The Panama Papers leak and increasing concerns of anti-money laundering and tax evasion, is driving the New Zealand government’s speedy moves to strengthen its anti-money laundering (AML) laws.
The Ministry of Justice has issued the first draft of an amendment Bill to implement phase two of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Submissions to the consultation on the Bill ended in January and the government intends to pass the law in the middle of this year. Lawyers told Asialaw they are concerned about the implementation period for the law, and the need to balance client privilege and the requirement to report on suspicious activities.
The Act provides a regime for the supervision, monitoring and enforcement of AML and counter-financing of terrorism (CFT) obligations by the Reserve Bank of New Zealand, the Financial Markets Authority and the Department of Internal Affairs, and sets out the requirements for reporting entities and a framework to detect and deter AML/CFT. Phase one of the Act came into effect in 2013 and covered banks, financial advisers, casinos and trust and company service providers.
Professions that will be affected by phase two of the law are lawyers, accountants, conveyancers, real estate agents, businesses trading in high value goods such as cars, boats, jewellery, bullion, art and antiquities, and sports and race betting operators.
“We know from domestic and international evidence that these sectors are at high risk of being misused by criminals,” says Rajesh Chhana, deputy secretary, policy at The Ministry of Justice. “Our aim is to design a regime that balances risks and benefits.”
Up against it
Some lawyers believe they will not have enough time to prepare for the Act and may be unable to manage clients’ expectations on privilege when sharing confidential matters with lawyers. “An implementation period of six months after a bill is passed is inadequate, the proposed scope of the Act’s application to lawyers is unduly broad and it is important that the privilege regime operates in a consistent and principled manner,” says Tom Hunt, partner at Russell McVeagh.
“The timescale of the legislation and underlying details are problematic in the requirements for what lawyers need to do in balancing a lawyer’s professional duties to its client versus reporting a transaction,” says Chris Holland, senior associate at Buddle Findlay. “A lawyer could be prosecuted if an activity isn’t reported.”
Suspicious transaction reporting
The draft law expands the requirements on transaction reporting to include activities that are suspicious and unusual regardless of whether the transactions have gone or will go through a New Zealand financial institution. “Existing obligations have been extended and upgraded to go from reporting a suspicious transaction to reporting a suspicious activity,” says Holland. “This obligation is much wider since the authorities are asking for reporting about activities, which could encompass someone seeking advice.”
Hunt adds that the law is unclear about when lawyers need to conduct customer due diligence: “Law firms will frequently have acted for a client in relation to instructions not caught by the Act and subsequently receive instructions that are caught by the Act. The relevant trigger for when the reporting needs to be done is undefined.”
The legislation puts enhanced information sharing with regulators in place as there are limits on government agencies’ ability to share personal information at the moment. Currently, it cannot be shared if it is not for an investigation or prosecution of a criminal offence. The new law also allows greater flexibility to develop information sharing agreements between the government, industry regulators and reporting entities.
How should businesses prepare
Businesses which employ professionals with reporting requirements under the Act will have to install systems to track risks and information, if they don’t have them already. “Businesses need to see whether they are caught by the legislation,” says Holland. “If yes, the reporting entity needs to take AML steps, undertake risk assessment, put in place a compliance programme, perform customer due diligence and report suspicious activity.”
New Zealand is making fresh moves against AML/CFT. The extension of reporting of suspicious activity will be challenging for the targeted professions. But how strict will the enforcement of reporting requirements be? That issue will be watched with interest.