New Zealand Law Society - The AML/CFT regime and some miscellaneous issues

The AML/CFT regime and some miscellaneous issues

Auckland lawyer Steve Dukeson has prepared a third article on the AML/CFT regime and some of the issues which are besetting lawyers.

His earlier articles were AML/CFT and the Looking Glass - Retainers, etc and The AML/CFT regime - More on retainers, etc. The New Zealand Law Society does not necessarily endorse Mr Dukeson's views, but believes his comments are a valuable input into the matters which lawyers are confronting.

Preamble (ramble)

This article is longer than my previous two articles because I want to delve into a number of different issues. I’m no expert.  The articles stem from:

  • frustration;
  • an attempt to seek clarity and certainty;
  • an attempt to reach out for informed comment and to share information.

We’re are all in the same boat, to one degree or another. Articles like this will hopefully encourage the sharing of information amongst colleagues and encourage them to question legislation or interpretations of it that seem don’t seem to be right.

In relation to sharing information, I would like to thank Neil Russ of Buddle Findlay in particular, who has exchanged information with me and made helpful comments.  It shouldn’t be assumed that my views are shared by Neil.

I sympathise with the Department of Internal Affairs (DIA) if it’s under resourced.  I also realise that the New Zealand Law Society doesn’t want to be seen to be giving legal advice.  I can understand that both bodies, like many lawyers, may find some aspects of the regime to be unclear.  

However, I have more sympathy for practising lawyers. It’s we lawyers who are being asked to act as unpaid Government watch dogs, who have the burden of trying to comply with the regime, and who face prosecution for failing to comply with the regime.  

As lawyers, we should be entitled to more certainty as to the application of the regime.  Basic aspects of the regime that should be clear aren’t, which exposes us to risk.  It seems to me that some concepts that may be appropriate in relation to financial institutions have been applied to lawyers, without sufficient consideration. Despite a plethora of seminars and publications, much of the information that has been available has been repetitive and too general to be of any real assistance.

I’ve raised several issues with colleagues recently, some of whom have more resources than I. They had no answers.  Another colleague, much more expert than I, was sure of a position but when I pressed it, they became more equivocal.  Uncertainty in relation to the regime seems to be reasonably rife – it isn’t just me. Far too much time and energy is having to be put into trying to solve basic issues and ultimately, to hunt for ML and TF culprits in relation to a vast number of dealings that won’t involve ML or TF.

In relation to some key issues, I would like to know what the views of the New Zealand Law Society are, as our representative body, and just how hard it’s pressing on issues that need to be tackled. The New Zealand Law Society represents me and other practising lawyers but until I received a reply from the New Zealand Law Society to an email that I sent, I haven’t known what stance it’s taking on issues that need to be resolved.  I also wonder what ADLS Incorporated is doing.  (See later in this article in relation to matters that the New Zealand Law Society has advised me that it’s negotiating with the DIA).

I’m concerned because I’ve acted responsibly towards the regime and despite inputting much more time and energy than should ever have been required, I still have queries in relation to basis aspects of the regime.  I can’t resolve those queries alone.  Contracts with colleagues demonstrates that more than just a few are either unware of the issues that concern me or that they are also uncertain about them.  There will be issues other than those that I’ve considered.  

In some emails that I’ve had with Neil Russ, Neil expressed the view that the DIA should publish something like an issues log (like the Rewrite Advisory Panel apparently had), or a "WikiAML" where practitioners could post questions, others could give their answers, and DIA could publish their tentative, interim or considered views (which may be useful in terms of two-way information flows, as well as protecting practitioners from potential fines and penalties).  I’m not familiar with those tools but it sounds as though something like that would be ideal.  Given that we’re required to act as Government watch dogs with legal risk for failing to bark or bark loudly enough, we should be entitled to know what the DIAs views are.  

I see that the DIA has a FAQ section on its website now, which is useful.

Retainers briefly revisited

From the FAQs on the DIA website, I see that there the DIA doesn’t consider that payment of a retainer in advance on account of legal fees is managing client funds and isn’t caught by the regime. That’s welcome.  Presumably, this extends to payment of a retainer in advance on account of barristers’ fees (which have yet to be determined or quantified).

