New Zealand

Last updated 15/12/2009

CENTRAL AUTHORITY FOR REPORTING.

Financial Intelligence Unit of the New Zealand Police.

OTHER ANTI-MONEY LAUNDERING REGULATOR(S).

The Reserve Bank will supervise banks, life insurers and non-bank deposit takers.

The Securities Commission will cover issuers of securities, trustee companies, futures dealers, collective investment schemes, brokers and financial advisors.

The Department of Internal Affairs will cover casinos, non-deposit-taking lenders, money changers and reporting entities not covered by the other supervisors.

While not a ‘regulator’, the Ministry of Justice has had a central role in the passage of the new legislation and will continue to be responsible for monitoring, reviewing and advising the Minister of Justice on the regime’s overall efficiency and effectiveness. It will also administer the legislation and regulations and coordinate national level reporting on the regime to relevant international bodies (e.g. FATF).

An inter-agency co-ordination committee is being established, with the Ministry’s involvement, to ensure regular communication and consistency between the multiple AML supervisors.

ARE LAWYERS COVERED BY ANTI-MONEY LAUNDERING LEGISLATION?

New Zealand has just passed new legislation to ensure better compliance with the FATF 40+9 principles: the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“AML/CFT Act”). This regime will eventually supersede the current law, the Financial Transactions Reporting Act 1996 (“FTRA”).

Lawyers remain covered by the obligations in the previous FTRA, including suspicious transaction reporting obligations, but are not yet subject to the new more rigorous obligations of the AML/CFT Act.

The new Act will initially apply to banks, casinos and most financial institutions. Other professionals and advisors (including lawyers) are not in the first tranche of reporting entities to be covered, but will be phased into coverage under the AML/CFT Act at some point in the future (not likely to be before 2011 at earliest).

Lawyers are currently covered by the FTRA, but only in the instance when they receive funds in the course of the customer’s business for the purposes of the deposit or investment or for the purpose of settling real estate transactions (Section 3(1)(l).

Thus, not every client engagement or dealing is necessarily covered, although more generic requirements to report suspicious transactions apply.

LIST THE LAWS REGARDING ANTI-MONEY LAUNDERING, INDICATING WHICH LAWS ARE APPLICABLE TO LAWYERS.

Financial Transactions Reporting Act 1996;
Terrorism Suppression Act 2002;
Mutual Assistance in Criminal Matters Act 1992;
Criminal Proceeds (Recovery) Act 2009;
Crimes Act 1961;
Misuse of Drugs Act 1975.

In future, under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, lawyers will ultimately face the same enhanced obligations as other reporting entities and participants in the financial sector, including:

Requirements to establish, implement, maintain and regularly audit an AML/CFT programme and risk assessment policies;
More onerous customer due diligence (“CDD”) measures;
Enhanced due diligence measures (“EDD”) for certain types of transactions, business relationships or customer groups, including for ‘politically exposed persons’ (“PEPs”) who are prominent foreign public individuals;
Ongoing account and transaction monitoring requirements;
A minimum five year retention period for account and transactions records;
More systematic obligations around making Suspicious Transaction Reports (STRs) to the Financial Intelligence Unit of the New Zealand Police;
Obligations to implement a formal AML/CFT compliance programme have an appointed compliance officer, and train and vet staff.

ARE VISITING LAWYERS SUBJECT TO LOCAL LAWS REGARDING ANTI-MONEY LAUNDERING, AND, IF SO, TO WHAT EXTENT?

Visiting lawyers need a practising certificate from the New Zealand Law Society (“NZLS”) before practising law in this country. Information about their Anti-Money Laundering obligations would be available in the course of obtaining that certificate.

LIST ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS (FOR EXAMPLE, LAW SOCIETY OR BAR ASSOCIATION GUIDELINES) CURRENTLY IN PLACE.

NZLS administers lawyers’ obligations, including those under the FTRA via the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, and in the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 - both available from the NZLS website.

Best Practice Guidelines for Financial Institutions are available from the NZ Police FIU, for the Information of Mainstream Banking, Lending, Deposit Taking, Insurance, Retail Investment, Casinos, Lawyers, Real Estate Agents and Sharebrokers. They include some tips for situations that the legal profession might encounter.

