The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act: A Guide for Lawyers

Phase 2 of the implementation of changes to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act come into force throughout 2018 and 2019 in an incremental roll-out. The legal profession leads the list of those impacted. Lawyers and conveyancers must be compliant by 1 July 2018. That’s in less than 4 months’ time.

Are you ready?

Thomson Reuters NZ recently hosted a one day Anti-Money Laundering Conference to help lawyers understand and comply with the Phase 2 demands.

Carefully compiled sessions gave attendees an overview of what must be done, why and how. The goal was to have people leaving at the end of the day with enough knowledge and confidence to set about ensuring their businesses were fully compliant.

This article summarises sessions on the need for change; what the Department of Internal Affairs (DIA) identified as risks within the legal sector; the red flag indicators the police saw as warranting further investigation; and the role of thorough customer due diligence in preventing money laundering or financing of terrorism.

Why we need to change

Why we need these changes was covered by Nathan Lynch, Regional Bureau Chief APAC, Financial Crime and Risk, Regulatory Intelligence, Thomson Reuters (Aus).

…low-corruption countries, like ours, with light-touch AML/CFT regulations are attractive havens…

New Zealand’s reputation as a transparent and low-risk market has been tarnished by revelations, such as the release of the Panama Papers and the ensuing Shewan Inquiry. Clean, low-corruption countries, like ours, with light-touch AML/CFT regulations are attractive havens for money launderers and the movement of illicit funds, says Lynch.

Figures quoted estimated 2–5 per cent of total global GDP (NZ$800 billion – NZ$2 trillion) is being money-laundered yearly, and of that the Ministry of Justice conservatively estimated $1.5 billion NZ made its way to New Zealand. He also quoted other research indicating the real figure as being closer to $10 billion NZ.

Lynch says, research clearly shows that where there’s money laundering there’s most likely to be other crime too. The top three areas most frequently linked are fraud, narcotics trafficking, and conspiracy and collusion.

He made the point, shared by everyone concerned, that we need these changes to protect our reputation on an international and national level as well as on an individual firm by firm basis. Nothing exists in isolation. Association is everything. The compliance process helps keep us safe.

What the Department of Internal Affairs and the police are concerned about

In her session, Kate Reid, Director Phase 2 Implementation, Regulatory Services, Department of Internal Affairs (DIA), outlined what the risks of potential money laundering and financing of terrorism were within the legal sector.

She said they were moderately high because:

  • the services lawyers provide are attractive (and necessary) to launderers;
  • the sector offers a veneer of respectability (a shelter to hide behind);
  • there are many lawyers throughout the country which makes them easy to access; and
  • they’re used to dealing with complex client relationships and
  • taking on a gatekeeper role.

To address these risks the DIA wanted the legal sector to have compliance programs that were comprehensive, robust, tailored to meet individual needs, and flexible. The DIA is there to help, to guide and to partner in combatting and pre-empting crime, says Reid.

The NZ Police, who were represented at the conference by Andrew Hill, manager of the Financial Intelligence Unit, were principally concerned that lawyers understood what to look out for, and when and how to alert the appropriate authority.

He shared examples of indicators (red flags) that a customer’s activities warranted further investigation. These included:

  • Activity that was inconsistent with the given business activity or the profile of a customer
  • A customer who didn’t fit the normal profile for your business
  • A customer avoiding your due diligence by acting through an intermediary or who obscures the beneficial owner
  • A customer who’s unconcerned by loss or who makes uneconomical trades

Hill also shared examples of indicators that applied to transactions. These included:

  • Structured payments
  • An account appearing to be used as a depository or conduit
  • Unusual international transactions
  • Unusually complex transactions
  • Companies involved with obscure business purposes
  • Uneconomic – quick buy and sell for no clear reason

What to do, having identified a reason for concern, was also covered.

The role of sound Customer Due Diligence

According to Paddy Oliver, founding member of AML Experts (Australia), who presented two sessions, one on crafting a compliance program and the other on Customer Due Diligence (CDD), the key to successful prevention of money laundering (ML) and/or financing terrorism (FT) lies in thorough, systematic customer due diligence. Thorough CDD, he said addressed the indicators (red flags) that Andrew Hill from the NZ Police outlined.

Oliver’s CDD session covered establishing a process for understanding customers and the ML/FT risk they pose. That process involved two steps: collecting, then verifying information. Both are required under the Act. He also stepped through the types of requests/circumstances that would trigger the need for Enhanced Due Diligence (EDD) and what that would entail.

For example, he suggested that EDD needs to be used when a customer seeks to conduct an occasional transaction or activity through you and that customer is:

  • a trust or another vehicle for holding personal assets;
  • a non-resident customer from a country that has weak AML laws;
  • a company with nominee shareholders or bearer shares;
  • a politically exposed person;
  • wanting to wire a transaction – either in an ordering, intermediary, or beneficiary institution;
  • wanting to use or establish a correspondent banking relationship; or
  • involved in new or developing technologies – products that might favour anonymity.

In closing his session on crafting a compliance program, Oliver reminded lawyers that they must take compliance seriously. He said the biggest risk they were most likely to face was disciplinary or enforcement action for regulatory failures, rather than for active involvement in money laundering or terrorism financing schemes. This posed a significant threat to the reputation of any law firms that were found to have ignored AML/CFT obligations, he said.

Key points:

  • By 1 July 2018 the legal sector must comply to requirements of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act.
  • Each firm needs an individually tailored compliance program based on an in-depth risk assessment.
  • Use of cookie-cutter generic templates or somebody else’s program won’t work.
  • Seek advice if you need to.

Resources:

 

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