Unfortunately, there’s no sign of any change of view in relation to the disbursement issues referred to in my prior articles.  That’s a matter that requires attention, however it be resolved. It’s a nonsense to say that requiring a client to pay disbursements in advance triggers the regime (on the basis of an assertion that this involves managing client funds) when the regime doesn’t apply to the underlying transaction.  All the more so where the disbursement is invoiced.  This is one matter that the New Zealand Law Society proposes to discuss with the DIA shortly – the New Zealand Law Society disagrees with the DIA view.  Hopefully, common sense will win the day.

Sale or Purchase or Transfer of shares in a company

It’s clear from the Anti-Monety Laundering and Countering Funding of Terrorism Act 2009 (the Act) that the sale or purchase of a business is a captured activity for a lawyer if the lawyer’s services are provided in the ordinary course of their business.  

It would also seem to be clear that the sale and purchase of all of the shares in a company would be caught. Under para (a)(vi)(D) of the definition of designated non financial business or profession, the Act would apply where a lawyer, acting in the ordinary course of their business engages in a transaction on behalf of any person in relation to the buying, transferring, or selling of a legal person (for example, a company).

But what about the sale and purchase of only some of the shares?  That seems to me to be a different matter. As  matter of interpretation, I can’t that see this would be caught, even if a controlling interest were to be involved.  

If the position were to be otherwise, note that, for example, a transfer of some shares in a company to an existing shareholder pursuant to pre-emptive rights would be caught, if documented by a lawyer.  

The New Zealand Law Society has indicated to me that it considers that a sale of some shares would be caught by the regime, but no rationale was provided. Despite asking the DIA about this (twice, from memory), I received no comment.

Ordinary Course of Business

The regime doesn’t apply unless there’s a captured activity in the ordinary course of the lawyer’s business.  There will be uncertainty as to whether some activities will be undertaken in the ordinary course of a lawyer’s business.  Some uncertainty may be inevitable, but is the possible uncertainty likely to be too great?

There’s no definition in the Act of “ordinary course of business”.  The FMA, Reserve Bank, and the DIA have published the Ordinary Course of Business Guideline.  The Guideline advises that if you’re unsure whether an activity is in the ordinary course of your business, you should consider whether the activity:

  • is normal or otherwise unremarkable for your particular business (i.e. features in your systems, processes, advertising, staff training etc)
  • is frequent
  • is regular
  • involves significant amounts of money
  • is a source of income for your business
  • involves significant allocation of resources
  • is involved in a service or product that is offered to customers.

Consideration should be of each factor and of all of the factors.  The DIA considers that the application of just one of these criteria may mean that the activity is in the ordinary course of business.

Take an example:

Dukesons Business Law provides a wide range of business law services but doesn’t advertise or offer company incorporations.  The firm hasn’t incorporated a company for years. A prospective client requests Dukesons to incorporate a company that won’t be a shell company or have nominee shareholders.  It’s an entirely routine, rationale, clearly commercially explicable matter.

Would incorporating the company be in the ordinary course of business?  The DIA wouldn’t comment despite the fact scenario being specific. The New Zealand Law Society has suggested to me that the incorporation would be caught though it offered no rationale.

The criteria that could apply in relation to the example would be that:

  • the incorporation might be unremarkable in that it does at least feature in the firm’s system, to the extent that the firm has documentation and processes that would enable it to undertake the work, and perhaps because it might be considered to be an unremarkable transaction for a business law firm (though that misses the point that it is not a service offered by the particular law firm and is not a service often undertaken);.
  • It would be a source of income (if it is undertaken on this one off occasion).

The Guideline contains this comment:

" may carry on an activity that is insignificant in scale or extent but it still may be in your ordinary course of business if you carry it out frequently and it features prominently in your advertising and staff manuals."

That comment, when flipped on its head, could lead to a conclusion that in the example given above, the incorporation wouldn’t be in the ordinary course of the firm’s business because it’s an activity that is insignificant in scale or extent and isn’t carried out frequently and doesn’t feature prominently in advertising or staff manuals.  Against that is the DIA view that the application of just one of the criteria may mean that the activity is in the ordinary course of Dukesons’ business.

I have two concerns.  One is the uncertainty. The difference in approach is significant.  It the regime doesn’t apply, I can undertake the transaction without regard to the regime and the world is likely to be no worse off.  If I’m wrong in assuming that the transaction wouldn’t be in the ordinary course of Dukesons business, I run the risk of prosecution.

