AML Risk Factors

Risk Levels

The legislation contemplates three levels of customer due diligence reflecting the risk-based approach;

• standard customer diligence
• simplified customer due diligence and
• enhanced customer due diligence.

Businesses covered by money-laundering legislation may take the identification and other obligations applicable in a manner and to such extent as reasonably warranted by the lower risks involved in relation to a business relationship or transaction where it identifies in the risk assessment an area of lower risk into which the relationship or transaction falls and considers that the relationship or transaction presents a lower risk. The general criteria for assessing risk applies.

A business relationship or transaction may be considered to present a lower degree of risk if a reasonable person having regard to the relevant criteria would determine that the relationship or transaction presents a lower risk of money laundering or terrorist financing.

Policies and Procedures

Businesses subject to money-laundering obligations are obliged to have certain written policies and procedures under that legislation. They must examine the background and purpose of all transactions that are

• complex
• unusually large
• conducted in an unusual pattern
• does not have an apparent economic a lawful purpose.

They must increase the degree and nature of monitoring of a business relationship in order to determine whether such transactions appear suspicious. Failure to do so is subject to the same sanctions as a breach of the general money-laundering obligations.

Simplified Due Diligence

Simplified customer due diligence allows reduced due diligence in such cases where the money laundering/terrorist financing risk is relatively low.

Designated businesses may  apply simplified customer due diligence- that is, applying customer due diligence measures in such manner, to such extent and at such times as is reasonably warranted by the lower risk of money laundering or terrorist financing.

Simplified customer due diligence can only be applied where a designated business has identified an area of lower risk in its business risk assessment, the business relationship or transaction falls into that area, and the relationship or transaction concerned can reasonably be considered, having regard to certain matters, to be low risk. Where this  is applied, the reasons for its application and the evidence on which it was based must be recorded, and the business relationship and transactions concerned must be monitored.

Where simplified due diligence measures are applied a record must be kept of the reasons for so deciding and the evidence on which it was based. The person or entity must carry out sufficient monitoring of the transactions and business relationships to enable it to detect unusual or suspicious transactions. Additional criteria may be prescribed by regulations.

Standard Due Diligence

Standard due diligence requires the relevant entities subject to the legislation to identify their customers and verify the identity of customers’ beneficial owners on a risk-based approach. They must identify them and obtain information on the purpose and intended nature of the business concerned. See the other Chapters.

Obtaining Information

Businesses covered by money-laundering obligations must obtain information reasonably warranted by the risk of money-laundering or terrorist financing,on the purpose and intended nature of the business relationship prior to establishing that business relationship.

Where it is unable to do so, it must not provide the service for as long as that failure continues. It must monitor any business relationship with the customer to the extent reasonably warranted by the risk of money-laundering or terrorist financing.

Before establishing a business relationship with a customer which is subject to obligations to disclose beneficial ownership under EU legislation, the service provider must ascertain that the information concerning beneficial ownership is entered on the beneficial ownership register provided for under the legislation.This applies to the legislation regarding beneficial ownership of trusts and companies.

A financial institution or credit institution may allow an account to be opened but may not carry out transactions until it has done so.

A breach of the above obligations is subject to the same sanctions as a breach of the general money-laundering obligations.

Identifying High Risk Cases

Where the customer is from certain prescribed places, certain other provisions apply, or there are obligations to apply enhanced due diligence obligations that mentioned next.  Enhanced due diligence obligations apply in relation to so-called politically exposed persons.

A designated business is to take steps to determine whether or not a customer, or a beneficial owner connected with a customer or service concerned, is a politically exposed person or an immediate family member, or a close associate of a politically exposed person.

Steps must be taken before establishing a business relationship or carrying out a transaction.  Steps to be taken are such steps as are reasonably warranted by the risk that the customer or beneficial owner is involved in money laundering or terrorist financing.

Enhanced Due Diligence

Enhanced due diligence provides for more onerous requirements for customers and businesses who appear to present a higher risk.

A  designated business is to apply enhanced customer due diligence measures when dealing with a customer established or residing in a high-risk third country. There is an exception that applies when the customer is a branch or majority-owned subsidiary of a designated business established in the European Union which complies with the group’s group-wide policies and procedures. These cases must be dealt with using a risk-based approach.

A designated business must apply enhanced customer due diligence measures where a business relationship or transaction presents a higher degree of risk. This is to be applied where the relationship or transaction concerned can reasonably be considered, having regard to certain matters, to be high risk. The Minister may prescribe a factor that is suggestive of high risk and that must be taken into account by designated businesses.

PEPs

Enhanced customer due diligence applies to politically exposed persons. A politically exposed person is an individual who is or has, within the previous 12 months, been entrusted with a prominent public position, including

• certain designated officials
• politicians
• managers of state-owned enterprise and
• certain other prescribed individuals.

They include members of the government Parliament governing bodies of a political party, judges, Central bank auditors’ ambassadors and persons involved in certain international organisations.

Close Associates

Close associates include those with close and connected business interests or trustees or hold assets for the benefit of the person concerned. Immediate family members include spouses, children parents thousands of children and other classes of person.

Where a customer or beneficial owner is a politically exposed person or a family member or close associate the designated institution must take steps to determine the source or funds or wealth.

Where it cannot be produced, the designated person cannot continue the relationship. They must obtain senior management approval for an ongoing business relationship.

A close associate is

• an individual who is a joint beneficial owner of a legal entity arrangement or a close business relation of the politically exposed person.
• anyone who has sole beneficial ownership of a legal entity or a legal arrangements setup for the actual benefit of the PEP.
• an immediate family member, spouse, partner, co-habitant child or spouses of children or equivalent.

Scope of PEP

A politically exposed person is an individual who has at any time in the preceding 12 months been entrusted with a prominent public function, including

• specified officials,
• members of the administrative, management and supervisory body of state-owned enterprises.

A specified individual means any head of State, government, government Minister; a Member of Parliament; senior judge ambassador or high-ranking officer in the army, chargé d’affair.

Immediate family members include spouses, an equivalent of spouses, children, spouses of children, parent and other family members who are prescribed.

A designated entity is deemed to know that another is a politically exposed person or is an immediate family member on the basis of

• information in its possession,
• in cases where the designated business has contravened the requirements,  information that would have otherwise come into his possession
• or public knowledge, and

on the basis of the above, that there are reasonable grounds for concluding that the designated business so knows

PEP Action

If a designated business knows or has reasonable grounds to believe a customer residing outside the State is or has become politically exposed, an immediate family member or close associate of a politically exposed person, they shall ensure that

• approval is obtained from senior management of the designated business before the business relationship is established or continued;
• determine the source of wealth and all funds for the following transactions:
  • transactions the subject of a business relationship with the customer that is carried out with the customer in respect of which the service is sought, or
  • occasional transactions carried out on behalf of the customer and
• they apply such additional measures in the course of monitoring the business relationship, including monitoring the source of wealth and funds;
• that the business it is warranted by the risk of money laundering or terrorist financing.

If a designated business is unable to apply the measures, it must discontinue the business relationship or not provide services.