Financial institutions have been drafted into the front line in assisting the authorities with new anti-crime measures. The recently enacted Criminal Justice Act, 1994 contains a raft of measures intended to deprive criminals of their ill gotten gains. In an effort to prevent the financial system being used to launder the proceeds of drug trafficking and other serious crimes, the Act creates the new offence of money laundering. It also imposes significant duties on financial institutions to identify clients, record transactions and report suspicions of money laundering. The penalties for non-compliance with these duties are significant.

The Act, and in particular the anti-money laundering measures, represent the Irish response to its international and European Union obligations to prevent the financial system being exploited by criminals. Given the ease of international money flows, the Organisation for Economic Co-operation and Development and the EU are concerned that harmonised measures operate in each member country.

Section 31 of the Act creates a series of new offences which are labelled as money laundering offences. This section outlaws the concealing, disguising or handling of property (including money) which represents the proceeds of drugs trafficking or other criminal activity. It also makes it an offence to convert, transfer or remove that property from Ireland. It is an offence to assist a person to conceal, disguise, convert, transfer or remove property where the person knows or thinks that the source of the proceeds was probably from criminal activity. Reflecting the international aspects of the Act, it does not matter for the purposes of this section whether the proceeds are derived from crimes committed outside Ireland provided that there is a corresponding Irish offence. The law applies equally to proceeds of crimes committed before, as well as after, the passing of the Act.

The penalties for committing an offence under section 31 are severe. On conviction on indictment before a judge and jury, the court may impose a prison term of 14 years or an unlimited fine or both. If the offence is prosecuted in a summary fashion, the penalties available on conviction are a fine of IR£1,000 or a term of imprisonment of 12 months or both.

Section 32 of the Act imposes a new legal requirement on financial institutions, and others who provide certain financial services, to identify their clients. The Act states that "reasonable measures" must be adopted by certain designated bodies to establish and verify the identity of a new client. While the Act does not specify what is meant by "reasonable measures," the Money Laundering Steering Group (which comprises representatives of governmental agencies and the financial services industry) is soon to issue guidelines on the best practices that should be adopted. Originals or verified copies of the original transaction documentation must be retained by the designated body for five years after the relationship with the client has ended. Failure to meet the identification requirements has serious consequences. Upon conviction on indictment, an unlimited fine or a five year jail sentence or both may be imposed. A summary conviction may result in a fine of IR£1,000 or a one year jail term or both.

The next provision of the Act of particular significance for financial institutions is section 57. This section requires knowledge or suspicions of money laundering or of non-compliance with section 32 to be reported directly to the police. Although, the primary reporting obligation is on the person who originally has knowledge or suspicion of the offence, the Act permits the matter to be reported 'up the line' to the reporting officer in the relevant financial institution. When the employee reports his or her information in accordance with approved internal reporting procedures, he or she has satisfied their statutory reporting obligation. The reporting officer must then decide whether knowledge or suspicion of an offence under sections 31 or 32 is established. If so, it must be reported by that officer to the Money Laundering Investigations Unit of the police.

The bulk of the provisions of the Act came into force on 14 November 1994. Present indications are that the provisions most directly relevant to financial institutions (sections 32 and 57) will come into force on 1 April 1995. It is anticipated that the guidance notes for the various sectors of the financial services industry will be circulated before the commencement date.
by Ambrose Loughlin

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Note: McCann FitzGerald has been closely involved in helping the financial services industry adapt to the new anti-money laundering regime. For further information, please contact Brian O'Connor or Ambrose Loughlin in our Dublin office.