New Zealand

Last updated 10/05/2008

CENTRAL AUTHORITY FOR REPORTING

ARE LAWYERS COVERED BY ANTI- MONEY LAUNDERING LEGISLATION?

New Zealand’s principal anti-money laundering laws are contained in the Financial Transactions Reporting Act 1996 (the FTRA). The FTRA imposes obligations on each “financial institution”, which is defined in the FTRA to include a lawyer, but only to the extent that the lawyer receives funds in the course of his/her business:

for the purposes of deposit or investment; or
for the purpose of settling real estate transactions.

Press release from the New Zealand Government, "Proposed Framework to Prevent Money Laundering and Terrorism Financing", 18 October, 2006.

In October 2006, Associate Justice Minister Clayton Cosgrove released the third and final discussion document on proposals to prevent money laundering and terrorist financing. The discussion documents, released in 2005 and 2006, outline proposed regulatory changes to enable New Zealand to meet its Financial Action Task Force (FATF) obligations.

Financial institutions and casinos will be the first group of businesses covered by the new requirements. Other businesses, including lawyers, accountants, and real estate agents, will be not be covered until the second stage, although they will remain subject to their existing legal obligations to prevent money laundering and terrorist financing. “These groups have strong industry associations that may be capable of assuming the new supervisory functions,” said Mr Cosgrove. “We want to work with those industry associations to determine how to utilise their industry expertise in the new framework to stop duplication, and prevent any wasting of time and money." For the complete article, click here.

LAWS REGARDING ANTI-MONEY LAUNDERING PROCEDURES

IN ADDITION TO THESE LAWS, IS THERE ANY MONEY LAUNDERING GUIDANCE FOR LAWYERS CURRENTLY IN PLACE?

The New Zealand Law Society (NZLS) has addressed lawyers obligations under the FTRA in the NZLS Rules of Professional Conduct and in the Solicitors’ Trust Account Guidelines.

Best Practice Guidelines for Financial Institutions for the Information of Mainstream Banking, Lending, Deposit Taking, Insurance, Retail Investment, Casinos, Lawyers, Real Estate Agents and Sharebrokers

The document Anti-Money Laundering And Countering The Financing Of Terrorism: Supervisory Framework is available on the Ministry of Justice's website.

UNDER WHAT CIRCUMSTANCES IS A LAWYER UNDER THE OBLIGATION TO REPORT?

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 RESPONSIBILITY/LIABILITY

Lawyer responsibility

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

to verify identity (see below under the heading “Client identification and verification”); and
to retain records.

Defined terms

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 (see below under the heading “Client identification and verification”), 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 (see also the discussion below under the heading “Client identification and verification”), the records must be retained for not less than five years from the date the person ceases to be a facility holder. In all other cases, records must be retained for not 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 N.Z. $20,000 in the case of an individual and N.Z. $100,000 in the case of a body corporate (at current exchange rates, approximately €49,000).

Every person commits an offence and is liable to a fine not exceeding N.Z.$10,000 (at current exchange rates, approximately €4,900) 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., what is known as “tipping off”).

CLIENT IDENTIFICATION AND VERIFICATION

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 (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 N.Z.$10,000;or
2. the person conducting the transaction, or someone else, is conducting other occasional transactions, the total cash involved is at least N.Z.$10,000, and the lawyer believes on reasonable grounds that the transactions have been structured to avoid the specified threshold.

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 N.Z.$10,000; or
the person conducting the transaction, or someone else, is conducting other transactions, the total cash involved is at least N.Z.$10,000, and the lawyer believes on reasonable grounds that the 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.)

Where 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”. Guidance Notes for Financial Institutions issued by the Financial Intelligence Unit section of the New Zealand Police (the Guidance Notes) 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 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.”

LAWYERS PROSECUTED FOR MONEY LAUNDERING OFFENCES

There have been two prosecutions for lawyers under the FTRA for failing to report suspicious transactions:

Police v Patel, unreported, 16 May 2002, District Court, Auckland and Police v Devereux, unreported, 27 June 2002, High Court, Auckland, A03/02.
In Police v Devereux, the High Court 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.

In September 2004, a lawyer faced charges under the FTRA for his alleged involvement in a property scam.