On August 10, 2017, New Zealand passed The Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2017. These amendments to New Zealand’s AML/CFT Act 2009, referred to as Phase 2 AML/CFT Reforms, are being introduced in stages, starting this year.
Former Justice Minister Amy Adams states "It is estimated that the reforms in this bill could disrupt up to $1.7 billion in fraud and drug crime over the next 10 years," and "estimates also suggest they may prevent up to $5 billion in broader criminal activity and reduce about $800 million in social harm related to the illegal drug trade."
Phase 2 Compliance Dates
Lawyers and Conveyancers — July 1, 2018
Trust and Company Service Providers — July 1, 2018 (if not already covered under previous legislation)
Accountants — October 1, 2018
Real Estate Agents — January 1, 2019
High-Value Dealers (e.g. art, bullion, jewelry, cars, and boats) — August 1, 2019
Money launderers thrive where anonymity is possible. Therefore, measures that governments take to limit anonymous transactions make it more difficult for those looking to hide their dirty money. Phase 2 introduces due diligence requirements:
“as soon as practicable after a reporting entity becomes aware that an existing account is anonymous, the reporting entity must conduct standard customer due diligence in respect of that account.”
There are also threshold limits:
- $10,000 or more is paid in cash to a lawyer, accountant, conveyancer or real estate agent
- $15,000 or more is paid in cash to a business that trades in high value goods
- $1000 or more is sent overseas.
Standard due diligence means a reporting entity must obtain:
(a) the person’s full name; and
(b) the person’s date of birth; and
(c) if the person is not the customer, the person’s relationship to the customer; and
(d) the person’s address or registered office; and
(e) the person’s company identifier or registration number; and
(f) any information prescribed by regulations.
There is also a risk-based element to this type of due diligence. Under Section 16 of the Act, ‘reasonable steps’ must be taken to ensure the validity of identity, know who the beneficial owner is, and if a party has the authority to act on behalf of the customer.
Enhanced Due Diligence
In addition to standard due diligence, there are situations that require enhanced due diligence (EDD). These requirements from the 2009 Act, are similar to other jurisdictions that require closer examinations on situations that are susceptible to money laundering:
- Customers from countries with weak AML laws
- Companies with nominees or shares in bearer form
- Unusual transactions (amount or pattern)
- High risk
- PEP (Politically Exposed Persons)
- Correspondent banking relationship
One interesting situation noted by the Act, is if the customer “involves new or developing technologies, or new or developing products, that might favour anonymity.” Perhaps the thinking is, if someone is trying to hide there might be a reason for it.
If EDD is required, the reporting entity must collect the standard due diligence data plus additional information. Depending on the type of customer, information such as the source of funds, name and DOB (date of birth) of beneficiaries, and other risk-based assessments to determine the legitimacy of the funds are necessary.
An important risk assessment is the beneficial ownership of an entity. In New Zealand, the beneficial owner means the individual who – a) has effective control of a customer or person on whose behalf a transaction is conducted; or b) owns a prescribed threshold of the customer or person on whose behalf a transaction is conducted.
- Owns 25% or more of the customer.
- Or has effective control of the customer
- Or is the person who the transaction is completed for.
New Zealand AML Overview
New Zealand has an excellent record, when it comes to fighting corruption; Transparency International ranks it number one on the Corruption Perception Index.
The standard steps that reporting entities must perform include:
- Complete and maintain a New Zealand-specific Risk Assessment and Programme;
- Appoint and train an AML/CFT Compliance Officer;
- Train and vet staff, directors, and governance board members;
- Undertake Know Your Customer (KYC) checks on all customers, verifying their identities and in some cases their sources of wealth;
- Monitor the transactions of all customers according to the level of money laundering or terrorist financing risk posed by them, and file Suspicious Activity Reports (SARs) to the New Zealand Police Financial Intelligence Unit (FIU) when necessary.
New Zealand is also at the forefront of electronic identity innovation. The country’s RealMe system enables users to provide identity verification for online services, as well as simplified log-ins to access government services.
With Phase 2 reforms, the extension of AML laws should assist New Zealand in keeping its excellent reputation when it comes to fighting corruption.