The documentary background to the law reform recently culminating in the AML/CFT Act 2009 is available on the Ministry of Justice's website.

IS THE LAW SOCIETY/BAR ASSOCIATION INVOLVED IN SUPERVISING OR ENFORCING COMPLIANCE WITH ANTI-MONEY LAUNDERING REGULATIONS?

There is not yet any official AML monitoring/supervisory body for lawyers. The NZLS has been involved in the consultation and submission process for the new AML/CFT Act 2009 and may well have a supervisory role when lawyers are brought into the regulatory scheme in future as part of Tranche 2 reporting entity coverage.

DESCRIBE CLIENT DUE DILIGENCE REQUIREMENTS, INCLUDING WHEN IT MUST BE UNDERTAKEN BY LAWYERS.

The FTRA imposes duties on lawyers to verify the identity of clients in certain circumstances. Identity must be verified:

Where a person applies to become a ‘facility holder’ as defined in the FTRA (whether in relation to an existing facility or the establishment of a new facility);
Where a person is conducting an occasional transaction and either:
1. The amount of cash involved is at least NZ$10,000; or
2. The person conducting the transaction, or someone else, is conducting other occasional transactions, the total cash involved is at least NZ$10,000, and the lawyer believes on reasonable grounds that the transactions have been structured to avoid the specified threshold.

Verification is also required where a person may be acting on behalf of others in a transaction, ie. where:

A person is conducting occasional transactions through a lawyer; or
A facility holder is conducting a transaction through its facility, and the lawyer has reasonable grounds to believe that the person is conducting the transaction on behalf of others and:
The amount of cash involved is at least NZ$10,000; or
The person conducting the transaction, or someone else, is conducting other transactions, the total cash involved is at least NZ$10,000, and the lawyer believes on reasonable grounds that the various transactions have been structured to avoid the specified threshold.

In this case, the lawyer must verify the identity of the persons on whose behalf it is believed the transactions are being conducted.

Verification is required in any case if a person is conducting a transaction through a lawyer and the lawyer has reasonable grounds to suspect a money laundering offence.

Timing of identity verification

Generally, the FTRA requires the lawyer to verify identity before the relevant person becomes a facility holder or before the relevant transaction is conducted.

However, in some cases, the requirement is relaxed slightly and verification may take place as soon as practical after the trigger event.

Procedures for verifying identity

The FTRA requires verification of the identity of a facility holder to be “by means of such documentary or other evidence as is reasonably capable of establishing the identity of that person”.

The Guidance Notes for Financial Institutions issued by the Financial Intelligence Unit section of the New Zealand Police state that:

“The Act is deliberately silent on exactly what evidence is “reasonably capable” of proving a person’s identity. As a general rule institutions should endeavour to verify identity from a document or documents obtained from a reputable and identifiable source by way of reference from a reputable and identifiable party,”

Therefore, whether verification of identity is sufficient depends both on the document relied upon and on the source from which that document was obtained.

Previous identification

The FTRA provides that a lawyer can rely on a previous identification if “it has reasonable grounds to believe that the evidence from the previous verification is still reasonably capable of establishing the identity of that person”.

The Guidance Notes from the New Zealand Police state that:

"Previous verification can be relied upon if the institution is satisfied it is still valid. If, however, there is a long time lapse between dealings with the customer and institution staff have since changed so that there is no longer anybody present who knows the customer, it may be prudent in some circumstances to renew the verification to ensure that the institution is still dealing with the same person.”

DOES YOUR COUNTRY FOLLOW A RISK-BASED APPROACH TO CLIENT DUE DILIGENCE BY LAWYERS?

The new AML/CFT Act for financial institutions provides for a risk based approach, although still with a degree of prescriptive detail and minimum compliance with certain standards (most of which have yet to be drafted or released for public consultation).

LAWYERS RESPONSIBILITY / LIABILITY

Lawyers’ main responsibility:

Other than the obligation to report suspicious transactions, lawyers have a specific responsibility under the FTRA:

To verify identity, in the required situations; and
To retain records.

Defined terms in the FTRA that are relevant include:

Facility: an account or arrangement that is provided by the lawyer and through which a “facility holder” may conduct two or more transactions (e.g. a client trust account).

