Preparing for a new world of whistle-blowing
As New Zealand’s new money laundering and terrorism financing laws extend to accountants, the Department of Internal Affairs says help will be available.
- Laws governing anti-money laundering and financing of terrorism have been extended from banks and casinos to the professions.
- Firms can already appoint compliance officers and start risk assessments.
- Failure to comply by 1 October 2018 may result in penalties.
By Kate Reid.
Earlier this year, the New Zealand government passed changes to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009.
This extends the legislation from 1 October 2018 to include accountants in practice who carry out activities subject to the Act. Banks, casinos and a range of financial service providers have been subject to the Act since 2013. Accountants, whether they are a member of a professional accounting body or not, form part of “Phase 2” of the regime.
The legislation empowers every accounting practice covered by the Act to report suspicious transactions, where the value, volume or frequency of transactions raises a red flag. It also lets practices report suspicious activity, which may be an indicator of money laundering. Banks deal with a huge number of clients and transactions and often lack the in-depth knowledge of a particular client that an accountant may have. So accountants can provide valuable intelligence which other parties do not have sight of.
Phase 2 of the Act aims to strengthen the AML/CFT regime and limit opportunities for criminals to launder funds, which is estimated to be worth around NZ$1.35 billion in New Zealand every year.
In order to disguise the origins and destination of funds, criminals use financial and related services such as the formation of company and trust structures. For this reason, the Phase 2 reforms broaden the regime to include a range of professions such as lawyers, conveyancers, real estate agents and businesses that provide trust and company services, as well as sports and race betting providers and some businesses trading in high-value goods.
The Ministry of Justice, NZ Police and the Department of Internal Affairs (DIA) are partnering to lead this work. As an established regulator, the DIA is the supervisor of all Phase 2 reporting entities, which are expected to number around 6,000 businesses, adding to its 950 Phase 1 reporting entities. To accommodate this increase, the DIA will need to add around 50 new staff over the next two years.
Ping An Finance failed to perform customer due diligence, maintain records, or report suspicious transactions... and was ordered to pay NZ$5.29 million in penalties
The Department is a responsive regulator and understands the challenges the new requirements will present for your business. It is focussed on support, not punishment. If a business initially fails to comply but shows a genuine desire to fulfil their AML/CFT obligations, the business will be given opportunities to rectify issues identified. The DIA will work with the profession to facilitate the change that is needed so that businesses large and small can adapt to their new AML/CFT obligations.
However, when businesses refuse to meet their compliance obligations, there is a range of interventions available to the DIA, from formal warnings through to civil and criminal court action.
An example is Ping An Finance, which was found to have committed multiple civil liability breaches under the Act. Ping An failed to perform customer due diligence, maintain records, or report suspicious transactions. As a result it was ordered to pay NZ$5.29 million in penalties and the director was banned from operating the same or similar businesses.
While cases such as this are expected to be uncommon in New Zealand, it demonstrates the government is serious about protecting the country’s reputation as a safe place to do business. By working together to make AML/CFT compliance commonplace and straightforward, businesses can safeguard their own reputations and be less vulnerable to abuse.
Help is at hand
Guidance for accountants will be available before the end of March 2018, while the Sector Risk Assessment (SRA) for all Phase 2 businesses will be available before the end of this year. The SRA will be a good place for accountants to make a start towards understanding the different ways criminals operate and preparing their risk assessment and AML/CFT programs.
But you will not be left to work it all out for yourself. Already, a series of workshops led by the Ministry of Justice which involve NZ Police and DIA have been run with an Advisory Group of representatives from the various Phase 2 sectors. These workshops are a means for the government to listen to concerns and thoughts around AML/CFT legislation and find out exactly what it means for each new sector.
In addition, a series of roadshows will take place in the New Year in more than a dozen locations throughout the country, where anyone can attend to provide feedback and ask questions of the DIA. There will be opportunities to find out more at various conferences and events over the next year, while webinars and articles will support accountants in preparing for and meeting these new obligations.
Chartered Accountants ANZ has been involved as an Advisory Group member and since the legislation was passed, has worked closely with the DIA to ensure feedback from the profession is provided to government. Much of CA ANZ’s and DIA’s advice to members to date has focussed on what you can do now to be ready for next year.
The first thing accountants can do is to appoint a compliance officer responsible for administering and maintaining the AML/CFT programme and liaising with the DIA.
While there is no legal requirement for reporting entities to register with DIA, it’s strongly recommended that they get in touch with the Department early to provide the firm’s contact details and the name of the appointed compliance officer.
This is how businesses can ensure they keep up to date with news, guidance and reminders directly from the supervisor. The Department will provide information through CA ANZ, but will also sometimes contact supervised businesses directly, for example to provide more detailed guidance or to initiate a compliance review.
Performing a risk assessment is another activity accountants can begin. Identifying the potential exposure to money laundering risks faced in the ordinary course of business is a key foundation task in developing your overall compliance programme.
Related: NZ gets tough on money laundering
Accountants undertaking activities subject to new anti-money laundering laws should be ready to comply from 1 October 2018.
Assessing risk involves identifying services you provide that are covered by the Act, then determining the risk of these services being used to launder money or finance terrorism. The extent and nature of this risk will depend on a number of factors, including the size and complexity of your business, the methods you use to deliver services, the types of customers you deal with and the countries you deal with.
This risk-based approach means businesses can apply the requirements proportionately, focusing the greatest effort on areas where the risks are perceived to be higher.
While the Sector Risk Assessment will not be published until later in December this year, you can start now by familiarising yourself with information on money laundering risks and vulnerabilities for accountants from international sources. A guide to preparing your risk assessment is available on the DIA website. While this was developed for Phase 1 businesses, its advice is also largely relevant for accountants.
Lastly, you need to develop an AML/CFT programme based on your risk assessment. This programme is your business’ AML/CFT “operating manual”, setting out all policies and procedures you need to mitigate the risks you have identified (for example, procedures for performing customer due diligence and keeping records).
This is not a one-off exercise. It is a living document and a process of continuous improvement.
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Kate Reid is Director of Phase 2 Implementation at New Zealand’s Department of Internal Affairs (DIA).