Irish banks, as well as those overseas, are subject to strict rules designed to curb the use of the financial system by those suspected of criminal or terrorist activity. These rules are called anti-money-laundering and know-your-customer regulations. However, a former senior official at the Central Bank says the transactions revealed by the Correctiv Files suggest Irish banks do not know as much about who they are doing business with as, ideally, they should.
Peter Oakes, who acted as director of enforcement at the Central Bank during the recession, explains the lengths that banks must go to in order to police their business.
“Banks are required to verify and identify their customers, know who their customer’s beneficial owner is and have sufficiently detailed knowledge of their customers’ business model and the customer’s clients, and an understanding of the economic reason for the transactions they process,” he said.
In recent years, both of the Irish banks named in the files have fallen foul over their enforcement of these types of rules in other cases. In 2016, Ulster Bank was fined €3.3 million for breaches of the Money-laundering and Terrorist Financing Act, when “significant failings” in the bank’s framework were identified.
In 2017 after an investigation by the Central Bank, Bank of Ireland was fined €3.15 million for similar failings, including the failure to report six suspicious transactions to the Garda and Revenue Commissioners. At the time, the Central Bank’s director of enforcement said the bank’s activities “fall far short of the standard expected of one of Ireland’s largest retail banks”. Responding to queries about their appearance in the files, Bank of Ireland and Ulster Bank both told The Irish Times that they enforce all anti-money-laundering and know-your-customer obligations.
The State has also found itself in the firing line over the slow pace of reforms in the area. “While Ireland has some strong theft and fraud legislation, it has left itself open to criticism and potential exploitation by criminals through the delay of implementing key EU money-laundering laws on at least two occasions,” Oakes says. Most recently, Ireland was threatened with infringement proceedings by the European Commission, along with Greeceand Romania, for failing to implement new anti-money laundering directives.
While the Correctiv Files allege large-scale fraud relating to carbon credits, there is little evidence that Irish companies were directly involved in organising the cases discussed, or that the Irish exchequer lost out as a result of these cases.
This may be because Ireland was among the first EU countries to introduce a reverse-charge mechanism on carbon credits, shifting the onus to pay VAT to the person receiving the supply.
“In carbon credits in Ireland, you couldn’t have foreign traders coming in who could charge VAT and never pay it to Revenue,” says Fionn Uíbh Eachach, a partner in indirect tax with BDO in Dublin. A spokesman for Revenue confirmed that the reverse-charge mechanism was brought in “as a preventative measure, to protect the State by ensuring that this fraud was not possible here”.
Revenue said it generated VAT assessments of high-risk sectors where there are indications of fraudulent activity amounting to €14.6 million in 2018. In 45 cases in both 2017 and 2018, traders had their VAT registration cancelled where there were indications of high-risk activity. However, there are indications that VAT losses to the Irish State may be on the increase, despite Revenue’s efforts. The so-called VAT gap – the gap between what the state expects to take in and what it does take in – increased in 2016 to €1.6 billion. This was the second year of increase following three years of steep decreases.