Copyright Page

IMF Country Report No. 22/324

IRELAND

FINANCIAL SECTOR ASSESSMENT PROGRAM

TECHNICAL NOTE ON ANTI-MONEY LAUNDERING/COMBATING THE FINANCING OF TERRORISM

October 2022

This Financial Sector Assessment Program on Ireland was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on October 5, 2022.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623-7430 • Fax: (202) 623-7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2022 International Monetary Fund

Title Page

IRELAND

FINANCIAL SECTOR ASSESSMENT PROGRAM

October 5, 2022

TECHNICAL NOTE

ANTI-MONEY LAUNDERING/COMBATING THE FINANCING OF TERRORISM

Prepared By

Legal Department

Contents

• Glossary

• EXECUTIVE SUMMARY

• ML/TF RISK AND CONTEXT

• AML/CFT RISK-BASED SUPERVISION OF BANKS AND VASPS

• AML/CFT RISK-BASED SUPERVISION OF PROFESSIONAL GATEKEEPERS

• ENTITY TRANSPARENCY AND AVAILABILITY OF ACCURATE BENEFICIAL OWNERSHIP INFORMATION

• BOX

• 1. Data Analytics for Monitoring Cross-Border Flows

• FIGURE

• 1. Aggregate Cross-border Payments

• TABLE

• 1. Main Recommendations

Glossary

Executive Summary

While domestic money laundering (ML) threats are well understood by the authorities, Ireland faces significant and increasing threats from foreign criminal proceeds. As a growing international financial center,¹ Ireland is exposed to inherent transnational money laundering and terrorist financing (ML/TF) related risks. The ML risks facing Ireland include illicit proceeds from foreign crimes (e.g., corruption, tax crimes). Retail and international banks, trust and company service providers (TCSPs),² lawyers, and accountants are medium to high-risk for ML, while virtual asset service providers (VASPs) pose emerging risks. Brexit, the recent move of international banks to Dublin, and the COVID-19 pandemic increased the money laundering risks faced by Ireland. The Central Bank of Ireland (Central Bank) nevertheless has demonstrated a deep and robust experience in assessing and understanding their domestic ML/TF risks; however, an increased focus on risks related to transnational illicit financial flows is required. A thematic risk assessment undertaken by the Anti-Money Laundering Steering Committee (AMLSC) of international ML/TF risks would enhance the authorities’ risk understanding and is key to effective response to the rapid financial sector growth. Introducing data analytics tools, including machine learning to leverage potentially available big data on cross-border payments, would allow for efficient detection of emerging risks. The results of this assessment should be published to improve the understanding of transnational ML/TF risks and feed into the anti-money laundering and combating the financing of terrorism (AML/CFT) policy priorities going forward.

Priority should be given to enhancing the breadth and depth of data gathering and analysis of ML/TF risks in order to support the AML/CFT risk-based supervision of financial institutions (FIs), especially given the fast-growing supervisory population in Ireland. The Central Bank has a comprehensive and well-designed AML/CFT supervisory approach with depth of engagement determined by an entity’s overall risk rating (inherent ML/TF risk and AML/CFT controls rating) and informed by the 2016 national risk assessment (NRA) and more recent sectoral assessments. However, given the considerable expansion of the financial sector, an augmentation of resources and personnel would be necessary to maintain the current depth of supervisory engagement. Since 2017, the Central Bank has broadened access to data from its cohort of supervised entities, but available cross-border data and analytical tools remain insufficient. While providing robust assessment of domestic ML/TF risks, the current desk-based and on-site inspections conducted, may need to be reassessed to ensure that they adequately reflect the increasing risks of the fast-growing supervised entities with significant increase in related financial flows. In the last four years, the number of supervised entities increased significantly (with increases in sectors classified by the Central Bank as high and medium-high risk, including international banks, e-money institutions, and fund administrators), and the volume of financial flows more than tripled. Broad access to data from supervised entities coupled with robust analytical tools as well as improved resourcing and upskilling will further contribute to maintaining the effectiveness of Central Bank’s risk-based supervision by keeping pace with the changes in the sector. The Central Bank’s risk-based supervision should continue focusing on domestic and international banks with a potential reassessment of the supervision of international banks utilizing the results of analysis of transnational flows and adjustment to the risk-based tools for banks. The Central Bank has a broad enforcement toolkit and can impose measures ranging from directives to fines and should continue to vigorously pursue enforcement actions in line with compliance breaches and risk-levels.

