The Anti-Money Laundering and Counter Financing of Terrorism Act 2009 (AML-CFT Act) puts lawyers as reporting entities under the second phase of the legislation, and assesses them as operating in a high risk sector.
The Government this week released John Shewan's independent inquiry into Foreign Trust Disclosure Rules.
Among the recommendations Mr Shewan's report makes is removal of the regulation that excludes lawyers and accountants from anti-money laundering requirements before 31 December 2016.
It also recommends that the AML legislation or regulations be revised to include a mandatory requirement to verify in all cases the underlying source of funds or wealth settled on a foreign trust.
The inquiry was established in April in response to release of the "Panama Papers".
Just how much it could cost lawyers to comply with anti-money laundering legislation is still not known. However in 2008 the Ministry of Justice released a report by accountancy firm Deloitte that estimated at that time that the indicative compliance cost for lawyers and conveyancers could be about $24 million in start-up costs and about $35 million annually. The report noted that there was difficulty in estimating compliance costs in the absence of explicitly framed legislation.
Where could the cost of compliance hit lawyers?
It's still up in the air, but New Zealand Law Society General Manager Regulatory Mary Ollivier says the cost of complying with the AML/CFT requirements for lawyers will depend on a number of factors.
"Whether a law firm has a trust account or not, and the client base of the law firm will be important. More details of the exact compliance requirements will be needed before the costs of compliance can be accurately assessed.
"The legal profession is currently more used to undertaking client due diligence and compliance reporting than a few years ago. We have requirements related to matters such as FATCA (Foreign Account Tax Compliance Act) and the residential property bright-line test, and lawyers have taken these on board by putting appropriate processes in place," she says.
Other costs could include having to undertake 2 yearly audits.
Mrs Ollivier says once lawyers are reporting entities they may have to comply in a number of ways including:
- Appointing an AML/CFT compliance ofﬁcer who must report to senior management (ie, board or partner/director level or equivalent).
- Drafting a risk assessment in line with certain specified criteria.
- Drafting, implementing and maintaining an AML/CFT programme, having demonstrable regard to the identiﬁed risks.
- Some on-site independent audits could be required.
Meanwhile, the Law Society, in conjunction with the Police Financial Intelligence Unit, has been facilitating a series of seminars at branches around the country on anti-money laundering to raise awareness of the current position under the Financial Transactions Act 1998 and what might be expected under the second tranche of the AML/CFT legislation.
"The Law Society and New Zealand's lawyers have been aware for some time that they will be included in the AML/CFT regime. Since the legislation came into force in 2013 there has been little detail on when and exactly how this will occur. However, it is clear that lawyers can now expect an acceleration of their inclusion in AML/CFT most likely in 2017," Mrs Ollivier says.