If the regime applies, and this brings into focus my second concern, then just to incorporate the company, I would have to undertake CDD. If a trust will be the shareholder or a shareholder and would be my client,  I would have to undertake normal customer DD and enhanced customer DDin relation to the trust.  The cost of doing this may out of proportion to the my fee for incorporating the company.

In relation to the example, I could pay for an expert legal opinion, which is what the DIA and New Zealand Law Society recommend when they can’t or won’t express a reasonably certain view on something.  For one thing, I don’t see why I should have to (the position should be more legislatively certain and it’s bad enough possibly having to undertake DD at considerable cost without payment for this).  Further,  issues like this may be uncertain until a court, preferably of high authority, has pronounced on them despite any legal advice.  I can imagine that expert legal advice on some issues would be no more certain than my own thoughts on the issues.

Non Captured Advice

This passage is from the DIA User-Guide-Annual Report (Lawyers) – DNFBP:

"There will be circumstances where you give advice in relation to a captured activity (without necessarily then carrying out the activity). Generally, advice alone, in the absence of any actual captured activity on the reporting entity’s part, will not be caught by the definition of 'designated non-financial business or profession'."

You would be forgiven that it simply means that if you give advice but don’t actually carry out the captured activity, the advice isn’t a captured activity. But as is often the case, things mightn’t be quite as simple as one would like in relation to the AMLCFT regime.

Example (which relates to a situation where I first considered the issue)

Dukesons acts for a client who wants to renew a lease. It’s likely to be a simple matter, resulting in a very modest fee, let’s say between $400-600 plus GST. Could Dukesons and the client avoid the regime if Dukesons were to simply advise the client of what amendments may be required to a draft Deed of Renewal eg, Dukesons advises the client of what amendments are appropriate and the client deals directly with the landlord or the landlord’s lawyer to get this done?  

To my mind, when referring to the DIA passage above, it’s arguable that Dukesons isn’t carrying out any captured activity.  But (paraphrased), the question in terms of the wording of the AM/CFT is whether Dukesons would be ENGAGING in the captured activity (ie, engaging in conveyancing to effect a transaction or engaging in a transaction, being the acquisition of a leasehold estate) by giving advice.  One would assume so.

It isn’t a question of seeking to avoid the regime for nefarious purposes. It’s because of the regime is out of kilter with the nature of the transaction both in terms of there being little or no ML or TF risk and in terms of the cost of carrying out CDD. It may not matter to firms where they will subject all of their clients to the regime, whether it applies or not, but for Dukesons, at least 90% of clients are likely to be outside the regime and for that reason, Dukesons’ clients won’t routinely be subjected to the regime.

Another pertinent example would be company incorporation. Could you and your client avoid the regime by advising a client what documents need to be completed and how to complete them?  In that case, it would surely be stretching things to say that you would be acting as a formation agent.  Nor would you be engaging in the creation of a legal person on behalf of your customer – there is surely a clear degree of separation here.

And so on, and so on.

The New Zealand Law Society will shortly be discussing with the DIA the issue of whether or not advising a client in advance of a transaction taking place is a captured activity or not.  The New Zealand Law Society says that it understands that the DIA takes a restrictive view of sections 16(3) and 24(3).  I don’t know if this issue is the same that I’ve just raised or whether this is a different issue.  

Any other legal arrangement

Is it just me or is para (a)(vi)(D) of the definition of designated non-financial business or profession confusingly worded?  A captured activity will be engaging in

"a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) and any other legal arrangement".

"Legal arrangement" is defined to include a trust and a partnership.

The “and” prevents a natural interpretation of the clause.  I think that what is meant is engaging in a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) OR of another legal arrangement.  As presently worded, the reference to any other legal arrangement could be quite unconnected to the previous words in the paragraph i.e. captured in relation to:

  • a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) and
  • any other legal arrangement.

That can’t be the intention.

Charging for CDD

It’s obvious that in some cases, CDD could require extensive, time consuming effort.  (As noted, in relation to some captured activities, the time taken to undertake DD may exceed the time required to undertake the relevant matter.)  Given that in relation to a captured activity, the basic position is that a new business relationship can’t be entered into with the prospective client until CDD is completed, how might one charge for CDD?

It may be that some or even most firms will simply bite the bullet and not charge for CDD.  However, I know that some firms are going to increase their hourly rates, across the board, to cover any CDD that they have to undertake.  That may not be an option for all firms.  It also imposes a cost on clients whose transactions won’t be captured activities.

