New Zealand

New Zealand

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Country contact

Chris Gordon,Bell Gully,
171 Featherston Street,
Wellington, New Zealand,
chris.gordon@bellgully.com, and Jayne Kirton, Bell Gully, 48 Shortland Street, Auckland, New Zealand, jayne.kirton@bellgully.com,
www.bellgully.com

The Department of Internal Affairs is the supervisor charged with monitoring lawyers’ compliance with the New Zealand Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).

The Department of Internal Affairs describes money laundering as the method by which people disguise the illegal origins of the proceeds of crime . The Department also says some people may be financing the activities of terrorists and known terrorist organisations and that financers of terrorism use similar techniques to money launderers to avoid detection by authorities and to protect the identity of those providing and receiving the funds.

The AML/CFT Act defines a money laundering offence as an offence against section 243 of the New Zealand Crimes Act 1961 or any act committed overseas that, if committed in New Zealand, would be an offence under that section of that Act.

Section 243 of the Crimes Act refers to:

  • Obtaining or possessing all or part of property that is the proceeds of an offence:
    • with the intent to engage in a money laundering transaction; and
    • knowing or believing the property is the proceeds of an offence or being reckless as to whether or not property is the proceeds of an offence
  • Includes dealing with or concealing such property or enabling or assisting, directly or indirectly, any other person to deal with or conceal such property.

Financing of terrorism under section 8(1) of the Terrorism Suppression Act is also an offence covered by the AML/CFT Act.

Anti-money Laundering is regulated by the Department of Internal Affairs, the Reserve Bank of New Zealand and the Financial Markets Authority. The Department of Internal Affairs supervises lawyers’ compliance with the AML/CFT Act.

Generally, as with any visitors (excluding those subject to the privilege of diplomatic immunity), visiting lawyers are subject to all New Zealand laws. See below regarding reporting obligations of lawyers.

Reporting obligations apply to all “Reporting Entities”, defined in the AML/CFT Act as:

  • Casinos
  • A designated non-financial business or profession (which includes law firms authorised to practise in New Zealand and carrying out certain specified activities in the ordinary course of business)
  • A financial institution
  • A high-value dealer
  • The New Zealand Racing Board
  • Other persons designated by regulation as reporting entities

Limited guidance is provided by the Law Society – see attached:

www.lawsociety.org.nz/practice-resources/practice-areas/aml-cft

However, the Department of Internal Affairs has published a reasonably fulsome guide - https://www.dia.govt.nz/AML-CFT-GuidelineLawyers-and-Conveyancers which is included in wider “Information for Lawyers and Conveyancers” collated on their website https://www.dia.govt.nz/AML-CFT-Information-for-Lawyers-and-Conveyancers#LAW

All reporting entities must appoint an individual to administer and maintain the AML compliance programme. The appointed compliance officer should be an employee of the business who reports to a senior manager or partner of the business. If practising on their own account, a lawyer or conveyancer would be expected to act as the compliance officer himself or herself and to take full responsibility for all compliance requirements unless there is a reason why they cannot. In that case the lawyer should appoint a third party to take on this duty.

If a lawyer is to conduct for a customer any activity captured by the AML/CFT Act, CDD must be conducted before establishing a business relationship with the customer (there are exceptions in relation to existing customers as at 30 June 2018). The list of captured activities for lawyers is contained in the definition of a “designated non-financial business or profession” in section 5 of the AML/CFT Act.

CDD must be undertaken on:

  • Customers (essentially clients)
  • Beneficial owners of customers
  • Any person acting on behalf of a customer

A beneficial owner is defined in supervisor guidance as an individual who satisfies any one element, or any combination of the following three elements:

  • an individual who owns more than 25% of the customer
  • an individual with effective control of the customer
  • an individual on whose behalf the transaction is conducted.

The lawyer will need to conduct CDD in line with the level of risk anticipated and in accordance with the requirements in the AML/CFT Act. If there is no captured activity initially, but over time the lawyer is instructed to carry out a captured activity, the lawyer must complete the necessary CDD before carrying out those captured activities.

Essentially, the lawyer is required, through conducting CDD, to have a good understanding of who the lawyer’s customers are and their circumstances and intentions, to understand the sources of the customer’s income and wealth and who else has an interest in and/or benefits from the customer’s activities so that the lawyer can make a reasonable assessment about whether the customer’s requests are typical, legitimate or potentially suspicious.

There are three levels of CDD:

Standard CDD – for most common situations

Simplified CDD – for use with specific customers or customer types specified in the AML/CFT Act that are considered to be low risk of Money Laundering or Financing of Terrorism

Enhanced CDD – for use when there are factors creating a higher level of Money Laundering or Financing of Terrorism risk or are otherwise specified in the AML/CFT Act.

