‘Phase 2’ of the shake-up of New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) legislation is just around the corner.
From July 2018, lawyers, conveyancers, and trust and company service providers will need to begin complying with the AML/CFT Act’s strict reporting and monitoring requirements. Other entities that will come within the ambit of the Act include accountants from 1 October 2018, real estate agents from 1 January 2019, and the New Zealand Racing Board and high-value dealers from 1 August 2019.
Who is a reporting entity?
Businesses that conduct activities captured by the AML/CFT Act are regarded as “reporting entities” and must comply with the Act’s reporting and monitoring requirements. For lawyers and conveyancers, examples of “captured activities” include:
acting as a formation agent (e.g. setting up companies and trusts)
acting as, or arranging someone to act as, a nominee director/ shareholder or trustee
managing client funds, accounts or other assets (e.g. disbursing settlement funds into a customer’s account)
providing an office or address for a company or legal arrangement
carrying out conveyancing activities
A quick fly-over of a reporting entity’s obligations
Achieving compliance with the regime will be no small task, so it is important that reporting entities put effective processes in place early. This includes appointing a Compliance Officer, conducting a risk assessment for risks an entity might reasonably face from money laundering or terrorism financing, and developing a compliance programme which puts in place procedures, policies and controls to address these risks.
Once its compliance programme is in place, a reporting entity has an on-going obligation to:
conduct initial and ongoing customer due diligence,
keep records of transactions, suspicious activities, and documents verifying the identities of customers for at least five years,
report any suspicious activity to the Police Financial Intelligence Unit, and file prescribed transaction reports for all domestic cash transactions over $10,000 and international wire transfers over $1,000, and
regularly review their compliance programme, submit an annual report, and have their risk assessment and compliance programme audited by an independent person every two years.
Phase 1 of the AML/CFT Act in action
Since the implementation of Phase 1, which applied to banks, casinos and financial service providers, the courts have shown they will have little patience for businesses that disregard or flout the rules.
Late last year, the High Court imposed a hefty $5.3 million penalty on Ping An Finance after the company “failed abysmally” to meet its reporting and monitoring obligations under the AML/CFT Act. The Court also granted injunctions restraining Ping An and its sole director and shareholder, Mr Xiao, from carrying out any financial activities that would cause either of them to be deemed to be a financial institution as defined in s 5 of the AML/CFT Act.
The breach was at the extreme end of the spectrum, with the Court noting Mr Xiao’s “complete disregard for the AML/CFT Act’s requirements, if not a wilful intention to flout them”. The Department of Internal Affairs (DIA) investigation that uncovered the breaches, found a failure to keep appropriate records of 1588 transactions, the identity and identification of 362 customers, and the establishment and continuation of 122 business relationships. There was also evidence of unnecessary use of several transactions to pay or receive funds from a single customer on a single day or within a short period; the presence of very large transactions; and significant high-value cash deposits. Xiao’s attempt to challenge the fine was ultimately unsuccessful.
A second case has been before the courts in recent weeks. The DIA alleges that Qian Duo Duo Limited, a money remitter, failed in its obligations under the Act. The DIA is reported to be seeking $2.5 million in penalties. The court’s decision is yet to be released.
Learn more about Phase 2 and what it means for your business or clients