One could indicate to the prospective client that a charge will be made if CDD is successfully completed and if the client is onboarded, but what if CDD isn’t completed or the prospective client refuses to pay the charge when presented with Client Care documents? If the costs of CDD are to be recovered, it makes sense to enter into an arrangement to cover costs before CDD is undertaken.  

One would think that there should be nothing to stop a lawyer from entering into a contract with a prospective client to the effect that the lawyer agrees to undertake CDD if the client will pay the charge for this.  This contract doesn’t involve a captured activity.  However, what’s the effect of s16(2), which precludes a reporting entity from entering into a business relationship or conducting an occasional transaction or activity before verifying ID or s37(1)(a), which says that a reporting entity that is unable to carry out CDD mustn’t establish a business relationship?  

I don’t think that s37(1)(a) is an issue because it isn’t a question of not being able to carry out CDD but of wanting to recover the cost of doing so. But given the definition of a business relationship (which is unrestricted), the wording of s16(2) might be thought to be more problematic.  Specifically, would a “pay for CDD” contract involve entering into a business relationship?

I don’t think so.  What would be involved would be more in the nature of a one off matter  rather than the entry into a business relationship. What would be involved a contract whereby the lawyer agrees to undertake CDD for a price.  If the CDD exercise is successful, the parties can then decide whether to enter into a business relationship, including in relation to the proposed captured activity.

These comments make some sense in the context of s16(2) which wouldn’t seem to prohibit a charging arrangement where an occasional transaction or activity is contemplated.  Why, therefore,  shouldn’t such an arrangement be entered into prior to entering into a business relationship that involves a captured activity?

Would refusing to undertake CDD if a client won’t pay the cost amount to refusing to act without good cause under our rules?  Technically, I don’t think so.  At this juncture, the issue isn’t one of agreeing (or not) to act but of undertaking CDD.

Could there be some administrative law or public policy law that would obligate a lawyer to undertake CDD without charging? That’s an issue that isn’t within my skill set.

Why should this be so hard?  Why does one even have to think about this issue?  A lawyer should be able to charge for CDD, including by entering into a charging arrangement up front.  If that isn’t clearly permitted, the legislation should be changed to permit it. It’s burdensome enough having to act as a sleuth for the Government, without being unpaid for this (or having the option to be paid).  Similarly, if our conduct rules create obstacles in the path of a sensible approach, they should be changed.  (More on our rules below.)

Declining or ceasing to act after filing a SAR

To my mind, one of the most unsatisfactory aspects of the regime is the uncertainty relating to when a lawyer may properly decline to act or cease to act once they have filed a SAR.  

This also involves a consideration of whether the rules by which we as lawyers are bound are appropriate. In my view, it isn’t particularly helpful to refer lawyers to ethical considerations and rules that were developed prior to the application of the AML/CFT regime to lawyers.

Here are some extracts from one New Zealand Law Society publication:

"The fact that a lawyer has grounds to suspect their client may be involved in money laundering or financing terrorism does not mean that their duty to complete the retainer no longer exists. It will depend on the individual circumstances such as the nature of the suspicion, the stage a particular transaction is at, any risk of ‘tipping off’ and the lawyer’s professional obligations in the particular case.

"There is risk for a lawyer in advising a client that they are no longer prepared to act, as this may effectively “tip off” the client to the fact that the lawyer is suspicious and is filing a SAR. 

"A lawyer satisfied that there are concerns relating to 'tipping off’ may consider ending the relationship with their client. However, if a lawyer is contemplating terminating a retainer, consideration must be given to whether there is “good cause” to terminate, as required under RCCC rule 4.2.

"There will be times when the need to file a SAR also coincides with the client providing good reason to terminate a retainer. For example, if the client begins to shape the retainer in a way that involves concealing an illegal activity, then the lawyer would have “good cause” to terminate.

"Concealing illegal activity is “inconsistent with the lawyer’s fundamental obligations” and would breach a professional obligation. This is clearly provided in RCCC rule 2.4, which says that 'a lawyer must not knowingly assist in the concealment of fraud or crime'.

"Lawyers may in exceptional situations face questions about how they should, or should not, act. If in any doubt, lawyers should take advice from an experienced colleague. They could also discuss the matter with an officer from the Police’s Financial Intelligence Unit.