A reporting entity must conduct “standard” CDD in the following circumstances:

  • if the reporting entity establishes a business relationship with a new customer
  • if a customer seeks to conduct an occasional transaction or activity through the reporting entity
  • if, in relation to an existing customer, and according to the level of risk involved:
    • there has been a material change in the nature or purpose of the business relationship; and
    • the reporting entity considers that it has insufficient information about the customer:
  • any other circumstances specified in regulations made under the Act.

Yes

If yes is there a set framework in place or guidelines to assist with this?

Yes, New Zealand follows a risk-based approach with the three levels of CDD referred to in 13 above (Standard CDD) and further described in 15 (Simplified DD) and 16 (Enhanced CDD) below.

Yes

If yes, please supply further details

Yes, Simplified CDD may be conducted if the customer is one of those listed in Section 18(2) of the AML/CFT Act. Such customers include:

  • New Zealand government departments
  • New Zealand local authorities
  • The New Zealand Police
  • New Zealand state-owned enterprises
  • New Zealand Crown entities
  • Banks registered under the Reserve Bank of New Zealand Act
  • Licensed insurers under New Zealand law
  • Publicly-listed companies

No

If yes please provide details of these requirements and examples of the types of evidence required to demonstrate an enhanced level of CDD.

There is no prescribed threshold. Enhanced CDD is required where:

  • The lawyer is establishing a business relationship with, or looking to conduct an occasional transaction or activity for, a customer that is:
    • a trust or another vehicle for holding personal assets
    • a non-New Zealand resident who is from a country that has insufficient AML/CFT systems and measures in place; or
    • a company with nominee shareholders or shares in bearer form
  • If a customer seeks the lawyer’s assistance to conduct a complex or unusually large transaction or an unusual pattern of transactions that have no apparent or visible economic or lawful purpose
  • When the lawyer considers that the level of money laundering or terrorism financing risk involved means that enhanced CDD would be required
  • When the lawyer has had cause to submit a suspicious activity report to the Financial Intelligence Unit of the New Zealand Police
  • When the lawyer determines that the customer is a politically exposed person
  • If the lawyer is undertaking an activity that involves the use of new and developing technologies that may favour anonymity

As discussed above, the nature of the entity is relevant to the determination of the level of CDD required. The Act does not allow for a true risk based approach.

Nominee beneficial owners are prevalent but enhanced CDD is required. Companies incorporated in New Zealand are not permitted to use bearer shares. A company’s register is the true record of shareholding.

Yes, the AML/CFT Act allows reliance on third party CDD in prescribed circumstances:

  • A member of the same “Designated Business Group”
  • Another reporting entity in New Zealand or a person in another country that has sufficient AML/CFT systems and measures in place and who is regulated for AML/CFT purposes where the person:
    • has a business relationship with the customer concerned;
    • has conducted CDD to at least the standard required by the AML/CFT Act;
    • has provided the reporting entity the relevant identity information before it has established a business relationship or conducted an occasional transaction or activity;
    • can provide relevant verification information on request of the reporting entity as soon as practicable but within five working days; and
    • consents to conducting the CDD and providing all relevant CDD information to the reporting entity.

    In this scenario, the reporting entity requesting the CDD remains responsible for ensuring the CDD is conducted in accordance with the AML/CFT Act.

  • An agent; or
  • An approved entity

There may be some differences but, in substance, we don’t believe the laws go materially beyond those required by FATF.

Section 40 of the AML/CFT Act requires a reporting entity to report a suspicious activity to the Financial Intelligence Unit of the New Zealand Police as soon as practicable, but no later than three working days after forming its suspicion. This has been held to mean that a reporting entity must report a suspicious activity within three days of the point at which the reporting entity becomes aware of facts that would objectively justify a suspicion (or by reasonable diligence would have become aware of them). It is not a defence that a reporting entity did not actually consider an activity to be suspicious in circumstances where it objectively should have.

Section 40 of the AML/CFT Act provides that the obligation to report suspicious activities does not require a person to disclose any information that the person believes on reasonable grounds is a privileged communication.

There is no indemnity per se. However, no civil, criminal or disciplinary proceedings lie against a person who makes a suspicious activity report unless the information was disclosed or supplied in bad faith or (in the case of a lawyer) there were reasonable grounds to believe the information was privileged.

Yes, under section 31 of the AML/CFT Act, when in a business relationship with a customer, the lawyer is required to conduct ongoing CDD and ongoing account monitoring. The lawyer is required to regularly review any information held about the customer and regularly review their account activity and transaction behaviour. The purpose of this is to ensure that the nature and purpose of the business relationship and any transactions relating to that business relationship are consistent with the lawyer’s knowledge of the customer and the customer’s risk profile. This regular review will also help the lawyer to identify any grounds for reporting a suspicious activity.

