- New Zealand and Australia intend to extend their AML/CTF regimes to cover accountants and other designated non-financial businesses or professions
- Bringing in an AML/CTF regime is not easy and requires careful consideration to ensure that the right balance is achieved
- The cost of compliance is a legitimate concern, given that more than half of accounting businesses are sole practitioners
It is hard to quantify exactly how much money is laundered each year but the Australian Transaction Reports and Analysis Centre (AUSTRAC) estimates it to be in the vicinity of A$15b in Australia, while New Zealand’s Ministry of Justice puts that figure at NZ$1.5b for New Zealand. There is little evidence to suggest terrorism financing is occurring in either country.
As it stands, the anti-money laundering and counter-terrorism financing (AML/CTF) regimes of 31 out of the 34 full member countries of the Financial Action Task Force (FATF) largely do not apply to accountants and other designated non-financial businesses or professions (DNFBPs).
However, in light of the FATF recommendations in this regard, New Zealand and Australia recently signalled that they intend to extend their AML/CTF regimes to cover DNFBPs.
Following an initial consultation in September, the New Zealand government issued draft DNFBP legislation proposing an effective date for the accounting profession of 1 July, 2018. Australia has also started consulting on regulating DNFBPs, with a view to including them in the AML/CTF regime by 2019, ahead of its FATF follow-up evaluation. The New Zealand regime is next due to be assessed by FATF in 2020.
It is estimated that Phase 2 could disrupt up to NZ$1.7b worth of illegal drugs and fraud over ten years.
It has been recognised that just applying Phase 1 legislation to DNFBPs is unworkable because DNFBPs are inherently different from financial service businesses in many ways, including:
· many DNFBPs do not have the dedicated in-house compliance
resources that financial services businesses often have in place
· many DNFBPs do not have on-going relationships with customers, instead often engaging in one-off transactions
· many products and services offered by DNFBPs also involve another reporting entity as part of the transaction.
The sheer number of Phase 2 reporting entities will also make effective supervision a challenge. In Australia, AUSTRAC currently supervises approximately 14,000 Phase 1 reporting entities.
Early indications are that it could have an additional 100,000 reporting entities under Phase 2. Collectively, New Zealand’s three supervisors – the Reserve Bank (RBNZ), the Financial Markets Authority (FMA) and the Department of Internal Affairs (DIA) – supervise approximately 1,700 Phase 1 reporting entities.
According to Deloitte’s Business Compliance Impacts report, commissioned by New Zealand’s Ministry of Justice, the number of Phase 2 reporting entities in New Zealand is expected to be 7,603. The draft AML/CTF Amendment Bill proposes the New Zealand accounting profession be supervised by DIA.
The information paper that accompanies the draft AML/CTF Amendment Bill suggests the maximum cost to New Zealand DNFBPs could be up to NZ$1.6b over ten years.
In terms of benefits, it is estimated that Phase 2 could disrupt up to NZ$1.7b worth of illegal drugs and fraud over ten years, argues the NZ Ministry of Justice. A consultation paper issued by the Attorney-General’s department that discusses a model for regulating the accounting profession will be used to facilitate a similar cost-benefit analysis in Australia.
Compliance cost concerning
The cost of compliance is a legitimate concern for the accounting profession, given that more than half of accounting businesses are sole practitioners. This highlights how critical it is to mitigate the regulatory impact on such businesses while retaining the integrity of the regime.
The draft Bill in New Zealand has made attempts to reduce compliance costs through prospective application, use of designated business groups for network firms and allowing reliance on another reporting entity’s customer due diligence in certain circumstances. The risk-based approach also assists the regime in being pragmatic and proportional.
Bringing in an AML/CTF regime is not easy and requires careful consideration to ensure that the right balance is achieved between compliance costs and benefits.
Maybe that is why so many FATF full member countries have yet to fully implement the FATF recommendations in this area. One thing for sure is that having no requirements for DNFBPs is clearly not an option.
For more information and advice on anti-money laundering issues, CAs can visit member services section of the CA ANZwebsite.
Zowie Murray CA is Senior Policy Adviser at Chartered Accountants Australia and New Zealand.