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Law Society seeks practical AML/CFT regime

19 September 2016

The legal profession has a responsibility to co-operate in the global response to money laundering and terrorist financing, and inclusion of lawyers in Phase Two of the AML/CFT legislation must be through a practical monitoring and reporting regime based on proven risks in the New Zealand context, the New Zealand Law Society says.

In its submission to the Ministry of Justice for the Phase Two consultation of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regime, the Law Society says it recognises the case for lawyers being reporting entities.

However, it says, the proposed AML/CFT obligations for lawyers are fundamentally inconsistent with the traditional solicitor/client relationship of trust and confidence.

"The new obligations will need to be carefully crafted to ensure the solicitor/client relationship is preserved to the greatest extent possible, while still delivering on New Zealand's AML/CFT commitments to the international community," it says.

While accepting the proposed list of services provided by lawyers which would be subject to AML/CFT obligations, the Law Society says some of the references are vague and ambiguous and it is important that there is clarity.

Responding to the consultation paper's questions on appropriate supervisory agencies, the Law Society says effective supervision and enforcement are essential components of a successful AML/CFT regulatory regime.

The current AML/CFT (Phase One) model is multi-agency supervision, and the Law Society's preliminary view is that the best balance for New Zealand would be achieved through multiple agencies with self-regulatory bodies for Phase Two.

"The Law Society considers it has the necessary experience and capabilities to be the supervisor of the legal profession for AML/CFT purposes, and the supervisor role logically fits with the Law Society's current regulatory responsibilities for the profession," it says.

"Given its involvement with and understanding of lawyers the Law Society is best placed to perform this role while ensuring the ethical and legal duties of lawyers are respected and protected so far as possible. The Law Society is also the most appropriate body to issue guidance to assist lawyers to comply with their obligations."

Noting the consultation paper's acknowledgement of the compliance burden and costs for meeting AML/CFT obligations, the Law Society says it believes the Phase Two lead-in period should be at least two years, and preferably three.

"It would likely take law firms two to three years to properly implement systems and processes to allow them to comply. Firms would need to develop procedures manuals, run internal training sessions, appoint Money Laundering Reporting Offices, and bed in the new information gathering and filing protocols."

In its submissions on the 'legal services' which would be subject to AML/CFT oblitations, the Law Society says it is unclear whether it is intended that non-lawyer providers of the listed services are to be captured by extension of the regime to the 'legal profession'.

There is a wide range of services within the legal landscape that individuals outside the legal profession can provide, and these are not regulated under the Lawyers and Conveyancers Act 2006.

The Law Society says there is concern that currently unregulated providers of legal services outside the Act may not be captured by implementation of Phase Two. There is a danger that unregulated legal service providers could become an attractive option for individuals seeking to avoid the rigours of the AMF/CFT compliance regime.

It also says it wants to be consulted in respect of any  extension or creation of legislative provisions which may impinge on lawyers' ethical and professional obligations. The impact of the regime on lawyers' ethicial duties must be minimised so far as possible and there must be absolute clarity in respect of when a lawyer's ethicial obligations may or must be overridden by the AML/CFT regime.

"The relationship of lawyer and client is recognised as one of utmost trust and confidence. A fundamental precept underpinning the relationship is the concept of absolute confidentiality."

The very short time given (four weeks) for consultation on Phase Two has not been helpful in terms of raising awareness and acceptance within the legal profession regarding the need for the reforms, the Law Society says.

This short period has resulted in limited time for consultation with lawyers, and the results of a business compliance cost survey being undertaken concurrently are not available to inform the consultation.

It is clear the Phase Two legislation is on a fast track, but the Law Society asks whether the expected timeline - with the legislation being passed by July 2017 - can be achieved without compromising the buy-in from the affected sectors that will be central to the ultimate success of the reforms.

"It is essential the [legal] profession is given the opportunity, and adequate time, to comment on an exposure draft of the Bill and the proposed implementation timeframe. This will be crucial to gaining the profession's support for efficient and effective implementation of the reforms," it says.

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Last updated on the 19th September 2016