New Zealand Law Society - What all lawyers will need to know about the AML/CFT Act

What all lawyers will need to know about the AML/CFT Act

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Currently, lawyers remain exempt from the requirements placed upon "reporting entities" by the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT).

However, in the wake of the 'Panama Papers' foreign trust scandal the Government says it plans to accelerate implementation of a second phase of AML/CFT reforms, which will bring lawyers, licensed conveyancers, real estate agents, accountants and others into the compliance regime that since June 2013 has included financial institutions, stock brokers, fund managers and casinos.

It is not yet clear when the second phase of anti-money laundering legislation will come into force says New Zealand Law Society Regulatory Manager Mary Ollivier, but lawyers need to be acutely aware of and prepared to eventually meet the AML/CFT Act's reporting requirements.

Justice Minister Amy Adams says officials have been "undertaking scope and timing advice for implementing the second phase of reforms". She says her general aim is to have the second phase in place by mid-2017.

What might lawyers eventually need to do?

Under section 5 of the Act currently, "reporting entities" (eg. banks, casinos) are required to have/complete:

  • A Risk Assessment of the money laundering and financing of terrorism that you could expect in the course of running your business
  • An AML/CFT Programme that includes procedures to detect, deter, manage and mitigate money laundering and the financing of terrorism
  • A Compliance Officer appointed to administer and maintain your AML/CFT programme
  • Customer Due Diligence processes including customer identification and verification of identity
  • Suspicious Transaction Reporting, Auditing and Annual Reporting systems and processes.

Codes of practice and guidelines released by the Department of Internal Affairs during the first phase of AML/CFT reforms can be found here.

While it's not yet known how the AML/CFT's more stringent reporting rules will apply to lawyers it remains good practice to ensure you "know your client" Ms Ollivier says.

She says the Law Society will prepare guidance for practitioners, particularly around potential ethical issues arising from any duty to report clients' information, when the regulations and timing of the phase two implementation become known.

Lawyers' general obligations

Until the second phase of AML/CFT is implemented, lawyers remain subject to the Financial Transactions Reporting Act 1996, which already requires lawyers to carry out due diligence on their clients' identities and to report suspicious transactions.

Fundamentally, lawyers have obligations to uphold the rule of law and facilitate the administration of justice. Section 4 of the Lawyers and Conveyancers Act 2006 (LCA) and Rules 2 and 8 of and Lawyers and Conveyancers Act (Conduct and Client Care) Rules 2008 (RCCC) provide that lawyers must:

  • not assist any person in an activity the lawyer knows to be fraudulent or criminal (rule 2.4);
  • not knowingly assist in the concealment of fraud or crime (rule 2.4);
  • disclose information which relates to the anticipated or proposed commission of a crime punishable by imprisonment for three years or more (rule 8.2(a)); and

Rule 8.4 (b) provides that a lawyer may disclose confidential information relating to the business or affairs of a client where the information relates to the anticipated commission of a crime or fraud.

"Dirty money" reforms backgrounder

Money laundering is how criminals disguise the profits of crime. Financiers of terrorism use similar laundering techniques to avoid detection by authorities and to protect the identity of those providing and receiving funds.

In the wake of the 'War on Terror' and 'Global Financial Crisis', Governments around the world have faced growing pressure to tighten regulations governing financial institutions and other professionals who hold money on behalf of others, in order to deter, prevent and police international financial corruption.

New global regulations and standards for financial reporting, including for example FATCA and the upcoming Common Reporting Standard (CRS) have been introduced to improve cross-border tax and financial law compliance by requiring businesses to take measures to guard against money laundering and terrorism financing. More information can be found on the Department of Internal Affairs website.

In December last year New Zealand ratified the United Nations Convention Against Corruption. Any changes to domestic law required under the agreement had already been achieved by the passing of the Organised Crime and Anti-corruption Legislation Bill, which introduced the Anti-Money Laundering and Countering Financing of Terrorism Amendment Act 2015 amongst a raft of reforms focused on prevention, criminalisation, international cooperation, and recovery of the proceeds of corruption.

The purpose of the 2015 Act, a slight expansion of the 2009 version's purpose, is to;

  • improve the effectiveness of New Zealand's AML-CFT regime by detecting and deterring money laundering and the financing of terrorism,
  • contribute to public confidence in the financial system,
  • improve New Zealand's compliance with international laws and best practices.