Money Laundering

Anti-Money Laundering and Countering Financing of Terrorism Act 2009

 

When thinking about money laundering and financing of terrorism, many of us would picture something like Mafia Joe’s pizzeria in Sicily, IRA-owned pubs and hotels in Belfast or El Chapo’s fake carrots. However, the amount of money laundered internationally is staggering – between US$800 billion and US$2 trillion per year according to the United Nations. In New Zealand, an estimated NZ$1.5-10 billion per year floods through illegitimate channels.

It is entirely possible (and quite likely) that many New Zealand businesses deal with dirty money every day – we live in a globalised economy where commerce and crime can spread at an equal rate. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT) places obligations on New Zealand businesses to ensure ours is a safe and respectable country to do business.

This article gives a brief rundown on when AML/CFT provisions affect your business and what steps you need to take to ensure compliance. It will also discuss the effect of amendments made to the Act in 2015, due to come into force 1 July 2017. If you deal with other people’s money, the Act may apply to you.

Who does the AML/CFT apply to?

‘Reporting entities’ are subject to the AML/CFT. If your ordinary course of business includes accepting deposits or other repayable funds from the public, lending money, transferring money, securities or managing funds on behalf of other people, you are most likely a reporting entity for the purposes of AML/CFT and must meet the requirements under the Act.

The Anti-Money Laundering and Countering Finance of Terrorism Regulations will provide certain exemptions and further clarification regarding the persons to whom the AML/CFT will apply.

You cannot contract out of your AML/CFT obligations. If you have a contract that attempts to restrain your compliance in any way, you will not be excused under the Act.

I am a reporting entity – now what?

A reporting entity needs to have three things:

1. Risk assessment

2. An AML/CFT programme

3. Customer due diligence

A risk assessment programme must analyse the risk that the reporting entity will run into money laundering and financing of terrorism that it may reasonably expect to face in the course of its business. It must take into account factors such as the nature, size and complexity of the business, its products and services and the methods it uses to deliver them, and the countries, customers and institutions it deals with. This risk assessment must be regularly reviewed and audited every two years and the reporting entity must file a report every 12 months to the Department of Internal Affairs or their relevant AML/CFT supervisor.

An AML/CFT programme involves vetting and training management staff and employees regarding AML/CFT obligations. Proper records must also be kept for all transactions conducted through a reporting entity (this means that adequate document management systems are required) and reporting entities must appoint an AML/CFT compliance officer to oversee a compliance program. Section 57 of the Act sets out the minimum requirements for an AML/CFT programme.

 

 

Reporting entities must carry out due diligence on their customers or their representatives. The standard and thoroughness of due diligence varies depending on the nature of the business and frequency of dealings. Businesses will need to operate an enhanced customer due diligence for trusts, customers from countries with deficient anti-money laundering systems, unusually large or complex transactions or unusual patterns of transactions. In all cases, verification of the customer’s identity is essential, and in many cases, ongoing due diligence is required.

If you cannot conduct due diligence on a customer when required to do so, you cannot have a business relationship with them and in some cases, may have to make a suspicious transactions report. If you have not undertaken risk assessment or put an AML/CFT programme in place, you could be liable for severe penalties (discussed below).

Suspicious Transactions

Section 40 of the Act requires reporting entities to make a suspicious transaction report if they suspect a transaction is relevant to a person being investigated or prosecuted for money laundering or subject to the Misuse of Drugs, Terrorism Suppression, Proceeds of Crime or Criminal Proceeds (Recovery) Acts. Moving large amounts of cash outside of New Zealand also requires reporting.

Anybody who reports a suspicious transaction is generally protected from civil, criminal and disciplinary proceedings resulting from the report or its consequences. However, the penalties for non-compliance can be severe. A non-compliant reporting entity may have civil actions taken against them, with penalties including warnings, injunctions and monetary liability. If a reporting entity acts knowingly or recklessly and fails to report or misleads the authorities, it may be liable for 2 years’ imprisonment or a fine up to $300,000 for an individual or a fine of up to $5 million for a company.

The take-home message is that it is better to err on the side of reporting a transaction. This puts it in the hands of a special investigative branch of the Police and ensures that you are not slapped with fines, injunctions or even prison time.

AML/CFT Amendment Act 2015

Previously, AML/CFT obligations have relied on some element of suspicion or unusualness before requiring businesses to report transactions. However, the 2015 Amendments signal a shift towards businesses having to report transactions on their face value. The Amendment Act will introduce prescribed transaction reports, whereby international wire transfers and domestic physical cash transactions greater than a specified amount must be reported.

The Government has also indicated that AML/CFT obligations will eventually apply to other businesses and professions such as accountants, conveyancing practitioners, real estate agents and businesses that deal in high value goods. If your business falls into one of these categories, it may be time to get ahead of the game and start preparing due diligence, risk assessment and AML/CFT compliance programmes.

 

At AWS Legal, we pride ourselves in keeping our clients informed and compliant with the law as it changes. Maybe it is time to review your business practices and compliance with AML/CFT. If so, we are more than happy to assist.