Anti-money laundering measures in New Zealand
July 2016 | SPECIAL REPORT: WHITE-COLLAR CRIME
Financier Worldwide Magazine
The role of New Zealand in the Panama Papers has generated considerable debate in this country, if not abroad. In some quarters, there is a perception that New Zealand business structures and investments are being used by foreign criminals to shield their activities and wealth from prying eyes. However, New Zealand has a strong anti-money laundering (AML) and countering financing of terrorism (CFT) regime which aligns well with international norms and is likely to soon be strengthened further.
New Zealand and FATF
New Zealand is a member of the Financial Action Task Force (FATF), the inter-governmental body established in 1989 to develop international standards and cooperation on combating money laundering and terrorist financing.
The FATF publishes a framework, by way of 40 listed recommendations, with which membership countries are expected to comply. These include requiring the reporting of suspicious transactions (Recommendation 20), requiring information regarding the beneficial ownership and control of legal persons to be easily accessible by the appropriate authorities (Recommendation 24), and requiring the provision of mutual legal assistance to other countries in matters relating to money laundering and terrorist financing (Recommendations 37-40).
In October 2009, the FATF and the Asia-Pacific Group on Money Laundering published a Mutual Evaluation Report, assessing New Zealand’s compliance with the FATF recommendations. New Zealand was rated ‘non-compliant’ in a number of areas, including a lack of due diligence processes (Recommendation 5), a lack of internal controls and compliance procedures in financial institutions (Recommendation 15), and a lack of AML/CFT regulation and supervision overall (Recommendations 23, 24 and 29). As the result of this, New Zealand was placed onto a procedure of regular follow up reporting.
However, the 2009 report was published just one day after the enactment of New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), which had been drafted to address many of these concerns. By the October 2013 follow up report, most of the previously flagged issues were considered properly addressed. All key and core FATF recommendations were assessed as either compliant or partially compliant, with the exception of the need to show evidence of implementation and supervision under Recommendations 5 and 23. Although the FATF noted that the lack of compliance in these areas was primarily due to a dearth of available information, the Act having only come fully into force three months prior, the report ultimately found that New Zealand had taken sufficient action to justify its removal from the regular follow-up process and was considered to be broadly in line with FATF’s expectations.
New Zealand’s AML/CFT regime
The AML/CFT Act imposes a number of obligations upon specified “reporting entities”, which currently includes financial advisers, casinos and trust and company service providers. Under the Act, these entities are required to conduct due diligence on customers, beneficial owners of customers, and any person transacting on behalf of a customer (section 11). This due diligence is to follow a “standard”, “simplified” or “enhanced” procedure, depending upon such factors as whether the customer resides in a country with “insufficient” anti-money laundering systems in place, and whether the proposed transaction is unusually large or has no apparent lawful purpose (sections 14 to 30). The entities must also undertake regular account monitoring to ensure customers’ transactions are consistent with the entity’s understanding of their business and risk profile (section 31), and report transactions regarded as suspicious to the Commissioner of Police (section 40). Each reporting entity must have its assessment programme independently audited at least every two years (section 59).
The Act provides for three supervisors to cover the three different sectors to which the Act applies – the Department of Internal Affairs for casinos and money changers, the Reserve Bank of New Zealand for banks and insurers, and the Financial Markets Authority for financial service providers. Supervisors are also required to monitor the reporting entities for which they are responsible, preparing codes of practice for their sector to assist with statutory compliance, and enforcing compliance (section 131).
Changes to New Zealand’s AML/CFT regime
When the AML/CFT Act was enacted, the government indicated that it would later enact a ‘Phase II’ series of legislative additions, extending the obligations under it to other professionals, including lawyers, accountants, conveyancers and real estate agents. These professionals are already subject to earlier FATF-inspired legislation: the Financial Transactions Reporting Act 1996. That Act requires verification of the identity of facility holders (section 6), and of persons conducting cash transactions over NZ$9,999.99 (section 7(1)(a)). There is also a requirement to report suspicious transactions (sections 11 and 15). However, monitoring of compliance with this scheme is not comprehensive, and the FATF does not consider it sufficient.
Although the implementation of Phase II of the AML/CFT Act had not featured in parliamentary announcements for some time, New Zealand’s justice minister Amy Adams recently revealed the government’s intention, in the wake of publicity around the Panama Papers, to ‘fast track’ the changes in order to have them in place by the middle of 2017.
These changes, while ultimately bringing New Zealand further into line with international practice, will have important implications for those conducting business in New Zealand. Virtually all the professionals from whom a businessperson might conceivably require assistance in relation to investing in New Zealand will be bound to these increased responsibilities. The obligations on the professionals will, in turn, result in obligations on their customers to subject their affairs, from purchasing a property to establishing a trust, to a far greater level of scrutiny.
New Zealand is proud of its image as one of the least corrupt countries in the world. However, the recent Panama Papers revelations have slightly tarnished that image with suggestions that New Zealand trusts and shell companies are proving attractive to despots and gangsters. The recently announced upgrade is likely to help to allay such concerns, but may also increase the compliance burden which falls on those doing business in New Zealand.
Ian Gault is a partner, Andy Glenie is a senior associate and Joanna Trezise is a solicitor at Bell Gully. Mr Gault can be contacted on +64 9 916 8967 or by email: firstname.lastname@example.org. Mr Glenie can be contacted on +64 9 916 8811 or by email: email@example.com. Ms Trezise can be contacted on +64 9 916 8950 or by email: firstname.lastname@example.org.
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Ian Gault, Andy Glenie and Joanna Trezise