Commencement of the registration process for VASPs is a welcome move. A few minor legal deficiencies remain with respect to customer due diligence (CDD) thresholds and the travel rule as applicable to VASPs and will be addressed in an upcoming regulation. The Central Bank is currently processing a significant number of applications for registration of VASPs and expects a high volume of transactions in the sector. A comprehensive assessment of applicants is undertaken as part of the registration process, with detailed engagement and outreach. The Central Bank should invest in developing proper supervisory tools for the sector, provide adequate training to supervisors to meet the demands of the sector, and increase resources (e.g., human, technical, budget) commensurate with risks.

Efforts to inform and raise awareness of key ML/TF risks for lawyers (or solicitors), accountants and TCSPs (professional gatekeepers) are positive developments, however, inconsistencies across supervisors in resources, depth of supervision and available sanctions undermine effectiveness. The Department of Justice’s Anti-Money Laundering Compliance Unit (AMLCU) as well as self-regulatory bodies (SRBs) continue to make extensive efforts to improve the understanding of the supervised population of their AML/CFT obligations through guidance, training, and feedback. The recently published risk assessment of the TCSP sector is also a welcome move and should inform supervisory engagement with the sector. Awareness programs could improve compliance by supervised entities; however, suspicious transaction report (STR) filings in the sector remain dismally low. The supervision of professional gatekeepers is not commensurate with risk levels in the sector. Furthermore, fragmentation of supervision (except in the case of solicitors and barristers, where there is only one designated supervisor for each), leads to inconsistency in supervisory approaches and potential for regulatory arbitrage. The enforcement toolkit of supervisors of professional gatekeepers is also different to that of the financial sector, with limited options for imposing monetary penalties.

Ireland has made an important step forward with the creation of three beneficial ownership (BO) registries in 2019 and 2020 for companies, trusts, and certain financial vehicles.³ A sectoral risk assessment for legal persons and legal arrangements was published in 2020 showing a significant risk of ML for certain entities, particularly those with complex ownership structures. The Pandora Papers recently highlighted potential misuse of limited partnerships and, in particular, suggested that a lack of transparency in respect of the third-country partners based in certain jurisdictions meant that some limited partnerships could not be easily subject to scrutiny. Although significant efforts have been made to collect the information, the Central Beneficial Ownership Register of Companies and Industrial & Provident Societies should ensure registration is complete and up to date. Furthermore, while verification is being regularly conducted, that Register should also enhance accuracy and access to the information. The professional gatekeepers could assist in improving the quality of BO information, promptly submitting and updating information as well as discrepancies reports. Finally, streamlining the submission of discrepancies reporting by supervised entities during their own CDD activities could enhance verification of the data and its timeliness.

This Note provides a targeted review of Ireland’s AML/CFT regime in the context of the 2022 Financial Sector Assessment Program (FSAP).⁴ It builds upon the 2017 Financial Action Task Force (FATF) Mutual Evaluation Report, the 2019 and 2022 follow-up reports, information provided by the authorities, and publicly available materials. Staff analysis greatly benefitted from discussions in a virtual setting from February 14–18, 2022, with key agencies, particularly, the AMLSC, the Central Bank, the Financial Intelligence Unit (FIU), and the Ministry of Justice. The Fund FSAP team deeply appreciates the staff of these agencies for their professionalism, patience, and candor throughout the process.

