Anti Money Laundering And Countering Financing Of Terrorism Regulations

Money Laundering and Terrorist Financing

Anti-Money Laundering Explained

What is Money Laundering?

Money laundering is the process by which the proceeds of crime are processed ('washed') through the financial system in an effort to disguise their illegal origin. Money laundering involves:

an underlying, profit-making crime (e.g. tax evasion, fraud, theft, organised crime, drug trafficking, embezzlement);
an act to conceal, transfer or convert the proceeds of crime; and
the person involved knows or ought to have known that the property is the proceeds of crime.

The Three Stage Process

Although Money laundering is a single process it can be broken down into three stages

Placement - The placement stage is the first stage in the process whereby the cash proceeds of criminal activity enter into the financial system.
Layering - The second stage in the process is the layering stage. This stage is often the most difficult in the process and can involve the international movement of the funds. The overriding objective with this stage of the process is to distance the illicit money from its source. This objective is achieved by adding layers of financial transactions to thwart the audit trail so as to cut the link with the original crime.
Integration - The final stage of the money laundering process. At the integration stage the previously tainted money is reintroduced into the legitimate economy. The criminal proceeds are now fully reconditioned and integrated into the financial system giving off the appearance of legitimacy. The objective of the final stage in the process is to reconcile the money with the criminal in a manner which (1) does not draw casting eyes to its origins (2) gives off an appearance of legitimacy. Examples of this can include the purchases of businesses or properties, luxury items such as art work, jewellery, or high end cars.

One misconception of the three stage process is that people often believe that all three stages have to take place in order for money laundering to have occurred. This is not the case, each of the three stages can occur simultaneously, separately or they can overlap. However, it is important to note that the offence of money laundering will occur during each individual stage.

Terrorist Financing Explained

What is Terrorist Financing?

The offence of terrorist financing involves the provision, collection or receipt of funds with the intent or knowledge that the funds will be used to carry out an act of terrorism or any act intended to cause death or serious bodily injury. It also includes collecting or receiving funds intending that they be used or knowing that they will be used for the benefit of a terrorist group. Please see a full definition of the offence.

Targeted Financial Sanctions Related to Terrorist Financing

Financial sanctions are political measures taken to restrict the movement of funds to achieve a specific outcome. Targeted Financial Sanctions are a specific type of financial sanction with a stated objective, one of which is the prevention of terrorist financing.

Targeted Financial Sanctions can originate at the supranational level (EU) or international level (UN). While there is a clear obligation to comply with EU Council Regulations, it is also necessary to have regard to the designation of persons and entities by the United Nations Security Council Sanctions Committees ("UN Sanctions Committee(s)") in the terrorist financing context. The EU gives legal effect to Targeted Financial Sanction designations by the UN Sanctions Committees through EU Council Regulations.

Once a person or entity is designated by the UN Sanctions Committees, it is intended that funds or other assets are frozen without delay and not made available directly or indirectly to that sanctioned individual or entity. Targeted Financial Sanctions relating to terrorism are dealt with in United Nations Security resolutions 1267 (1999) and 1373 (2001) and their successor resolutions. Links to further information about Targeted Financial Sanctions is at the end of this page.

What is the difference between Money Laundering and Terrorist Financing?

While Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) preventative measures are dealt with together in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) ("CJA 2010"), it is important to note that a distinction exists in the nature of the two offences.

For money laundering to occur, the funds involved must be the proceeds of criminal conduct.
For terrorist financing to occur, the source of funds is irrelevant, i.e. the funds can be from a legitimate or illegitimate source.

The key consideration when taking measures to prevent terrorist financing is to examine the intended use or destination of the funds as opposed to its origin.

Why are Anti-Money Laundering and countering the Financing of Terrorism laws important?

Money laundering and Terrorist Financing diverts resources away from economically and socially productive uses and can negatively affect a country's financial system by undermining its stability. Weak Anti Money Laundering (AML) and Countering the Financial of Terrorism (CFT) controls will also have reputational consequences for a country's financial system.

It is important that a country is seen as having robust AML regulatory framework with financial firms effectively implementing AML systems and controls as it dissuades criminals from targeting that financial system.

It is important that Ireland, as a small, open economy with a thriving financial services industry, is an active participant in preventing its financial system from being used for money laundering and terrorist financing purposes.