Customer Due Diligence
Customer due diligence obligations apply to customers of persons within the scope of the legislation. They apply prior to establishing a business relationship or carrying out an occasional transaction on behalf of the customer. Customer due diligence must be carried out at any time where the risk of money laundering and terrorist financing warrants its application. This is in addition to the times already specified.
The measure shall be taken out prior to carrying out any service If having regard to the circumstances, including
- the type of service, customer, purpose, the value of the transaction,
- the type of business service
- the source of funds,
- the customers’ explanation for the source of funds
- the value of the transaction
- a person has reasonable grounds to suspect that the customer is involved in or the service or transaction sought by the customer is for the purpose of money laundering or terrorist financing or
The measure shall be taken out prior to carrying out any service. If, prior to the transaction, a person has reasonable grounds to doubt the veracity or adequacy of identification documentation or other documents which vouch the identity of the customer and the person is not obtained any other documents are information of the person has reasonable grounds to believe can be relied on to confirm the identity of the customers.
The measures shall also apply if at any time the relevant circumstances have changed where the risk of money laundering and terrorist financing warrants it
It also applies at any time when the designated person is obliged by virtue of any enactment or rule of law, including the European Union (Administrative Cooperation in the Field of Taxation) Regulations 2012 (S.I. No. 549 of 2012), to contact a customer for the purposes of reviewing any relevant information relating to the beneficial owner connected with the customer.
A credit institution may allow an account to be opened before customer due diligence measures are carried out, so long as no transaction is carried out. This applies to all financial institutions, and it applies to accounts that permit transactions in transferable securities.
Steps to be Taken
The measures applicable include the obligation to identify
- the customer, based on documents that can be relied on to confirm identity, including documents from government sources, prescribed classes of documents or information from trust services specified in the electronic identification regulations
- beneficial owners connected with the customer or service must be identified and measures reasonably warranted by the risk of money laundering or terrorist financing to verify the beneficial owner’s identity to the extent necessary to ensure that the person has reasonable grounds to be satisfied that he knows who the beneficial owner is and understands the ownership or control structure of the entity or arrangement.
- check the beneficial ownership registers for trusts and companies (see other articles)
Where the beneficial owner is a senior managing official in accordance with criteria in the money laundering directive measures must be taken to verify its identity keep records of the action taken to verify identity, including any difficulties encountered in the verification process
The obligations apply to beneficial owners of bodies corporates, beneficiaries under trust and, beneficial partners.. Designated businesses must identify and verify the identity of, any beneficial owner connected with the customer.
In broad terms, a person is a beneficial owner in respect of a company, or partnership, if he exercises control or holds more than 25% of the share capital, shares in it. Any person who “controls” the partnership is to be considered a beneficial owner, and not just persons who control the management of the partnership. A person is a beneficial owner in relation to a trust if he is entitled to at least 25% of the capital of the trust, controls the trust, or is entitled to an interest in at least 25% of the trust assets.
After the 2018 Act, the threshold of 25% ownership no longer applies, and settlors, trustees and protectors are now to be considered beneficial owners for the purpose of the legislation.
The 2018 Act also amends the definition of trusts insofar as it relates to other legal entities and legal arrangements. It deems them to the subject to an equivalent amendment to trustees so that the 25% ownership no longer applies, and the equivalent of settlors, trustees and protectors are considered beneficial owners for the purpose of the legislation.
The test looks through companies held by trusts. Control is defined widely to include power alone or exercisable with others, including with others’ consent to appoint and remove trustees, consent or veto the exercise of a power or to vary trust, dispose of or advance, lend, pay or apply any trust assets.
In addition to the measures required in relation to a customer and a beneficial owner, in the case of beneficiaries of trusts or of similar legal arrangements that are designated by particular characteristics or class, a designated person shall obtain sufficient information concerning the beneficiary to satisfy the designated person that it will be able to establish the identity of the beneficiary at the time of the pay-out or at the time of the exercise by the beneficiary of its vested rights.
Regulations may prescribe classes of documents and combinations of classes of documents which are adequate to identify customers. They may differ in relation to particular service providers’ transactions and risks of money laundering and terrorist financing.
A minimum of one or more of the following procedures must be applied to identify a customer;
• verification based on reliable documents;
• verification based on confirmation from another acceptable institution;
• ensuring one or more of the following if the following transactions is carried out through an account with an acceptable credit institution;
o first payment by the customer to the person for the service;
o first payment in relation to a transaction in case of persons trading in goods in respect of transactions mentioned below, where such payment is made to the designated person.
• in the case of transactions involving payment of a total of at least €15,000 where such payment is made by the customer to another designated entity/ person.
An acceptable institution is a credit institution that carries on business in the State or in another State subject to Money Laundering legislation.
The Minister may prescribe classes of documents or a combination of documents for the purpose of identifying adequate identifications.
Delay in Identification
A designated person may verify the identity of a customer or beneficial owner during the establishment of a business relationship if he has reasonable grounds for believing that verifying the identity of the beneficial owner prior to the establishment would interrupt the normal conduct of business, and there would be no real risk that the consumer is involved in, nor is service sought by the customer for the purpose of money laundering or terrorist financing.
However, the designated person must take reasonable steps to verify the identity of the customer, in accordance with the above procedures, as soon as practicable. A credit institution may open a bank account before verifying identity if it must verify identity before transactions are undertaken.
Where a designated person was unable to take the measures specified above as a result of failure on the part of the customer to provide the relevant documents, he/it must not provide the service or carry out the transaction for so long as the failure remains unrectified. He shall discontinue the business relationship if any.
This does not apply to prevent a legal professional or other professional adviser from ascertaining a person’s legal position or performing the task of defending or representing a person in civil or criminal proceedings, including providing advice instituting or avoiding such proceedings.
Investment Funds & Policies
Additional obligations apply in relation to a customer and beneficial owner to credit institutions and financial institutions with respect to investment funds and policies. As soon as the beneficiaries of life assurance and other investment-related assurance policies are identified or designated, a credit institution or financial institution shall—
- take the names of beneficiaries that are identified as specifically named persons or legal arrangements, and
- in the case of beneficiaries designated by characteristics, class or other means, obtain sufficient information to satisfy the institution that it will be able to establish the identity of the beneficiary at the time of the pay-out.
A credit institution or financial institution shall verify the identity of a beneficiary at the time of the payout.
In the case of assignment, in whole or in part, of a policy of life assurance or other investment-related assurance to a third party, a credit institution or financial institution that is aware of the assignment shall identify the beneficial owner at the time of the assignment to the natural or legal person, or legal arrangement, receiving for his or her, or its, own benefit the value of the policy assigned.
Breach of any of the above constitutes an offence. A person is liable on summary conviction to a fine up to €5,000 or imprisonment up to 12 months or both. He is liable on conviction on indictment to a fine or imprisonment of up to five years.