Facility Holder: the person in whose name the facility is established (e.g. a client for whom a trust account is established), and this includes any person who is authorised to conduct transactions through a facility.

Occasional transaction: any transaction that involves the transfer of cash and that is either not conducted through a facility or is conducted through a facility but the person conducting the transaction is not a facility holder.

Transaction: broadly, a transfer of funds by any means.

Retention of records – transaction records

A lawyer is to keep such records as are reasonably necessary to enable each transaction that is conducted through that lawyer to be readily reconstructed at any time by the Commissioner of Police. The amount of information required will vary depending on the nature of the transaction and the type of financial institution involved.

Transaction records must be retained for at least five years after the completion of the transaction.

Retention of records – customer verification records

Where a lawyer is required by the FTRA to verify the identity of any person, the lawyer must keep such records as are reasonably necessary to enable the nature of the evidence used for the purposes of that verification to be readily identified at any time by the Commissioner of Police.

In the case of records relating to the verification of the identity of any person in relation to a facility, the records must be retained for no less than five years from the date the person ceases to be a facility holder. In all other cases, records must be retained for no less than five years from the date that the verification is carried out.

Lawyer liability

Where any lawyer fails to verify identity, to report a suspicious transaction, or to keep the relevant records as required by the FTRA, he or she commits an offence and is liable to a fine of NZ$20,000 in the case of an individual and NZ$100,000 in the case of a body corporate (at current exchange rates, approximately €48,000).

Every person commits an offence and is liable to a fine not exceeding NZ$10,000 (at current exchange rates, approximately €4,800) when, in making any suspicious transaction report, he/she:

Makes any statement that he or she knows is false or misleading in any way; or
Omits from any statement any matter or thing without which he/she knows that the statement is false or misleading in any way.

The FTRA also makes it an offence punishable by two years imprisonment to alert an unauthorised person to the existence of a suspicious transaction report, the information in the report, or the fact that the making of a report is contemplated (i.e. “tipping off”).

ARE THERE ENHANCED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, POLITICALLY EXPOSED PERSONS?

Not under current law, but under the new AML/CFT Act these types of enhanced due diligence are required in section 22, in a variety of prescribed circumstances:

Establishing a business relationship or conducting an occasional transaction with a customer that is:

A trust or another vehicle for holding personal assets:

A non-resident customer from a country that has insufficient anti-money laundering and countering financing of terrorism systems or measures in place:

A company with nominee shareholders or shares in bearer form.

If a customer seeks to conduct a complex, unusually large transaction or unusual pattern of transactions that have no apparent or visible economic or lawful purpose;
When a reporting entity considers that the level of risk involved is such that enhanced due diligence should apply to a particular situation;
Any other circumstances specified in regulations (yet to be promulgated);
Establishing a business relationship or conducting an occasional transaction with a customer who it has determined is a politically exposed person;
If it is an ordering institution, an intermediary institution, or a beneficiary institution in relation to a wire transfer;

If it has, or proposes to have, a correspondent banking relationship;
Establishing a business relationship or conducting an occasional transaction with a customer that involves new or developing technologies, or new or developing products, that might favour anonymity.

ARE THERE SIMPLIFIED DUE DILIGENCE MEASURES FOR CERTAIN TYPES OF CLIENTS, FOR EXAMPLE, LISTED COMPANIES?

Not under current law, but under the new AML/CFT Act these types of simplified due diligence are available in section 18 for certain types of customers:

A company that is listed on an exchange registered under Part 2B of the Securities Markets Act 1988:
A government department named in Schedule 1 of the State Sector Act 1988;
A local authority as defined in section 5 of the Local Government Act 2002;
The New Zealand Police;
The New Zealand Security Intelligence Service;
Any other entity or class of entities specified in regulations (yet to be promulgated).

A reporting entity may also conduct simplified customer due diligence on a person who purports to act on behalf of a customer when:

The reporting entity already has a business relationship with the customer at the time the person acts on behalf of the customer; and
The reporting entity has conducted one of the specified types of customer due diligence on the customer.