Please refer to “Bell Gully Individual Identity Verification” document attached

Please refer to “Bell Gully Company Identity Verification” document attached

In addition to the appointment of an AML/CFT compliance officer, undertaking CDD and reporting suspicious activities as described above, lawyers are obliged:

  • To undertake a written assessment of the risks posed to their business by money laundering and financing of terrorism
  • To develop, and regularly review, a written AML/CFT programme based on the risk assessment which programme should include procedures, policies and controls for ensuring all compliance obligations are adequately and effectively met
  • Keep records of transactions, suspicious activities and customer verification and other relevant documents
  • Submit an annual report to the supervisor
  • Have its risk assessment and compliance system independently audited at least every two years

We are aware of one lawyer being charged with 8 counts of laundering since Lawyers became subject to the AML/CFT requirements in July 2018

Yes – in October 2009
www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20New%20Zealand%20ful.pdf

A Second Follow Up Report was issued in October 2013
www.fatf-gafi.org/media/fatf/documents/reports/mer/FUR-New-Zealand-2013.pdf

It is expected the next Mutual Evaluation will be conducted in 2020.

If yes, what were the findings concerning Lawyers' compliance with the FATF 40+9 recommendations?

Lawyers were not required to comply with the AML/CFT legislation at the time of the Mutual Evaluation Report in 2009, nor at the time of the Follow Up Report in 2013. That has now been addressed with the roll out of Phase 2 of the AML/CFT Act to DNFBPs, starting with lawyers in July 2018.

Mutual Evaluation Report (October 2009)

  • Compliance with Recommendation 12 – DNFBP – Recommendations 13-15 & 21 – Non-Compliant: Scope issues: The circumstances in which lawyers and accountants are subject to the requirements of the Financial Transactions Reporting Act (FTRA) are limited to occasions where they receive funds in the course of the customer’s business for the purposes of deposit or investment or for the purpose of settling real estate transactions.
  • Effectiveness issue: It has not been established that Accountable DNFBPs are implementing the AML/CFT requirements relating to R. 12 effectively.

Follow Up Report (October 2013)

The Report confirmed that “while some progress has been made, a serious scope issue remains and as a result, this deficiency is not yet addressed. New Zealand reports that the scope and extent to which DNFBPs need to be included under the AML/CFT regime will be considered as part of the second phase of the AML/CFT reform which is expected to start in the fall of 2013. (…) As was noted in the 2009 MER, lawyers, accountants and real estate agents remain subject to the Financial Transactions Reporting Act 1996 (the former AML Act) in limited circumstances which are not consistent with the FATF Recommendations.”

Recommendation 12, Overall Conclusion: “While New Zealand has taken some initial action with regard to the deficiencies identified in the MER, New Zealand’s level of compliance with R12 is not yet equivalent to [Largely Compliant].”

Mutual Evaluation Report (October 2009)

Compliance with Recommendation 16 – DNFBP – Recommendations 13-15 & 21 – Non-Compliant:

  • Scope issues: Lawyers and accountants are subject to the requirements of the FTRA only when they receive funds in the course of that person’s business for the purposes of deposit or investment or for the purpose of settling real estate transactions.
  • Effectiveness issues: It has not been established that Accountable DNFBP are implementing the AML/CFT requirements relating to R. 16 effectively. Also, overall, a very low number of STRs has been submitted by DNFBPs, which puts into question the effective implementation of the reporting requirement for DNFBPs.

Follow Up Report (October 2013)

The Report confirmed that “while some progress has been made, the four deficiencies are not yet addressed. (…) The scope issue with regard to DNFBPs is discussed in detail in relation to R12 (deficiency 1).” In relation to Effectiveness Issues, the Report goes on to state that “while some progress has been made, this deficiency is not yet addressed. The AML/CFT Act 2009 establishes a supervisory model, with new powers and an enforcement regime. New Zealand reports that effectiveness in relation to those DNFBPs that are currently subject to the Act will need to be reassessed after full implementation of the AML/CFT Act in June 2013.”

Recommendation 16, Overall Conclusion: “While New Zealand has taken some initial action with regard to the deficiencies identified in the MER, New Zealand’s level of compliance with R16 is not yet equivalent to [Largely Compliant].”

Lawyers became subject to compliance with the AML/CFT Act only from July 2018. Between 1 July and 30 September 2018, Phase 2 entities (then comprising only law firms) filed 40 Suspicious Activity Reports. We do not have further statistics.

18 February 2019

Compiled by:

Chris Gordon
Partner
Bell Gully
Wellington
New Zealand
Tel: +64 21 614 522
chris.gordon@bellgully.com