"If a lawyer does decline instructions, they 'must give reasonable assistance to the person concerned to find another lawyer,' RCCC rule 4.1.3 says. The lawyer could, of course, also explain to the client that they would likely have difficulty engaging another lawyer given the legal obligation on all professionals covered by the AML regime to conduct customer due diligence."

Clear?  I really doubt it, and I’m not much interested in being advised that if I’m uncertain, I should seek professional legal advice?  I thought that giving professional legal advice is how I’ve made my living for the past 30 years.

In relation to the second to last extract above, my view is that lawyers will face questions about how they should or shouldn’t act whenever they file a SAR, not just in exceptional circumstances.  If I have reasonable suspicions that dictate that I should file a SAR, why should I be obligated to act or to continue to act?  Why should I be placed in the position where I may not be able to decline to act or to terminate a retainer because of the risk of tipping off?  

If I have reasonable suspicions, the prospective client or client wouldn’t be the type of client that I would want to deal with.  I’m surely entitled to consider my reputation – even innocent involvement with an unsavoury client can be damaging to reputation.  Reputation is really all that a lawyer has.  

My view is that the rules in relation to these matters need revisiting to ensure that are relevant to modern times and that they are realistically compatible with lawyers’ obligations under the AMLCFT regime.

If a lawyer is sufficiently concerned that they consider that they must file a SAR, why shouldn’t they should be entitled as of right to decline to act for a prospective client?  I would justify this, both to avoid tipping off and because it would be factually correct, on the basis that I have enough do so (in terms of work for other clients, endless compliance obligations both under statute and as required by the New Zealand Law Society including  CPD obligations and trust account reporting, and the time required to run a small business ) so that I’m entitled to determine what additional work I will agree to take on. If the prospective client asks for a referral to another lawyer, I would decline to nominate a lawyer and simply suggest that they do a Google search or perhaps contact the New Zealand Law Society or in my case, ADLS Incorporated.

I feel that the most difficult situation would be when a lawyer feels obligated to file a SAR in relation to a captured activity that is underway for an existing client.  Again, why should a lawyer be obligated to continue to act in the circumstances?  It’s very difficult to see upon what basis a lawyer could cease to act unless it’s very clear that there’s more than just reasonable suspicion of ML or TF.  

Even if there’s good cause under our rules, there’s the risk of tipping off. Which prevails – the obligation not to do anything that would constitute tipping off or the right to cease to act for good cause (if good cause exists)?

In relation to both a prospective client and acting for an existing client, there’s also the issue of what s22A means.  Some lawyers take the view that it means that if you file a SAR, you have to undertake enhanced customer due diligence. That would create another barrier to declining to act for a prospective client or ceasing to act. Why should I have to act as a sleuth for the Government and undertake EDD, at my expense, when I would most likely wish decline to act or to cease to act?  

Section 22A applies where a reporting entity is required to report suspicious activity under s40 in relation to an activity that is undertaken or sought to be undertaken by an existing customer or by a customer engaging in an occasional transaction or activity.  So it doesn’t apply where what is proposed is entering into business relationship with a proposed new client that will involve a captured activity.  (Can anyone explain to me what is the point of the differentiation?)

Section 22A(2) says:

"For the purposes of section 22(1)(e), as soon as practicable after a reporting entity becomes aware that the reporting entity must report the suspicious activity under section 40, a circumstance occurs in which the reporting entity must conduct enhanced customer due diligence in respect of that activity."

Whatever s22A means and however it may apply, what seems to be required is that something occurs after becoming aware that a SAR must be filed that requires EDD – it isn’t the filing of a SAR that triggers the obligation to undertake EDD. If the intent had been to require EDD upon (because of) filing a SAR, it would have been simple to add this as a specific ground under s22 – there would’ve been no need for s22A (not to mention that s22A could have been drafted much simpler and clearly).

In an email to me, when I asked the DIA for its view as to whether filing a SAR required EDD, the DIA commented:

"SAR refers to activities if you are able to acquire useful information at the same time as declining to act for a client, you should submit an SAR. There is no requirement to undertake due diligence."

I took this to mean that the DIA considers that EDD isn’t required simply because a SAR is filed?

It would obviously be helpful if someone could provide an authoritative comment on s22A.

