Enhanced Due Diligence in Ireland: Sections 38A and 39 Explained

Ireland's anti-money laundering law asks designated persons, including accountants and auditors, to do more than the standard checks when the risk is higher. Two sections of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 set out those extra steps: section 38A, for customers connected with high-risk third countries, and section 39, for other cases of heightened risk. This guide summarises both from the Law Reform Commission's revised Act. For the third strand of enhanced due diligence, read our guide to politically exposed persons under section 37.

Section 38A: customers in high-risk third countries

Section 38A applies when a designated person deals with a customer established or residing in a high-risk third country. According to the revised Act, the designated person must take the following additional steps to manage and mitigate the risk of money laundering and terrorist financing:

• obtain additional information on the customer and on the beneficial owner;
• obtain additional information on the intended nature of the business relationship;
• obtain information on the source of funds and the source of wealth of the customer and the beneficial owner;
• obtain information on the reasons for the intended or completed transactions;
• obtain senior management approval to establish or continue the business relationship; and
• conduct enhanced monitoring, by increasing the frequency and timing of controls and by selecting transaction patterns for closer review.

The section was inserted on 26 November 2018 by the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018, and subsection (1) was substituted on 23 April 2021 by the 2021 amending Act, according to the annotations on the revised Act.

The group exemption

The main measures do not apply where the customer is a branch or majority-owned subsidiary of the designated person, is located in a high-risk third country, and the designated person is established in an EU Member State. In that case the branch or subsidiary must comply with group policies and procedures adopted under Article 45 of the Fourth Money Laundering Directive, and the designated person must still assess the risk, having regard to section 30B, and apply the customer due diligence measures in the Chapter to the extent reasonably warranted by that risk.

Section 39: other cases of heightened risk

Section 39 requires a designated person to apply additional measures, beyond those in the Chapter, to manage and mitigate the risk where a business relationship or transaction presents a higher degree of risk. This is without prejudice to sections 37, 38 and 59. A relationship or transaction counts as higher risk if a reasonable person, having regard to the factors in paragraphs (a) to (f) of section 30B(1), would judge it to present a higher risk. The Minister may also prescribe additional factors, beyond those in Schedule 4, that indicate a potentially higher risk.

The current text of section 39 was substituted on 26 November 2018 by section 19 of the 2018 Act, following an earlier substitution on 14 June 2013 by the Criminal Justice Act 2013, according to the annotations.

Offences

For both sections, the revised Act says that failure to comply is an offence. On summary conviction the penalty is a class A fine, imprisonment for up to 12 months, or both. On conviction on indictment it is a fine, imprisonment for up to 5 years, or both. The annotations state that a class A fine means a fine not greater than 5,000 euro.

How the sections fit with the rest of the Act

Section 39 points back to the risk factors in section 30B, which in turn rely on the firm's own assessment. That is why a documented business risk assessment under section 30A matters: it gives the firm a reasoned basis for deciding which clients need the extra steps. For the country lists that drive section 38A in practice, see our guide to high-risk third countries and FATF lists.

Practical steps: our suggestions

These steps are our suggestions rather than requirements in the sections above. Decide in advance who in the firm can give the senior management approval the section describes, and record that approval on the client file. Keep a short list of the extra information to request for higher-risk clients, such as ownership detail, the source of funds and the reason for the work. Note on the file why a client was treated as higher risk or not, so a reviewer can follow your reasoning. Review higher-risk files more often than standard ones, and write down what you checked.

What we could not confirm

The revised Act page we read did not define "high-risk third country", so we have not set out the definition or the current list of countries. We did not read section 30B, Schedule 4, or any Ministerial order made under section 39, and we did not read Central Bank or accountancy body guidance on how supervisors expect these sections to be applied. The Law Reform Commission's revised Acts are an unofficial consolidation, so anyone relying on the text should check for later amendments. This post is general information, not legal advice.