One of the key items on this year's 'to do' list
for all affected businesses will be getting ready for the main
provisions of the Anti-Money Laundering and Countering Financing of
Terrorism (AML/CFT) Act 2009 that come into effect from 30 June
2013. Given the extent of what's required in order to comply,
there's not a lot of time left. Those who've yet to make
much progress in getting ready would be well advised to plan for
the incoming regime as soon as possible.
AML/CFT is an issue that New Zealand has paid some attention to
over the years, but just not enough. It's big business
internationally. The International Monetary Fund and World Bank
estimate that US$2 trillion to US$3 trillion is laundered around
the world each year. Regulators aren't afraid to take action
and impose substantial penalties for failing to comply with AML/CFT
laws. For example, global bank HSBC has been under investigation
over allegedly allowing clients to transfer potentially illicit
funds from countries such as Mexico, Iran and Syria. Late last year
the bank agreed to pay US$1.92 billion in fines to US authorities
as a result of those investigations and, as part of its settlement,
will be subject to independent monitoring and assessment against
various measures directed at improving the bank's structure,
controls and procedures.
New Zealand's regime
International audits have revealed significant deficiencies in
New Zealand's AML/CFT regime. The Act is intended to address a
number of these deficiencies. If we don't get it right, credit
ratings and trade relationships with other countries could be
negatively affected, which will ultimately hurt us all directly or
So, who does the Act apply to? The Act applies to 'reporting
entities', a term which includes banks, life insurers, finance
companies, building societies, credit unions, issuers of
securities, trustee companies, futures dealers, brokers, certain
financial advisers, casinos, money service businesses, those
involved in financial leasing, safe deposit businesses – the
list goes on. There are a range of exclusions and exemptions for
businesses that might otherwise be caught, such as accommodation
providers that provide guests with safety deposit boxes,
accountants, real estate agents, pawn brokers and lawyers.
Reporting entities will need:
A written risk assessment of the money laundering and financing
of terrorism that could be expected in their business
An AML/CFT programme that includes procedures to detect, deter,
manage and mitigate money laundering and the financing of
A compliance officer appointed to administer and maintain the
Customer due diligence processes based on their risk assessment
including customer identification and verification of identity,
Suspicious transaction reporting, record-keeping, auditing and
annual reporting systems and processes.
Guidelines have been issued
The regulatory bodies that are responsible for supervising the
new regime (the Reserve Bank of New Zealand, the Financial Markets
Authority and the Department of Internal Affairs) have issued
guidelines on various topics to assist businesses to comply with
the new regime. The topics covered so far include points of
interpretation in determining whether a business is a
'reporting entity' and therefore caught by the Act, the
required risk assessment and AML/CFT programme, as well as the
territorial scope of the Act (including the extent to which it
applies to overseas entities).
For customers of reporting entities the impact of the Act will
largely be felt through the customer due diligence that will need
to be done on them. This will generally involve customers having to
provide more information which, in some cases, will include needing
to provide information on the source of funds and wealth. Trusts in
particular will come under close scrutiny, as they can be an easy
way to hide the beneficial ownership of funds.
For reporting entities that don't comply with the Act, the
consequences can be significant. The Act provides for a range of
sanctions for non-compliance, ranging from formal warnings to
injunctions, substantial fines and imprisonment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
James & Wells Intellectual Property, three time winner
of the New Zealand Intellectual Property Laws Award and first IP
firm in the world to achieve CEMARS® certification.
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