On 12th October 2012 the Central Bank of Ireland (“Central Bank”) issued its findings resulting from on-site inspections which it carried out between 2010 and 2012.
In a letter (“the Letter”) issued to the CEO of each fund/ management company the Central Bank noted that the inspections revealed a significantly lower level of compliance with the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 (“the CJA 2010”) than expected. The Letter reminded each Board of Directors (“Board”) of its obligations to establish and maintain systems to mitigate AML/ CTFi risks inherent in its specific business activities. The Letter identified the following as being issues of particular concern to the Central Bank:
- Risk Assessment
- Policies and Procedures
- Customer Due Diligence (“CDD”)
- Suspicious Transaction Reporting
KB Associates (“KBA”) recommends each Board to take the following steps in order to ensure the matters arising in the Letter are addressed and to ensure compliance with the obligations set out in the CJA 2010.
- Request written confirmation from the Administrator with regard to the specific issues dealt with in the Letter. The Administrator should highlight any deficiencies in its current systems to the Board complete with an action plan, including a timeframe, for the resolution of deficiencies;
- Review the terms of the fund administration agreement setting out the duties delegated to the Administrator and the specific AML/CTF tasks undertaken by the Administrator on behalf of the fund;
- Review the documented policies and procedures of the Administrator in relation to the delegated AML/CTF tasks. If these procedures are appropriate to the business of the particular fund it may be reasonable for the fund to adopt the policies and procedures as its own. In adopting the procedures of the Administrator particular attention should be paid to the action taken to determine the risk rating assigned to each investor. These procedures should be periodically reviewed as further legislative and regulatory updates are issued;
- Establish clearly with the Administrator that while the Board sets the policies and procedures in relation to mitigating AML/CTF risks, it is the Administrator that is responsible for applying these policies and procedures. To this end, the risk rating assigned to each investor and the gathering of supporting AML documentation is delegated to the Administrator;
- Obtain transaction reports from the Administrator in order to meet the requirements under Section 35 (3) and Section 54 (3) (a) of the CJA 2010 to identify suspicious transactions. In addition to reviewing reports, Boards should review the criteria applied to determine the content of such reports;
- Review procedures at the Administrator in relation to the identification of politically exposed persons (“PEPs”) and sanctioned individuals;
- Ensure that any documented reliance arrangements entered into between the Administrator and third parties are without conditionality or restrictions in respect of the provision of underlying investors’ CDD. This is particularly relevant where third parties are based in jurisdictions with bank secrecy legislation;
- Ensure Boards receive training on the law relating to AML/ CTF and the AML procedures applied by the Administrator on behalf of the fund in order to satisfy the requirements of Section 54 (6) of the CJA 2010. This should be evidenced.
For more information regarding the AML/CTF obligations of investment funds please contact: Email: firstname.lastname@example.org Tel: +353 1 667 1984 This document is for information purposes only and is intended as a general guide. Professional and legal advice should always be obtained to address specific legal and other issues arising.
i AML/ CTF – Anti-Money Laundering/ Counter Terrorist Financing