodied in transposing
Relevant bodies will be consulted on ? Timing – the legislative timescale
the timing for commencement of the should allow for the extensive work
Bill. required from the bodies affected,
including preparation of guidance
notes, upgrading of IT systems,
staff training etc
? A risk based approach would
This is the approach adopted. suggest that guidance notes
should be principles based.
The use of a risk based approach should ? ML Guidelines or Legislation
facilitate this. should not become a barrier to
access to the financial system.
The draft Bill has taken account of this ? Industry should have level playing
consideration. All designated persons field. Legislation/guidance should
will be subject to compliance monitoring not introduce competitive
by a competent authority. distortions.
Head 12 of the draft Bill provides some ? CDD creates particular issues for
flexibility in this area. Guidance notes will people operating in an
elaborate further on this issue. International arena - can be difficult
in jurisdictions where there is a
Guidance notes will elaborate further on ? What level of enquiry into
this issue. customer’s source of funds will be
Article 9.5 contains a specific exemption Implementing legislation should take
for legal advice. This is dealt with in the account of the fact that in certain
draft bill at head 13(2). It is also relevant circumstances where a solicitor is asked to
that solicitors and other independent provide a service connected with a trust,
legal professionals are designated the request for ID from beneficiaries and
persons for the purposes of the draft bill potential beneficiaries may compromise the
only “ when they participate, whether by settlor or other parties.
acting on behalf of and for their client in
any financial or real estate transaction, Implementing legislation should provide
or by assisting in the planning or that where a trustee etc is seeking legal
execution of transactions for their advice in relation to a trust the solicitor
client …” (Head 3). should only be obliged to obtain ID for that
A solicitor is required to identify the It is suggested that a solicitor or other
beneficial owners of a trust only where service provider, in setting up or advising a
the trust is the solicitor's client. The trust may identify beneficiaries using
Directive requires that "risk-based and identification from trust documents
adequate measures" be taken to verify provided the identity of the beneficiary or
the class of beneficiaries is reasonably the identity of the beneficial owner of a
clear (or at least can be ultimately customer (Article 8.1). A solicitor should
ascertained). also be able to demonstrate to the
competent authorities that the measures
taken are adequate in view of the risks of
money laundering and terrorist financing.
Charitable Trusts should be subject to The Directive allows for identification by
special concession regarding the class of beneficiary in this type of case.
identification of beneficiaries. The Draft Bill reflects this in Head 2 -
definition of beneficial owner. It is not
clear what special concession could be
made in the case of charities which
would not conflict with the requirements
of the Directive. This issue also needs to
be viewed against the background of
international concern about the potential
misuse of charities for money laundering
and terrorist funding.
Article 9 Art 9(5) - careful drafting is required for this Head 13 of the draft Bill does not make
item – legislation should not make report to reporting mandatory in these
Timing of Gardai/Revenue mandatory where circumstances.
Verification of Identity identification under Article 8 has not been
Transposition needs to take account of Head 24 (3) (d) of the draft Bill provides
position of legal profession – in particular for this.
solicitors should not be guilty of a tipping -
off offence where client is informed of end
[Use of risk based approach when seeking
additional identification from existing clients
needs careful drafting – in particular legal
profession needs protection against tipping The draft Bill provides for identification of
– off offence.] existing customers at appropriate times
on a risk sensitive basis – see Head
Art 9 (6) (identity verification of existing
customers) – not currently provided for in
This could amount to tipping-off.
Article 10: No material comments in relation to this
Article 11: Legislation should implement this article in The draft Bill implements this in full.
Simplified Due full – particularly re derogation in Article Diligence 11.2(b) (Lawyers pooled account).
As regards specifying products – legislation The provisions in the Draft Bill related to ting to
should allow flexibility to take account of products reflect the Directive
Article 12 : No material comments in relation to this Prohibition on article.
DD to certain third
Article 13: Enhanced CDD – focus should be on The Directive effectively requires both Enhanced Customer ongoing monitoring rather than additional approaches and the Draft Bill reflects Due Diligence ID. this.
Some jurisdictions have a policy of not This Article of the Directive sets out
issuing “Bank References” - this would options one of which is requiring
cause problems in implementing Article 13 confirmatory certification (not a Bank
2 (b). Is there a need to raise this at EU Reference) by a credit or financial
level? institution. Accordingly there should be
enough scope here to ensure that the
Article can be implemented.
Article 13 (4) (5) - For PEP’S and This is a matter for elaboration in
Correspondent Banking it is suggested that guidance notes.