AML Workflow & Guidance – a Roadmap for New Zealand Lawyers

Since July 2013, almost every business in the financial, life insurance and gaming sectors has been living with the intricacies and intrusions of the Anti-Money Laundering & Countering Financing of Terrorism regime. “Living with the curse”, as one client has commented to me.

Five years on, in July 2018, virtually every law firm in New Zealand will become captured by the regime, at least in part. This major change, and the rapidly diminishing time available until July 2018,  has induced massive discussion, angst and confusion amongst the profession. Very few lawyers, outside a tiny handful of us* advising the financial sector, have had to get to grips with this detailed regulatory system up to now.

Concerns facing the legal profession over AML

Since June, the anxiety levels have been ratcheted up a notch further for lawyers and the call for help repeated in conversations with many lawyers since.

In the middle of the year, I led a series of AML nationwide roadshows with Thomson Reuters, and was struck by two things. First, how responsibly engaged and serious those ‘early-adopter’ attendees were in grappling with the issue of money laundering. There was a real desire to understand the thicket of statute, regulations, guidance, code of practice and other international materials that comprise our AML jigsaw puzzle. More striking still was the significant levels of concern that lawyers (and in due course the accounting profession too) were starting from scratch into the AML regime, not getting sufficient detail from the regulators, and crying out for some practical detailed guidance to fully understand – and then meet – their new compliance obligations.

Since June, the anxiety levels have been ratcheted up a notch further for lawyers and the call for help repeated in conversations with many lawyers since.  At least three developments during the implementation period so far have led to this:

  • Our politicians ignored many submissions asking for a sensible implementation period, in a headlong rush to pass the AML/CFT Amendment Act reforms. That left lawyers with under 12 months to get ready, as all compliance steps must be taken, and a fully functioning programme put in place by 1 July 2018. By contrast, banks and other ‘phase 1’ reporting entities had around 3½ years to prepare for an AML regulated world. Yet many still struggled to do so in time – 2013 was a frantically busy year for me, advising latecomers and helping get them across the line.
  • Then at the end of September, in the first liability judgment against a phase 1 entity, the High Court handed down a whopping pecuniary penalty of $5.29 million plus costs. This is quite unprecedented, to see any new regulatory regime to start off at that level of penalty. Whether it may be the Commerce Act, Health &  Safety regimes, Credit Contracts &  Consumer Finance – historically, all tend to start off cautiously and build up penalty levels towards greater deterrent heights over time. But this is a sign the AML penalty regime means business from the outset. And it reflects what we see overseas – major banks and institutions hammered in the US and EU with multi-million dollar fines. This has sent a bit of a shockwave through all phase 1 entities, as well as newcomer lawyers, accountants, conveyancers and real estate agents.
  • The NZ Law Society, which will not be the Supervisor of lawyers for AML purposes, maintains its existing Lawyers and Conveyancers Act regulatory regime in parallel for professional standards. NZLS has signalled a tough line, especially around issues of legal professional privilege, meaning that failures under the AML regime (or even ‘honest attempts’ at compliance) could land a lawyer with a dual regulatory problem under the NZLS Complaints system too, or potentially a professional negligence claim. This is a “rock and a hard place” dilemma that most phase 1 financial businesses have not had to worry about.

Eminem - October 1999 - Wikimedia Commons - Mika photo

It will not be good enough to be “pretty legal” on AML compliance, as one of our outgoing Cabinet Ministers quipped on Eminem copyright issues.

For lawyers, the legal, ethical, media and reputational risks are serious. It will not be good enough to be “pretty legal” on AML compliance, as one of our outgoing Cabinet Ministers quipped on Eminem copyright issues. Lawyers need to know in detail what their AML obligations are, take a personal interest in the compliance materials being prepared, and understand the ongoing effects this will have on the profession and on client relationships. AML regulation is the most significant professional standards change we have had since the Lawyers & Conveyancers Conduct and Client Care rules of 2008.

The Purpose of a roadmap – AML Workflow & Guidance

As a result of all that, when Thomson Reuters approached me to write a series of practical modules for lawyers on AML compliance –“AML Workflow & Guidance” as it will be known – I could readily appreciate the real need, and how my experience in this specialist field going back to 2007 (and prior to that, in the UK) might add value.

One important determination we had to agree was that this is a roadmap, and not a template or ‘paint by numbers’ set of compliance materials. AML is not readily capable of a one size for all template, despite the many consultants springing up to offer versions of that. Law firms, practice areas, staff skills, client bases, and most importantly firm cultures, are all individualistic and different. A bank with 150 branches nationwide might try to dictate identikit compliance steps, but in a way that would prove difficult and perhaps counter-productive for most legal practices. The key implementation asset (or barrier) for law firms will be their intelligent, questioning, lawyers – professionals who usually want to understand the how and why of a new law, rather than be told to fill in forms. And the Department of Internal Affairs team do not want, and will not accept, form-filling or box-ticking compliance either.

So this roadmap can only be, like any exercise in cartography, a detailed navigational guide to the hills and valleys, easy cruising highways, difficulty twisty corners or compliance roadblocks that lie ahead. It will get you there, in style and efficiency, but you still have to choose your car, the lavishness of your vehicle specs, and drive it to the destination. That is aligned to our belief that lawyers will benefit in the long run from trying to internalise some AML knowledge along the journey.

My discussions amongst the profession suggest that many will prefer to deal with another lawyer – because the sensitivity of becoming linked to financial crime/anti-money laundering, the risks of getting it wrong, and the lower understanding that many consultants (and regulators) have of the nuances of our legal professional traditions mean that plenty can be lost in translation.

When I work with lawyer clients encountering difficult AML issues, such as whether and how to report a client to the Police, we work through similar thought process to handling complex conflict of interest problems. Most firms will have a conflicts process, or a committee, or at least a sounding board – because such issues are complex, multi-faceted, and fraught with legal and commercial risk.

They benefit from the perspective of other experienced lawyers. They will typically be partner-level, business-critical discussions. Avoiding financial crime risk is like that too.

My background

I have been at different times a salaried partner in a large national firm, an equity partner in a leading boutique, and since 2016 an independent barrister. Having spent a decade learning AML inside and out – researching, publishing, presenting, and advising financial clients (and several law firms too) on all kinds of difficulties with the regulatory regime, I hope to put that expertise to good use. Harnessed to the publishing horsepower of Thomson Reuters, this seems a useful way to deliver something of practical value back to the profession, including those lawyers who have kindly supported me over that decade.

AML Workflow & Guidance content

We will address key topics in a practical and real-world manner that blends law, policy and industry best-practice, including:

  • What does money laundering or terrorism financing look like?
  • Is my legal practice captured, and to what extent?
  • How to discharge the AML/CFT Compliance Officer responsibilities
  • How to prepare the written risk assessment
  • Due Diligence on clients
  • Due Diligence and dealings with staff, referrers, agents and others
  • Other elements of an effective Compliance Programme
  • Reporting prescribed transactions and suspicious activities (including legal privilege problems)
  • Dealing with the AML Supervisor (engagement, enforcement, and liabilities)

Keep informed

Given the complexities of the issues involved and the condensed time frame in which to be prepare (1 July 2018), do you want more information about AML Workflow & Guidance?

Article Updated 22/03/18 – AML Workflow & Guidance is now available.

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