ARE LAWYERS PERMITTED TO RELY ON THIRD PARTY DUE DILIGENCE? IF YES, PLEASE DESCRIBE.

Not under current law, but under the new AML/CFT Act reliance on third parties is available in certain situations specified in section 33, including where:

The person being relied on is either—
i. A reporting entity; or

ii. A person who is resident in a country with sufficient anti-money laundering and countering financing of terrorism systems and measures in place and who is supervised or regulated for AML/CFT purposes; and
The person has a business relationship with the customer concerned; and
The person has conducted relevant customer due diligence procedures to at least the standard required by the AML/CFT Act and regulations, and
Has provided to the reporting entity—

i. Relevant identity information before the reporting entity establishes a business relationship or an occasional transaction is conducted; and

ii. Relevant verification information as soon as practicable, but no later than 5 working days, after the business relationship is established or the occasional transaction is conducted; and
The person consents to conducting the customer due diligence procedures for the reporting entity and to providing all relevant information to the reporting entity; and
Any other conditions prescribed by regulations (yet to be promulgated) are complied with.

WHEN IS A LAWYER UNDER AN OBLIGATION TO REPORT SUSPICIOUS TRANSACTIONS?

Part III of the FTRA imposes obligations on lawyers to report suspicious transactions. In particular, where any person conducts or seeks to conduct any transaction through a lawyer and the lawyer has reasonable grounds to suspect:

That the transaction is or may be relevant to the investigation or prosecution of any person for a money laundering offence; or
The transaction or proposed transaction is or may be relevant to the enforcement of the Proceeds of Crimes Act.

The lawyer must, as soon as possible after forming the suspicion, report the transaction to the Commissioner of Police.

Lawyer liability

Every person commits an offence and is liable to a fine not exceeding NZ$10,000 (at current exchange rates, approximately €4,800) when, in making any suspicious transaction report, he/she:

Makes any statement that he or she knows is false or misleading in any way; or
Omits from any statement any matter or thing without which he/she knows that the statement is false or misleading in any way.

If a lawyer is in any doubt over how to proceed in a given situation, the Financial Intelligence Unit of the New Zealand Police encourage informal telephone contact for advice, which can be handled on a ‘no-client-names’ basis initially.

DOES ATTORNEY/CLIENT PRIVILEGE AND/OR DUTIES OF CONFIDENTIALITY PROVIDE A DEFENCE OR PARTIAL/TOTAL EXCEPTION TO THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS?

Currently, s15 of the FTRA provides that the obligation to report suspicious transactions does not require any lawyer to disclose any privileged communication, although there are some limits placed on the definition of what is truly ‘privileged’ in the context of trust account records.

Similar definitions are included in the AML/CFT Act, but precisely how this issue of privilege will be dealt with when lawyers are in due course brought under that tougher regime of the AML/CFT Act remains to be seen.

DOES LOCAL LAW PROVIDE ANY CRIMINAL AND/OR CIVIL INDEMNITY TO A LAWYER WHO HAS REPORTED A SUSPICIOUS TRANSACTION?

Yes, under the current law in sections 17 & 18 of the FTRA, and under the new AML/CFT Act, in sections 44 and 45. The new AML/CFT Act extends protections not just to suspicious transaction reporting, but to other acts done in good faith to comply with that Act.

ONCE A SUSPICIOUS TRANSACTION REPORT HAS BEEN FILED, IS A LAWYER ALLOWED TO PROCEED WITH THE LEGAL ADVICE/TRANSACTION, AND, IF SO, MUST CONSENT FROM AUTHORITIES BE OBTAINED FIRST?

No information available – this will in practice largely depend on the dialogue with, and requirements determined in any given situation by the Financial Intelligence Unit of the New Zealand Police.

IS THERE A TIPPING-OFF PROHIBITION? IF YES, PLEASE DESCRIBE.

Under s20 of the FTRA, the obligation to report suspicious transactions carries with it an obligation not to disclose the report or fact it was made or contemplated.

These prohibitions are continued and extended under sections 46 and 47 of the new AML/CFT Act, and the potential penalty if convicted of a tipping-off offence is dramatically raised to:

In the case of an individual, either or both of the following:

A term of imprisonment of not more than 2 years;

A fine of up to $300,000; and

In the case of a corporate body, a fine of up to $5 million.

