Application of Phase 2 of the Anti-Money Laundering and Countering Financing of Terrorism reforms to lawyers on 1 January 2018 is much too early, the New Zealand Law Society says.
In its response on the exposure draft of the Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill, the Law Society recommends a lead-in period for Phase 2 of at least two years.
The Law Society response accepts fully that the legal profession has an obligation to co-operate in the global response to money laundering and terrorist financing.
However, it outlines a number of reasons why there are problems with the proposed six-month lead-in period for lawyers. These include:
- Lawyers are not currently resourced to prepare for and implement compliance within six months on the scale required by the Phase 2 proposals.
- A lack of experience in AML/CFT compliance in the legal profession means it will have to develop this from scratch. A likely shortage of compliance experts will limit the ability of the legal services sector to hire external expertise.
- The entities involved in Phase 1 found implementing their compliance processes within a two-year period to be challenging, and many are still developing compliance.
- The principles-based approach of the AML/CFT regime means applicable regulations, codes and guidance will need to be available well in advance of the date compliance is required.
The legislation also creates reporting and disclosure obligations for lawyers which potentially have a significant impact on client confidentiality and legal professional privilege, the Law Society says.
It says the effective administration of justice and the right to access legal representation are anchored in these fundamental concepts.
For this reason, legislative provisions and proposed guidelines will need to provide absolute clarity about when a lawyer’s ethical obligations and privilege are to be overridden by the AML/CFT regime and to what extent.
The Law Society also reiterates its earlier submission that it considers it is well placed to carry out the supervisory role for the implementation of Phase 2, rather than impose dual regulation on lawyers.
It says it has the capability, through its inspectorate, to carry this out competently. This would be more cost effective than could be achieved by a separate supervisor.
“Neither the Law Society nor the legal profession wish to see dual regulation of the profession. This would increase compliance costs which would ultimately be borne by consumers of legal services,” the response states.