The note highlights the key developments and progress made by the authorities in three important AML/CFT areas, notably (i) understanding of ML/TF risks including in relation to transnational flows, (ii) risk-based supervision of banks, solicitors, accountants, and TCSPs, and (iii) availability of beneficial ownership information of legal persons and arrangements.

Table 1.

Ireland: Main Recommendations

Table 1.

Ireland: Main Recommendations

Recommendation	Responsible Agency	Timeline
Understanding of Risk and AML/CFT Priorities
1. Understanding of ML/TF risks. Conduct and publish a thematic assessment on transnational aspects of ML/TF risks and communicate it domestically to enhance the understanding of related risks.	AMLSC	ST
2. Reprioritize AML/CFT policy. AML/CFT national policy and institutions should prioritize tackling ML/TF risks related to cross-border and non-resident activity.	AMLSC	ST
AML/CFT Supervision
3. Banks and other FIs. Enhance risk-based supervision through broader data collection (particularly cross-border data), use of analytical tools, proportionate and dissuasive enforcement actions, and increased resourcing.	Central Bank	ST
4. VASPs. Commence risk-based supervision of the sector as a priority, with enhancements in resourcing and upskilling as appropriate.	Central Bank	ST
5. Assessment of Threats. Use broader data and analytical tools to enhance the understanding of threats facing individual FIs, including links to higher risk jurisdictions and non-resident exposure.	Central Bank	ST
6. Increased Resources. Recruit additional AML/CFT qualified supervisors and risk experts and provide them with the necessary tools (e.g., data, IT solutions) to effectively perform their functions.	Central Bank	ST
7. Lawyers, accountants, and TCSPs. Oversee efforts to ensure consistency of supervisory approaches over these sectors, including considering the determination of the mandate and powers of a regulatory body with the role of ensuring consistency in supervisory approaches among SRBs. Supervisors to have powers to impose monetary penalties for contraventions of AML/CFT obligations.	AMLSC with AMLCU and relevant SRBs	ST
Entity Transparency
8. Beneficial ownership: Make the BO information of legal entities and arrangements more accurate and easily accessible.	Central BO Registers	ST
I = Immediate (now to one year); ST = Short Term (within one to three years)

View Table

Table 1.

Ireland: Main Recommendations

Recommendation	Responsible Agency	Timeline
Understanding of Risk and AML/CFT Priorities
1. Understanding of ML/TF risks. Conduct and publish a thematic assessment on transnational aspects of ML/TF risks and communicate it domestically to enhance the understanding of related risks.	AMLSC	ST
2. Reprioritize AML/CFT policy. AML/CFT national policy and institutions should prioritize tackling ML/TF risks related to cross-border and non-resident activity.	AMLSC	ST
AML/CFT Supervision
3. Banks and other FIs. Enhance risk-based supervision through broader data collection (particularly cross-border data), use of analytical tools, proportionate and dissuasive enforcement actions, and increased resourcing.	Central Bank	ST
4. VASPs. Commence risk-based supervision of the sector as a priority, with enhancements in resourcing and upskilling as appropriate.	Central Bank	ST
5. Assessment of Threats. Use broader data and analytical tools to enhance the understanding of threats facing individual FIs, including links to higher risk jurisdictions and non-resident exposure.	Central Bank	ST
6. Increased Resources. Recruit additional AML/CFT qualified supervisors and risk experts and provide them with the necessary tools (e.g., data, IT solutions) to effectively perform their functions.	Central Bank	ST
7. Lawyers, accountants, and TCSPs. Oversee efforts to ensure consistency of supervisory approaches over these sectors, including considering the determination of the mandate and powers of a regulatory body with the role of ensuring consistency in supervisory approaches among SRBs. Supervisors to have powers to impose monetary penalties for contraventions of AML/CFT obligations.	AMLSC with AMLCU and relevant SRBs	ST
Entity Transparency
8. Beneficial ownership: Make the BO information of legal entities and arrangements more accurate and easily accessible.	Central BO Registers	ST
I = Immediate (now to one year); ST = Short Term (within one to three years)