Originally posted on Business Post 21 March 2021.
President Michael D Higgins is expected to soon sign a piece of criminal justice legislation to bring Ireland into line with EU initiatives to combat money-laundering.
Successful approaches to criminality must tackle both the crime itself, ie, where the money came from, and serve to limit the use of the proceeds. There is no point in stealing or extorting money if it cannot be spent.
Anti-money laundering initiatives are not new to this country. A need to “know your customer” explains why banks, which normally do their utmost to keep their customers at a safe electronic distance, insist on their physical presence and tangible evidence when opening a bank account. Similar responsibilities extend beyond the traditional financial institutions where a business handles perhaps unexplained bundles of money.
There is no particular onus on individual businesses to identify the proceeds of crime, but the law creates a requirement to notify something that might be unusual. These “suspicious transaction reports”, as they are known, are the foundation for anti-money laundering initiatives. Reports are made both to the Gardaí and to the Revenue Commissioners.
The new legislation will bolster the existing money laundering laws by widening and deepening the duties of care for the likes of tax advisers, letting agents, bitcoin traders and art dealers.
Because of the multinational nature of organised crime, there is little benefit if only one country applies anti-money laundering laws. It is a good thing that the initiative is European-driven. We are merely applying approaches already agreed by all of the EU member countries in our national law. Britain has enthusiastically adopted this regulatory environment, claiming some credit for devising it in the first place, and promising to stay aligned. In this area, at least, the British seem unlikely to diverge from European standards.
European regulation isn’t just about the law. It is also about whether the agency responsible for enforcement is located centrally, or is devolved to each of the individual member states. For instance, few of us had heard of the European Medicines Agency, which somewhat ironically had been located in Britain before Brexit, until we all developed a fascination with vaccines, but its work is key to the authorisation of medicines across Europe.
By contrast, while anti-money laundering policy is coordinated, enforcement remains primarily the responsibility of domestic governments, at least for the time being.
Any system of regulation imposes burdens on those who are asked to comply with it. The temptation will always be there to take shortcuts to save costs or, worse, to create an unscrupulous competitive advantage by failing to apply the law. The day-to-day operation of the current anti-money laundering legislation in the private sector largely falls to those “designated persons” who must make suspicious transaction reports. The designated person is more often than not a company or a firm, rather than an individual. Yet it is not a company as such which makes a decision to comply with the law, but rather the individuals who own or manage it.
The anti-money laundering legislation, in common with so much of Irish business regulation, tends to penalise the business when things go wrong, not the responsible person within the business. The Central Bank has identified this as an obstacle in some of the regulatory work within its ambit, proposing an aptly acronymed “senior executive accountability regime”, or SEAR, as a remedy.
Last week in this paper, Michael Brennan wrote on the difficulties for the government of introducing a SEAR which would migrate some of the penalty regime for corporate shortcomings down to the responsible executive.
Removing the shield of employment within a firm for wrongdoing is a difficult area, but it is not a new one for our politicians. At the Dirt inquiry, more than 20 years ago, TDs were frustrated at the apparent immunity of bank officials to the consequences of their actions in not applying the correct tax on interest earned in deposit accounts. In the 20 years or so since then, little has changed in the way the Irish regulatory regime can reach behind the corporate wall to apply sanctions to individuals.
Solid regulatory regimes which monitor wrongdoing, and sanction it appropriately, have to be effectively policed. Ireland is not an outlier when it comes to the application of anti-money laundering initiatives. Being a decent place to do business provides a competitive advantage, just as the strength of our international brand confers a competitive advantage. Having the rules in place, though, is not enough. We have to show we can enforce them effectively.
We need to think more about how we sanction individual wrongdoers, rather than just the businesses in which they are involved.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland
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