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Implications of the New Anti-Money Laundering Directive

February 2005 - Corporate & Commercial. Legal Developments by Dillon Eustace.

More articles by this firm.

A Proposed Directive on the "Prevention and Use of the Financial System for the Purpose of Money Laundering including Terrorist Financing" was published by the European Commission at the end of June. This Directive will replace and repeal the existing 1991 Money Laundering Directive (91/308/EEC), which was amended in 2001 (2001/97/EC). The principle purpose of the Directive is to ensure the consistent application of the new Financial Action Task Force ("FATF") 40 Recommendations (June 2003) across all Member States. The EU Presidency has indicated that it will give priority to the Directive and technical discussions are due to commence shortly. Member States will be required to transpose the Directive within 12 months of its entry into force.

Some of the key implications of the Directive for designated bodies are:

(a) New Designated Bodies - In accordance with the latest FATF Recommendations the following entities have been added to the list of designated bodies by the Directive:

Trust and company service providers (who must be licensed or registered);
Insurance intermediaries (life and other investment related insurance);
Other persons trading in goods or providing services for cash payment of €15,000 or more.

(b) Know Your Client - The following enhancements have been made to the existing client identification requirements:

Beneficial ownership; a new definition of "beneficial owner" has been introduced and there are enhanced obligations on designated bodies to ensure that they take reasonable measures to understand the ownership and control structure of the client.

Risk-based due diligence; In accordance with the FATF Recommendations the Directive allows for client identification procedures to be carried out on a "risk-sensitive" basis. Whilst these requirements do not differ substantially from the status quo they do introduce the concepts of "simplified" and "enhanced" customer due diligence.

Timing and existing accounts; The Directive clarifies that if customer identification cannot be carried out in an adequate manner then the relationship should be terminated. In addition, there is a new requirement to examine old accounts where there are doubts about the veracity or adequacy of previously obtained customer identity documents.

Designated Bodies; the Directive confirms that when a customer is being referred to a designated body by another designated body, the designated body is permitted to recognise the due diligence carried out by the introducing designated body even when it is of a different standard to the requirements its jurisdiction so long as it meets the requirements under the Directive.

(c) Non-EU Subsidiaries - The Proposed Directive requires credit and financial institutions to apply customer identification and record keeping requirements at least equivalent to those set out in the Directive to their branches and subsidiaries located outside the EU if possible and where applicable. The aim of this requirement is to avoid the application of very different standards within one financial group.

(d) Employee Protection - The Proposed Directive clarifies that any suspicious transaction report made under the requirements of the Directive will not constitute a breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory or administrative provision. Due to the fact that employees have reportedly been subject to threats as a result of having made suspicious transaction reports to the relevant authorities, the Proposed Directive has introduced a requirement for Member States to do whatever is in their power to prevent employees from being threatened or victimised.

(e) Corporate Liability - The Proposed Directive clarifies that companies can be held liable for breaches of the record keeping, customer identification and suspicious transaction reporting obligations set out in the Directive which are committed for their benefit by any person who has a "leading position" within the company.

For further information on the above, please contact Paula Kelleher or any other member of our Regulatory and Compliance Department.

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