Money laundering is the processing of cash and assets obtained from criminal activities to disguise their illegal origin. It is a world-wide problem and governments have been taking major steps in recent years to combat it. The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 updates Irish anti-money laundering and terrorist financing legislation and brings it in line with the requirements of the third EU Money Laundering Directive (2005/60/EC).
To help the financial services industry understand and apply the requirements set out in the Act, a set of Core Industry Guidelines was created. A key feature of the Core Guidelines in the area of customer due diligence, is the concept of a ‘risk based approach’. This means each company assesses the risk of money laundering or terrorist funding associated with its products, customers and delivery channel and determines the amount of customer due diligence measures it needs to apply. Customer due diligence is essentially the steps a company takes to know from whom money is coming; who is controlling it and to whom it will eventually be repaid.
Information will be gathered such as the investors name, address and date of birth together with information regarding income and occupation; source of funds and source of wealth. Source of funds basically means the account the money comes from and the name on that account. Source of wealth is how the investment was funded or how the investor was able to generate the funds being invested, for example, from earnings, inheritance or the sale of investments or property. Customer due diligence is required when new investments are made, when existing investments are topped up or surrendered in full or in part.
Enhanced due diligence is required where an investor is a Politically Exposed Person [PEP]. A PEP is an individual who is entrusted with a prominent public function or who has held such a position in the previous 12 months, for example, Head of State, Government Ministers, Judges and Ambassadors.