DESCRIBE ANY RESTRICTIONS ON ACCEPTING A NEW CLIENT.

Other than the FTRA and NZLS Rules/Regulations mentioned above, there are no specific restrictions under current law. However, under the new AML/CFT Act the lawyer will not be able to accept or act for the new client if unable to conduct the specified level of customer due diligence (standard, simplified or enhanced).

As provided for in section 37, the reporting entity:

Must not establish a business relationship with the customer; and
Must terminate any existing business relationship with the customer; and
Must not carry out an occasional transaction with or for the customer; and
Must consider whether to make a suspicious transactions report; and
May disclose the possibility of making a suspicious transaction report only to a person specified under the relevant part of the AML/CFT Act.

ARE THERE ONGOING MONITORING REQUIREMENTS FOR EXISTING CLIENTS? IF YES, PLEASE DESCRIBE.

Not under the current law. However, under the new AML/CFT Act when lawyers become ‘reporting entities’, they must conduct ongoing customer due diligence and undertake account monitoring as provided for in section 31.

DESCRIBE ANY OTHER WAYS IN WHICH LAWYERS ARE AFFECTED BY ANTI-MONEY LAUNDERING LEGISLATION.

Even though not yet specifically regulated as ‘reporting entities’ under the AML/CFT Act, lawyers are affected in a number of ways as they engage with clients and financial businesses that are now regulated.

A particularly troublesome area for lawyers, and reporting entities generally, is that concerning obligations around trusts and ascertaining beneficial ownership. New Zealand has a high proportion of trust structures in operation compared to many countries, and simple ‘family trusts’ are a common structure for holding real estate and conducting real estate transactions.

Lawyers are frequently called upon to act as trustees, and are almost invariably involved in establishment of trusts. A lot of work is needed, and has already been commenced, to consider the best way to manage the beneficial ownership issues in a way that will comply with the AML/CFT Act.

HAVE LAWYERS IN YOUR JURISDICTION BEEN IMPLICATED IN MONEY LAUNDERING, INCLUDING ANY TYPE OF COMPLAINT, ARREST OR PROSECUTION?

There have been a number of prosecutions at District Court level for lawyers under the FTRA, usually for failing to report suspicious transactions to the FIU of the NZ Police.

Police v Devereux, a 2002 High Court decision, remains the leading case concerning lawyers. The Court on appeal upheld the lower court’s decision to discharge Mr Devereux without conviction.

However, the High Court did doubt whether, in the future, it would be open for a member of the legal profession to plead lack of knowledge of the obligations cast upon them under the FTRA, or the consequences of failing to report a suspicious transaction having regard to the outcome of the case. The High Court directed that the President of the NZLS make the ramifications of Police v Devereux known to its members at the time, and to a degree it successfully helped in raising awareness of FTRA obligations amongst the legal profession.

On occasion, a lawyer has faced charges under the FTRA for alleged involvement in property scams or for acting/assisting a client in situations on the borderline of fraud. A lawyer is currently facing money laundering charges, but the proceeding is subject to strict publication restrictions by the Court, prohibiting the publication of any part of the proceeding until the matter is finally heard.

HAS THE FINANCIAL ACTION TASK FORCE (FATF) CONDUCTED A MUTUAL EVALUATION OF THIS COUNTRY, AND, IF SO, WHAT WERE THE FINDINGS CONCERNING LAWYERS’ COMPLIANCE WITH THE FATF 40+9 RECOMMENDATIONS?

Yes, in 2003, and again just this year in 2009. The report/findings of the current FATF mutual evaluation have just been released, and broadly approve of New Zealand’s new legislation – although the Mutual Evaluation Report 2009 notes that there are a number of remaining gaps in its CDD measures.

New Zealand’s AML/CFT measures are mostly non-compliant in relation to DNFBPs. Future legislation will be considered in relation to lawyers and estate agents, as per the ‘tranche 2’ rollout proposals outlined above.

Information provided by:

Gary Hughes
Wilson Harle, Barristers & Solicitors
Auckland, New Zealand
Ph +64-9-915-9726
gary.hughes@wilsonharle.com

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