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From 1 July 2018, lawyers are required to have completed becoming “reporting entities” under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act). There are three tasks that lawyers must have completed. They are:
A reporting entity must designate an employee as an AML/CFT compliance officer to administer and maintain its AML/CFT programme (AML/CFT Act s 56(2)).
The compliance officer must report to the senior manager of the law firm.
In the case of a sole practice that does not have employees, the reporting entity must appoint a person to act as its compliance officer.
An AML/CFT compliance officer can lead the next two steps in the process – developing a risk assessment, and establishing an AML/CFT programme.
Before conducting customer due diligence or establishing an AML/CFT programme, a reporting entity must first undertake an assessment of the risk of money laundering and the financing of terrorism that it may reasonably expect to face in the course of its business (AML/CFT Act s 56).
The well-worn cliché “one size does not fit all” is very apt in relation to this risk assessment. A law firm’s risk assessment will be particular to that firm.
Practices with a significant number of offshore clients would, for example, have a quite different risk profile than practices whose clients are New Zealand residents.
The risk assessment must be in writing and must:
In assessing the risk, law practices must have regard to the following:
A Risk Assessment Guideline has been produced by the Department of Internal Affairs (DIA), the Reserve Bank of New Zealand and the Financial Markets Authority (see under Guidelines available below). The DIA is the prescribed supervisor for the legal profession.
A sector risk assessment covering lawyers has been published on the DIA website here https://www.dia.govt.nz/diawebsite.nsf/Files/Phase-2-AMLCFT-Sector-Risk-Assessment-Final/$file/Phase-2-AMLCFT-Sector-Risk-Assessment-Final.pdf.
The Police’s Financial Intelligence Unit (FIU) has produced a National Risk Assessment Report and a Quarterly Typology Report.
Law firms established from 1 July 2018 will need to establish, implement and maintain a written AML/CFT programme (AML/CFT Act s 56(1)). Already established firms should already have complied with the requirements.
The AML/CFT programme must include internal procedures, policies, and controls to:
The programme must include adequate and effective procedures, policies and controls for:
Guidelines to help organisations, including a Risk Assessment Guideline and an AML/CFT Programme Guideline have been produced by the three supervisors – DIA, Reserve Bank of New Zealand and the Financial Markets Authority.
Not only do these guidelines provide very useful information about preparing a risk assessment and an AML/CFT programme, they also point to sources of further information.
Other documents on this website may also be of use. These include:
DIA has a page on its website entitled Sector and National Risk Assessments.
It provides guides to help people think about how money launderers may use their business.
Of particular value to lawyers is the guide Trust and Company Service Providers.
More guides and resources are also available on the Codes of Practice and Guidelines page of the DIA website.
A very useful resource for lawyers when preparing a risk assessment and an AML/CFT compliance programme is A Lawyer’s Guide to Detecting and Preventing Money Laundering (PDF, 1.5 MB). This is a collaborative publication of the International Bar Association, the American Bar Association and the Council of Bars and Law Societies of Europe.
Among the information it contains is a list of some of the “red flags” lawyers can look out for that may suggest some criminal behaviour is involved with the funds about to be channeled through the practice.
The existence of a “red flag” may, of course, have a legitimate explanation, but international experience shows that they are something one should look out for. These “red flags” include:
Another useful resource is the Financial Action Task Force (FATF), an inter-governmental body established in 1989 by the ministers of its member jurisdictions (New Zealand is one). It aims to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
FATF has produced two documents that are particularly designed for the legal profession. They are Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals and Risk Based Approach Guidance for Legal Professionals.
Section 3 of the latter, Guidance for legal professionals on implementing a risk-based approach, may be particularly useful.
This document also has a brief note about privilege as it applies to the legal profession.
New lawyers in sole practice or law firms need to register with goAML so they can file Suspicious Transaction Reports (STRs) and Prescribed Transaction Reports (PTRs). goAML Web is the prescribed method by which reporting entities submit STRs and PTRs to the FIU.
Certain technical requirements must be followed in filing a report with the police. Lawyers in sole practice or law firms need to register as an “entity” and file reports electronically though goAML. Registering as an entity is simply a matter of filling out the form on the police’s FIU website.
This form is part of the FIU’s goAML platform. goAML is a reporting tool that allows rapid and secure exchange of information between the FIU, reporting entitles and law enforcement and intelligence authorities.
The confidentiality of the data collected is assured, the FIU says.
For more information on how to register and how to report a suspicious matter, see: Reporting a suspicious matter.
Now that lawyers come fully under AML/CFT, there are a series of other activities they need to do. These include:
The Law Society has provided more information about these activities on its website.
The AML/CFT obligations will apply when a lawyer or a law firm, in the ordinary course of business, carries out one or more of the following activities: