New act targets money-laundering
There has surely never been an Act of Parliament that engenders so many groans.
Perhaps it's the length of the title: The Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
It will combat skulduggery, deception, drug trafficking, and is part of cross-border co-operation to tighten the noose on money-washing criminals and paramilitary fundraising.
The act, which was passed in October 2010, comes into effect on June 30 next year.
It aims to detect and deter money laundering and terrorism funding, and to keep New Zealand financial regulations in line with other western countries.
The responsibility for policing and ensuring the act is heeded by affected companies is split between the Financial Markets Authority (FMA), Internal Affairs and the Reserve Bank.
Internal Affairs will make sure casinos are doing all they can to stop dirty cash going through the rinse cycle of gambling machines and blackjack tables, as well as supervising non-bank money lenders and movers.
The Reserve Bank will make sure the large financial institutions' systems are adequate for finding the crooks among the enormous number of transactions they process.
The FMA's job is to oversee financial advisers, sharebrokers, trustees and auditors and ensure they ferret out dodgy customers. Between them, there are more than 1300 businesses.
Once the act is in place and the primary players are in the swing of it, a second tier of businesses is likely to be brought under it. That could include real estate agents, car dealers, lawyers, jewellers, accountants and gold salesmen, all with the aim of stopping legitimate assets being bought with under-the-table cash.
"Criminals like to spend money and they like to buy toys," the head of FMA supervision, Geoff Brown says.
At a brief overview of the new regime recently, Brown urged Christchurch financial service professionals to get ready.
Organisations covered by the act need to make sure they have appointed a staff compliance officer and have a compliance programme in place before the start date.
"It's a cost - we know that and we appreciate that - but once again, it's something we have got to just get on and get up and do. The cost for New Zealand of not having this system is a lot higher."
Recently there had been news reports about shell companies operating in New Zealand defrauding foreign companies and causing considerable harm to the country in the process, he says.
Earlier this year, New Zealand had been booted off the eurozone bankers' white list after an Auckland-based company was used to channel kickbacks to eastern European officials.
Two years ago, another New Zealand shell company, which shared the same Auckland address, was found to have chartered a Georgian-registered plane to try to fly embargo-busting arms from North Korea to the Middle East.
Brown says New Zealand was reasonably low on the radar for global terrorism fundraising, but there were some donations made that probably made their way to questionable organisations.
Those donations tended to be small, from "legitimate sources" and hard to spot.
The new law ratchets up financial institutions' responsibilities about the clients they deal with and introduces hefty punishments for those that don't measure up.
The act allows for penalties of up to two years' imprisonment and a $300,000 fine; for a firm, the fine can reach $5 million.
The act uses a "risk-based approach": Depending on the size and complexity of the client's business, what products it offers, who it deals with and where those contacts are based, more or less work must be done to ensure the client is legitimate.
Essentially, it means bankers and financial professionals would have to get to know their clients even more closely than they already do, Brown says. Clients who work through trusts or companies with nominee shareholders - custodians for the real owners - will be an immediate flag for heightened scrutiny. Beneficial owners will need to be identified and verified with evidence.
Also, where's the money coming from? Unexplained wealth should be another flag.
Then, a more sceptical tack has to be taken when looking at transactions clients make.
"What's not normal practice for that particular kind of client?" Brown says.
"You're looking for transactions that don't make financial sense; unusual transactions."
Brown urged affected businesses not to put off compliance system preparations and warned against taking the new law lightly.
"It's serious and needs to be taken on board if you're a reporting entity."
The large banks were mostly already on to the changes, but the smaller operators needed to make sure they were ready as well, he says.
"There are hefty penalties."
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