Providing assistance to another lawyer – law firm

Both the DIA and the New Zealand Law Society take the view that where Dukesons is requested by an overseas lawyer to assist the lawyer in documenting an activity that’s a captured activity (for the lawyer requesting the assistance), Dukesons should regard the requesting lawyer and that lawyer’s client are Dukesons clients for the purposes of the Act and CDD is required both of the requesting lawyer and that lawyer’s client. Presenters in at least one NZLS CLE Ltd seminar on the regime were also of that view.

Is this because the overseas lawyer wouldn’t be subject to our regime? If not, would the views expressed by the DIA and New Zealand Law Society apply where a lawyer in New Zealand seeks Dukesons assistance?  If so, why?  If the requesting lawyer is subject to the AML/CFT regime, they will be required to undertake CDD on their client.  Why should Dukesons have to treat their client as being its client?  Why should there be a double up in terms of CDD?  

Section 5 of the Act defines beneficial owner:  

"Beneficial owner means the individual who –
a) has effective control of a customer or person on whose behalf a transaction is conducted; or
b) owns a prescribed threshold of the customer or person on whose behalf a transaction is conducted."

The requesting lawyer’s client wouldn’t be Dukesons client.  Dukeson’s client would be the requesting lawyer.  There’s nothing in the AMLCFTA that would lead to a contrary conclusion and see the wording of para (a)(vi)(D) of the definition of designated non financial business or profession.

However, there’s an issue as to whether the requesting lawyer’s client should be regarded as being a beneficial owner, with Dukesons being required to undertake CDD on it, or whether the beneficial owners of the requesting lawyer’s client eg, a company, should be regarded as being beneficial owners, with Dukesons being required to undertake CDD on them.  

Beneficial owner is defined as:

The individual who:

(a) has effective control of a customer or person on whose behalf a transaction is conducted or

(b) owns a prescribed threshold of the customer or person on whose behalf a transaction is conducted.

Note that a beneficial owner isn’t defined as a person on whose behalf a transaction is ultimately conducted, even though that may be a reality.  They are a person who controls or has a certain level of ownership of a customer or person on whose behalf a transaction is conducted.  

As to whether the requesting lawyer’s client should be regarded as being the beneficial owner, the question is whether they control the requesting lawyer, who is Dukesons’ customer.  This depends on what control means under the Act – it isn’t a defined term.  

The control that the client can exercise over their lawyer is different to the control that a director or proprietor can exercise over say, a company. My view is that it would be stretching things to conclude that a client controls their lawyer.

Even if my view is wrong, if the requesting lawyer’s client isn’t an individual and is say, a company, the lawyer’s client can’t be regarded as being a beneficial owner – only individuals can be beneficial owners.  In that case, the requesting lawyer’s client wouldn’t be Dukesons client and wouldn’t be a beneficial owner.  Dukesons wouldn’t have to undertake CDD on the requesting lawyer’s client, though it would if the requesting lawyer’s client were one or more individuals and would be deemed to control the requesting lawyer.

At this point, I’m getting dizzy – would I be better off by investing whatever money I have in Powerball so that upon inevitably becoming rich beyond my wildest dreams, I can leave behind this increasingly politically corrected, highly regulated, and burdensome profession? But wait, there’s more.

The Ministry of Justice has just released a consultation paper, which proposes an exemption for barristers where they receive instructions through an instructing solicitor on the basis that their client is solicitor and not the solicitor’s client and that to require the barrister to undertake CDD would involve a double up.  

The proposal is based on the notion that the application of the intervention rule in relation to the AML/CFT regime requires such an exemption. The New Zealand Bar Association considers that for a barrister to be subject to the Act in these circumstances would result in economic inefficiency and be unwarranted, having regard in particular to the limited resources on the part of barristers who can only be in business by themselves.  

Really, what’s the difference between a barrister and a solicitor who’s a sole trader, like me (where I’m asked to assist another lawyer)?  In fact, why should it be relevant whether the lawyer is a barrister or a sole trader or a member of a large law firm?  If a lawyer has done CDD on their client and requests the assistance of another lawyer, why should that lawyer have to undertake CDD on the requesting lawyer’s client?

It’s true that a barrister can’t have a trust account, that their instructing solicitor may be their only client, that the regime will only rarely apply to them, and so on (see the New Zealand Law Society submissions on the proposed exemption). But at the end of the day, the broad principle is the same in relation to Dukesons and requesting lawyer scenario where the requesting lawyer has undertaken CDD on the end client and on any beneficial owners.  To paraphrase some of the wording in relation to the proposed class exemption, to require Dukesons to undertake CDD in those circumstances would be uneconomic and involve duplication.  

Why shouldn’t the law impose the sole obligation to undertake CDD on the requesting lawyer?  Isn’t the situation a bit like the situation where the class exemption for managing intermediaries has been issued?  (I’m referring to the broad thrust of what’s involved i.e. more than one party in a chain being required to undertake CDD which in theory involves duplication with accompanying expense to each party in the chain.)  Why should Dukesons have to undertake a risk assessment as to whether to rely on the requesting lawyer’s CDD – why not just exempt the requirement on Dukesons?

In practical terms, the issue can probably be dealt with reasonably easily in most cases.  Adopting a risk based approach, if the requesting lawyer is known to Dukesons and/or is reputable, it’s likely that, adopting a risk based approach to the regime, Dukesons could rely on the CDD carried out by the lawyer or would ask the lawyer to carry out CDD if not already undertaken by the lawyer.  (This assumes that the CDD undertaken or to be undertaken by them would comply with the AML/CFT regime.)  Where the lawyer isn’t known to me or I can’t tell if they’re reputable, then I would decide whether to carry out my own independent CDD on their client or to decline to act.

The problem is that I may be too fatigued to do anything other than open my mouth when spoon fed in a quiet corner of some forgotten repository for worn out and highly depressed lawyers.

In addition to the couple of matters that I’ve already referred to, the New Zealand Law Society advises that it will shortly discuss with the DIA:

  • Clarification around when CDD is required to be done for existing clients and the provision of practical examples about when there is a material change in the business relationship.  Clarity is also requested around the extent of CDD obligations in regard to this.
  • The position in relation to domestic and international wire (electronic) transfers – discussion will be around the possibility of seeking an exemption in relation to the information gathering requirements relating to domestic wire transfers.
  • Whether the administration of estates should be a captured activity.

Final Comments

It’s possible that amidst the plethora of publications by various parties that I’ve missed something that’s really on point and helpful in relation to these matters – but I’ve read widely so that I doubt it.  If there’s something out there, please let me know.  (So far, I haven’t bought any text books on the regime. I suspect that they will be much too general to meet my needs and in any event, my office is bulging, virtually so to speak, due to an overflow of guides, amended guides, seminars, and miscellaneous writings.)

It’s also possible that I may be out on a ledge in relation to some of the comments that I’ve made – I don’t purport to be an expert and where my comments relate purely to a matter of opinion, not everyone may agree with it. Further, it may be that law firms with large resources and the ability to share the load may not be as concerned about the AML/CFT regime and the burdens that it imposes.  

Also, no matter how hard they might try, I doubt that any institutions like the DIA or the New Zealand Law Society can fully understand just how frustrating the regime is for practising lawyers, especially for lawyers in small firms or who are sole traders.  That isn’t a criticism but I can’t see how those entities can truly relate to the day-to-day issues that we face as practising lawyers.  Having to deal with uncertainty when tasked with legal obligations is far from being desirable.

Bear in mind that not all lawyers do conveyancing and as such, have had no need to be as concerned about client ID and verification of ID as conveyancing lawyers.  So comments that have been made that the regime shouldn’t involve much extra effort for lawyers or isn’t really that onerous are misguided.  I suspect that even for conveyancing lawyers, much more will be involved than they have been used to e.g. dealing with beneficial owners and with EDD where it applies, not to mention filing PTRs, SARs, and deciding when they can decline to act or cease to act.

There’s no doubt that this is a burdensome regime and will involve compliance efforts that will be out of all proportion to any ML or TF that might be revealed as a result of the efforts.  The amount of work that I’ve had to do to come to grips with the regime and to try to resolve some basic issues has been massive (no exaggeration) and out of proportion to the number of times that I and my clients will be caught by the regime and to the likelihood of ML or TF being involved through my practice. The significant uncertainties and inappropriate applications of the regime in relation to lawyers are unwelcome. I’m well and truly over it.

If anyone is wondering, yes, I still have other queries in relation to the regime.  I’m sure that I’m not alone – but that does that help?

Just off to buy a lottery ticket.

I sent a draft of this article to the DIA for comment a couple of weeks ago but received no reply of any kind.

Steven Dukeson is the principal of Dukesons Business Law, an Auckland commercial law firm.