New Zealand Law Society - Preparing for becoming a reporting entity under the AML/CFT Act
Lawyers need to undertake three tasks to prepare themselves for becoming “reporting entities” under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).
The amendment bill changing AML/CFT so that its core obligations will apply to lawyers, is currently with Parliament’s Law and Order Committee.
As it currently stands, the bill provides that AML/CFT will apply to lawyers “not later than 1 July 2018”. The Law Society, however, has asked the Law and Order Committee to extend this time to “not earlier than 1 January 2019”.
Even with a 1 January 2019 deadline, a strong case can be made that lawyers should – if not now, then very soon – begin preparing for implementation.
The three tasks that lawyers can begin working on now are:
Starting on these three tasks as soon as possible will mean that law firms spread the work over coming months.
This will reduce pressure on staff, who would prefer to be productive acting for their clients rather than working full-time on compliance activities.
It will also mean that firms are putting in place effective procedures to minimise risk, and to develop a sustainable, compliant programme.
Appointing an AML/CFT compliance officer is the easiest of the preparation steps a law firm can take.
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 practice which is a reporting entity must still appoint a person to act as its compliance officer which would in most cases be the sole practitioner.
An AML/CFT compliance officer can lead the next two steps in the process – developing a risk assessment, and establishing an AML/CFT programme. The officer can also be delegated to keep a watching brief on AML/CFT developments and the legislation including regulations as they unfold. Larger firms may also wish to appoint a deputy compliance officer to cover absences,
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).
A sector risk assessment covering lawyers has not yet been published, and lawyers will need to keep a watch out for material produced by their AML/CFT supervisor. The AML/CFT amendment bill identifies the DIA as the supervisor for lawyers.
However, the Law Society, in its submissions on the bill, has recommended that the NZLS should be prescribed as the supervisor for the legal profession.
The Police’s Financial Intelligence Unit (FIU) has produced a National Risk Assessment Report and a Quarterly Typology Report.
Law firms will need to establish, implement and maintain a written AML/CFT programme (AML/CFT Act s 56(1)).
The AML/CFT programme must include internal procedures, policies, and controls to:
The programme must include adequate and effective procedures, policies and controls for:
Developing this programme will take some time and effort, and it will need to be up-and-running by the date lawyers become reporting entities under AML/CFT.
Indeed the ideal situation would be that by the time AML/CFT applies to them lawyers have begun implementing at least the following two elements of their AML/CFT programme:
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 for lawyers. These include:
DIA has a page on its website entitled Information for Businesses.
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 Information for Lawyers and Conveyancers 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.
Some lawyers have already taken another action – registering with goAML so they can file suspicious transaction reports (STRs).
This is a fourth action lawyers can take in preparation for the time when they become reporting entities under the AML/CFT Act.
Currently, lawyers must report any suspicious transaction when that lawyer or firm receives, in the course of their business, funds as a deposit or investment or to settle a real estate transaction. This is provided in ss 3 and 15 of the Financial Transactions Reporting Act 1996.
Certain technical requirements must be followed in filing an STR with the police. Lawyers in sole practice or law firms need to register as an “entity” and file reports electronically. 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.
goAML Web is the prescribed method by which reporting entities submit STRs and, from 1 Nov 2017, Prescribed Transactions Reports to the FIU.
For more information on how to register and how to report a suspicious matter see, Reporting a suspicious matter.
Once lawyers come fully under AML/CFT, there are a series of other activities they will need to do. These include:
The Law Society will provide more information about these activities closer to the time when lawyers come fully under AML/CFT.
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: