Anyone found carrying a substantial amount of cash which has recently been withdrawn from a bank account into or out of the State will face two crucial questions from the Revenue and the Garda:
has the interest income earned on that account been declared in the individual's annual income tax return? and;
how was the lump sum accumulated?
Since December 1992, when exchange controls were removed, any Irish resident can open a bank account abroad and can freely move legitimate funds into and out of the State. But the individual is required to notify the Revenue in his/her annual income tax return that an account has been opened and must declare any interest income earned from that account to the Revenue.
Until 1992, Irish residents were required to get approval from the Central Bank before they could open accounts in financial institutions abroad. This approval was generally only forthcoming where there were genuine business or trading reasons for having a foreign bank account.
While approval is no longer required to open a foreign bank account, Irish residents are required to comply with Irish income tax rules with regard to interest earned on the money lodged in their foreign account, just as interest income earned in the State is taxable.
In addition, because financial institutions in Ireland and abroad are now required to comply with anti-money laundering legislation, it should not be easy for account holders to lodge or withdraw large cash amounts to or from an account. At the very least they should expect to have to explain the source of the funds.
Irish residents are liable for tax on all income earned wherever it is earned worldwide. Income earned in Ireland and income earned abroad must be declared in their income tax returns. The onus is on the taxpayer to declare it. Income includes interest on funds lodged in financial institutions and dividends on shares.
Where a foreign bank account is discovered by the Revenue - usually as a result of tip-offs from a financial institution or from associates of the account holder - it will check whether the account holder has declared the income from the account for tax.
If the account holder has failed to declare this income, s/he will face stiff penalties including possible criminal prosecution for tax evasion and double tax on the interest going back to when the account was opened.
With financial institutions in most locations now required to comply with anti-money laundering legislation, bankers have to operate rules and regulations with regard to the opening of bank accounts and the lodgement or withdrawal of large cash amounts.
Among the requirements on bankers are that any unusual transactions must be investigated, that suspicious transactions must be reported to the Garda and that they must report the opening of an account abroad for a client to the Revenue.
As one banker explained: "Money laundering legislation has tightened here and in the UK and the offshore islands. Any transaction here involving over €10,000 (about £8,000) must be examined. In most jurisdictions any suspicious transaction must be reported to the local authorities."
In the Isle of Man, he explained, there was now additional legislation whereby if a banker suspected that the money was the result of a crime committed in another country, which would be an offence if it was committed in the Isle of Man, the banker must report it to the local financial authorities. This type of legislation was also expected to be introduced in the Channel Islands, he added.
But he said bankers could face a legal dilemma if a customer arrived with a case of cash. "By refusing to take it we would be tipping off the customer that we suspected the funds were hot money. But we cannot tip the customer off. Therefore it appears we can only take the money in and report the transaction."
Once a transaction was reported, the account would generally be monitored by the authorities without the knowledge of the customer, he said.
Where a customer arrived at a bank and wanted to withdraw a large sum in cash, there was little a bank could do to stop them because customers were entitled to their funds, the banker said.
"But there is usually something suspicious where someone wants a large amount of cash rather than a credit transfer or a cheque. If we are suspicious we have to report it," he explained.
Another banker said: "There are two key considerations now in virtually every jurisdiction: knowing the customer and knowing where or how they got the money. If you don't know one or the other, you should not do the transaction or if you do it, you must report it." In the Republic, the Central Bank oversees the compliance of the banks with the anti-money laundering legislation, which came into force in May 1995 to ensure that the banks have rules in place and that they are applying them. In addition, the Central Bank is required to report to the Garda any suspicious activity it finds in its supervisory role.
The bottom line is that Irish residents can freely transfer money into and out of the State but any Irish resident found with a case full of cash would need to have come into the funds legitimately, to have a verifiable explanation of how they came into the funds and to ensure that they had discharged any tax liabilities on the funds.
