With the end of the year approaching and 2013 "to do" lists starting to be developed, one of the key items for affected businesses will be getting ready for the main provisions of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 that comes into effect from June 30, 2013.
Given the extent of what's required in order to comply, there's not a lot of time left. Those who have yet to make much progress in getting ready would be well-advised to spend a bit of time planning their approach for next year this side of Christmas
AML/CFT is an issue that New Zealand has paid some attention to over the years, but just not enough. It's big business internationally. The International Monetary Fund and World Bank estimate that US$2 trillion (NZ$2.46t] to US$3t is laundered around the world each year.
Regulators aren't afraid to take action and impose substantial penalties for failing to comply with AML/CFT laws. For example, global bank HSBC has been under investigation over allegedly allowing clients to transfer potentially illicit funds from countries such as Mexico, Iran and Syria.
The bank has, to date, set aside US$1.5 billion in anticipation of what may be in store for it. In announcing its third-quarter results last week, the bank warned that the financial penalties coming out of the investigation could be significantly higher.
International audits have revealed significant deficiencies in New Zealand's AML/CFT regime. The act is intended to address a number of these deficiencies. If we don't get it right, credit ratings and trade relationships could be negatively affected.
So, who does the act apply to?
It applies to "reporting entities", a term which includes banks, life insurers, finance companies, building societies, credit unions, issuers of securities, trustee companies, futures dealers, brokers, certain financial advisers, casinos, money service businesses, those involved in financial leasing, safe deposit businesses - the list goes on.
There is a range of exclusions and exemptions, such as for accommodation providers that provide guests with safety deposit boxes, accountants, real estate agents, pawnbrokers and lawyers.
The reporting entities will need:
A written risk assessment of the money laundering and financing of terrorism that could be expected in their business
An AML/CFT programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism
A compliance officer appointed to administer and maintain the AML/CFT programme
Customer due diligence processes based on their risk assessment, including customer identification and verification of identity, and
Suspicious transaction reporting, record-keeping, auditing and annual reporting systems and processes.
For customers of reporting entities, the impact of the act will largely be felt through the customer due diligence required. This will generally involve customers having to provide more information including the source of funds and wealth. Trusts, an easy way to hide the beneficial ownership of funds, will come under particularly close scrutiny.
The act provides a range of sanctions for non-compliance, from formal warnings to injunctions, substantial fines and imprisonment.
Andrew Wallace is a senior solicitor at Auckland law firm Lowndes Jordan. Information given in Your Law should not be a substitute for legal advice.
- Sunday Star Times