Is Ireland Upholding FATF Standards?

By Graham Reynolds
Graham Reynolds is a student at Trinity College Dublin obtaining his Bachelor in Laws (LL.B.).

In 1991, Ireland joined the Financial Action Task Force (FATF), an inter-governmental institution established in 1989 to “set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system” to uphold the leading international standards for financial crimes. [1] In 2016 Ireland will once again be under review by the institution. It has been argued that there are still large segments missing from the Irish statutory regime which will prevent it from passing the standards and fitness test. [2]

The Irish financial sanctions regime targets specific individuals and entities with the aim of freezing their assets. [3] The regime is made up of a number of different statutory instruments which implement sanctions imposed by the UN Security Council and by the European Union (EU). [4] There are essentially three offences :(i) making funds available (directly or indirectly) to or for the benefit of a target (ii) dealing with funds owned, held or controlled (directly or indirectly by a target) or a person acting on behalf of a target; and participating knowingly and intentionally, in activities the object or effect of which is to circumvent the prohibitions on making funds available and (iii) dealing with funds; and to enable or facilitate the commission of the offence.

Financial and economic sanctions are implemented in Ireland through secondary legislation made under the authority of a number of different statutory provisions. Section 4 of the Financial Transfers Act of 1992 empowers the Minister for Finance to make orders restricting “financial transfers between the State and other countries.” [5] 

Section 42 of the Criminal Justice (Terrorist Offences) Act of 2005 further empowers the Minister for Finance to make regulations to give full effect to acts “adopted by the institutions of the European Communities… that, in the opinion of the Minister for Finance, are for the purpose of, or will contribute to, combating terrorism through the adoption of specific restrictive measures, directed at persons, groups or entities, for the identification, detection, freezing, or seizure of their assets of any kind.” [6] 

Section 4 of the Financial Transfers Act, Section 42 of the Criminal Justice Act 2005 and Section 3 of the European Communities Act 1972 have been used extensively in implementing financial sanctions. [7] Secondary legislation made under these statutory provisions empowers the Central Bank of Ireland to administer and enforce financial sanctions in collaboration with relevant government departments and public bodies.
  
By joining the FATF, Ireland endeavors to implement its regulation of Financial Sanctions by following the international best practices established by the task force and outlined in Recommendation 6. It is held that there are two areas where Ireland’s current statutory scheme could be falling short of its obligations to FATF. First, its obligation to ensure that there exists the appropriate structures and procedures to produce the effective implementation of the asset freeze mechanism under Section 1.E.15 [8] and its obligation to provide that financial institutions have appropriate procedures and resources to meet their obligations of Recommendation 6 under Section 3 (49) (d). [9]

With regard to this issue, the financial sanctions regime is implemented by three principal regulations from an EU level to a domestic Irish level: The Financial Transfers Act Of 1992, The Criminal Justice Act 2005 and the European Communities Act of 1972. However, it ought to be noted that under the 1942 Central Bank Act, [10] the powers conferred to the Central Bank, such as administrative sanctions (“ASP”), [11] are not applicable to the European Communities Act given its omission to the listing in Schedule 2 and are only effective under the Financial Transfers Act and the Criminal Justice Act. This is quite an omission given that most Statutory Instruments are introduced under the European Communities Act. Furthermore, some of the Statutory Instruments confer the Central Bank of Ireland powers of administration and enforcement that don’t necessarily exist. 

For example, Statutory Instrument 34/2012, [12] which gave effect to Council Regulation No.961/2010 as amended and imposed financial sanctions on Iran, was exercised by the powers conferred by way of Section 3 of the European Communities Act. This effectively rued out the Central Bank’s ability to impose ASP. Yet Section 5 of Statutory Instrument 34/2012 explicitly notes that “The Central Bank of Ireland may, for the purposes of the administration and enforcement of the provisions of these regulations, give such directions or issue such instructions to a person as it sees fit.” [13] Furthermore, in the explanation notes, the Statutory Instrument holds that the purpose of the Central Banks’ instruction is to give full effect to financial sanctions. [14] Nowhere else in the Statutory Instrument is a competent Authority cited. This has the result of producing quite a significant enforcement void in the financial regulatory framework.

Similarly, under Section 3.49.(d), there is an obligation to ensure that financial institutions have the appropriate procedures and resources to meet their obligations under Recommendation 6. However, under the Criminal Justice Act for financial sanctions, there is no reciprocal to Section 54 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 which creates an obligation for a designated person to adopt necessary policies and procedures to prevent and detect the commission of money laundering and terrorist financing. [15] The failure of this, as stated in the Act, can result in a fine and/or imprisonment. The lack of this type of section in the Criminal Justice Act means there is no duty to implement appropriate procedures as required by the financial action task force. 
 
 Whilst these omissions have satisfied the current statutory framework,  given the increasing use of financial sanctions as an instrument of foreign policy and the subsequent transition to what are known as “advanced” or “smart” sanctions, Ireland is failing to uphold its obligations and ought to amend these omissions before the situation becomes more complicated.

[1]http://www.fatf-gafi.org/countries/d-i/ireland/
[2] ibid.
[3] http://www.centralbank.ie/regulation/processes/Intfs/Pages/default1.aspx
[4] The Council first adopts a Common Position under Article 15 of the TEU. The measures foreseen in that Common Position are either implemented at EC or at national level. Measures such as Arms embargoes or restrictions on admissions are implemented directly by the Member States, who are legally bound to act in conformity with EU Common Positions. Other Measures interrupting or reducing, in part or completely, economic relations with a third country, including measures freezing funds and economic resources, are implemented by means of an EC Regulation, adopted by the Council on a proposal from the Commission and are based on the provision of the Treaty establishing the European Community - in particular Article 215 TFEU in conjunction with Article 70 TFEU. 
[5]Section 4 of the Financial Transfers Act 1992 
[6]Section 42 of the Criminal Justice (Terrorist Offences) Act 2005 
[7]http://www.irishstatutebook.ie/1972/en/act/pub/0027/index.html
[8] http://www.fatf-gafi.org/media/fatf/documents/recommendations/bpp-fin-sanctions-tf-r6.pdf , p.7
[9] ibid.
[10]Central Bank and Financial Services Authority of Ireland Act 1942 (As amended)  
[11]http://www.irishstatutebook.ie/2004/en/act/pub/0021/sec0010.html
[12] http://www.irishstatutebook.ie/2012/en/si/0034.html
[13] S.5 ibid
[14] http://www.fatf-gafi.org/media/fatf/documents/recommendations/bpp-fin-sanctions-tf-r6.pdf p.16
[15] http://www.irishstatutebook.ie/2010/en/act/pub/0006/sec0054.html#sec54