Lawyers and conveyancers were required to implement phase 2 of the Anti-Money Laundering and Countering Funding of Terrorism Act 2009 from 1 July 2018. The Department of Internal Affairs is supervisor and there has been some criticism of the way in which the department has managed its role. LawTalk put a number of questions to the department on the way the first three months has gone. The department opted not to respond directly to the questions but provided the following article.
On 1 July, the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 extended to cover the legal sector.
The Department of Internal Affairs is the supervisor for a broad range of reporting entities, including lawyers and conveyancers. As a supervisor we provide support and guidance to assist businesses to meet their obligations, comply with the Act and identify money laundering ‘red flags’.
The Act is activities based, which means the policies, procedures and controls you need to put in place for your business depend on the services you provide to your clients.
As with the introduction of AML/CFT obligations to any sector or profession, you may need to adjust the way you work with your clients to ensure compliance. This is to reduce the risk of your business being used by criminals for money laundering, and to protect your (and ultimately New Zealand’s) reputation. It is estimated that over $1 billion is laundered every year which cannot happen without legitimate businesses unwittingly being used by criminals. Lawyers also play an important role in detecting ‘red flags’ that might not be picked up by banks or other financial service providers who interact with the same customers. That is because you may have more information about the people or funds involved in a particular transaction.
Observations and queries received
We have observed the legal profession was quick to understand why the legislation is important. As there is diversity in business practices across the legal profession, some firms are very organised with developing and implementing their AML/CFT programmes while others still have work to do to meet their obligations. A number of practitioners also have experience of AML/CFT compliance from other jurisdictions so the approach is not new to them.
We are also seeing how much the legal profession cares about their obligations, with over 850 queries being received. Of the queries we have received, the most common questions are around which activities are covered under the legislation, and also about what documents you can use to verify the identity of your customer (the Identity Code of Practice). Answers to the simpler questions and more detailed guidance can be found in the guidelines available on our website, and we are also preparing FAQs to help make it easier to find the answers you need.
Many of the more complex queries we are receiving relate to specific detailed examples for which there is not a black and white answer. The legislation is risk-based to empower businesses to analyse their own situations, and make a self-assessment of their money laundering and financing terrorism risks. Remember, you know your business best. When making a decision, assess the risks, really consider them, and then document your decision making. You can ask us for help, but in some cases, particularly for very detailed, complex or hypothetical situations, you may need to seek independent legal advice.
We are here to help you, now is the time
Before the go live date we contacted legal firms to check whether or not they provide activities covered by the legislation. We have since had responses from about two-thirds of recipients, and of these 910 firms have confirmed that they provide services covered under the Act and are now registered with us as their supervisor. A further 1,245 have confirmed they do not provide services under the Act. We are still waiting to hear back from the remaining law firms. If you have not yet responded, then please let us know by filling out our online registration form at www.dia.govt.nz/Anti-money-laundering-and-countering-financing-of-terrorism (this form can also be used to confirm that you do not provide services that are covered under the Act).
Once you register with us, then we have a direct line of communication with your compliance officer.
Are you meeting your obligations?
If the Act applies to your business you should have:
- Registered with the Department of Internal Affairs as your supervisor.
- Registered with NZ Police’s goAML tool so you can report any suspicious activities and prescribed transactions to the Financial Intelligence Unit.
- Appointed a Compliance Officer.
- Conducted a risk assessment of your business.
- Used your risk assessment to create your AML/CFT programme (which includes having procedures, policies and controls in place to mitigate the risks you have identified).
More guidance coming soon
We are working through the guidelines for due diligence on non-clients using law firm trust accounts. We will be engaging with the legal sector before finalising the guidance.
We are also starting desk-based reviews to check how the risk assessments and AML programmes are shaping up. As this work progresses we will be able to provide some general feedback about what we are observing and guidance regarding good practice. We would also encourage you to share your learnings with other practitioners as your experience grows.
More sectors are joining the AML regime
The legal sector is one of many business sectors that the Department of Internal Affairs currently supervises under the Act. We also currently supervise casinos and a range of financial institutions as well as conveyancers.
Accountants and bookkeepers are next to come on board on 1 October 2018, with Real Estate Agents joining on 1 January 2019. The NZ Racing Board and High Value Dealers come in after that, on 1 August 2019.
Our observation is that the most support is required from us as the supervisor as new entities enter the AML regime and develop their understanding of the guidance, perform their risk assessment and put their compliance programme in place. The go live dates for the new sectors have been phased to enable more support before and during the implementation.
It is important to remember that your risk assessment and programme are living documents. The methods and tools used by criminals are also constantly evolving. It is important that you are aware of this, your risk assessment is current, and your AML/CFT programme is responsive to any increased risk to your business. We are also continuing to work with the businesses we supervise to develop further guidance and clarification as needed.