Date posted: 17/01/2019 4 min read

Anti Money Laundering and Counter Terrorism Financing

On 1 October 2018 New Zealand's accounting profession moved into the front line defence against money laundering and terrorism financing with the introduction of phase two of the country's Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act.

Accountants in public practice have a great deal of visibility of their clients' arrangements and this knowledge can provide law enforcement agencies with much more insight to assist with investigating illegal activity.

It means accounting practices need to put in place robust controls to deter and detect ML/FT, as well as implement the necessary policies and procedures to ensure compliance with the new rules. This is not to suggest processes are not robust already – rather, while the controls they have are robust, they just not designed to detect and deter ML/FT, hence the need for new policies, procedures and controls.

Accountants who understand the technology solutions available to streamline the process will be best placed to comply with the new requirements with maximum efficiency.

Many of the regular activities which accountants provide, such as setting up legal entities or managing client funds/assets, will bring them into scope of the AML/CFT Act.

Sue Pak, Head of Accounting at Xero provides a solid outline of the responsibilities this entails;

  • Appoint an AML/CFT compliance officer.
  • Produce a written risk assessment.
  • Establish a written AML/CFT programme based on the risk assessment (and re-assess regularly).
  • File an annual report with the supervisor.
  • Obtain an independent audit of your risk assessment and AML/CFT programme every two years by an independent person.
  • Report suspicious activities and prescribed transactions.
  • Keep records for at least five years.

Why is this necessary?

New Zealand has a well-earned reputation as one the world's safest business environments with a strong legislative and cultural immunity to corrupt practices. A large measure of success came from the introduction of the AML/CFT Act which first came into force in 2013.

Now the New Zealand government is extending the regime into a wider set of businesses which are often used by criminals to avoid engagement with the kind of financial services they know the government is tracking.

As such, under the phase two arrangements, the Department of Internal Affairs (DIA) will now supervise designated non-financial businesses and professions (DNFBPs).

This includes organisations such as accounting practices, law firms, conveyancers, real estate agents and trust and company service providers, according to Darren Howells, principal adviser, AML Group, Regulatory Services at the DIA.

It will also now supervise high value dealers (as defined in the Act) and the NZ Racing Board.

This significantly extends the coverage beyond phase one reporting entities, which included banks, casinos and a range of financial service providers.

There are several government agencies who have a delivery role in the AML/CFT regime. The Reserve Bank and the Financial Markets Authority (FMA) are also supervisors alongside the DIA, while the NZ Police through its Financial Intelligence Unit (FIU) collects, analyses and disseminates information from suspicious activity and prescribed transaction reports. The Ministry of Justice is responsible for the overall administration of the AML/CFT regime, including developing the policy and administering the AML/CFT Act.

According to Andrew Hill, Manager of the FIU, "During the first phase of AML we were working with companies and organisations as partners to understand what was happening in the financial system, so we could take action to stop crime."

"That created an environment where it is really difficult for criminals. It makes it hard for them when they can't access banking facilities for instance. As a result criminals have become weary of using mainstream banking."

Tightening controls over this area has left criminals with only two real options, said Hill. "They can operate with cash - but even that is a win for us because it creates a cost for their business. Or they can try to put a layer between themselves and the banking system. Unfortunately that makes businesses like accountants gatekeepers into that world."

Hill said phase two of the AML/CFT Act is important as it pushes out the control from the narrow financial sector and into the broader set of businesses that criminals want to use as a back door into the financial sector.

Accountants are often unwittingly conduits for criminals into these transactions, during what otherwise appear to be regular legitimate activities.

Supporting businesses

With the arrival of phase two of the AML/CFT Act, the government has undertaken an extensive program of consultation with businesses. This was driven in part from the experience of phase one where it was clear businesses wanted more guidance and information.

A recent roadshow conducted in July by the DIA and the FIU helped businesses to better understand what the new regimes does, and importantly, to describe the framework and the support available for businesses to meet their obligations.

Hill said one of the problems that became apparent is that people felt there were a lot more obligations under the legislation and more compliance costs but they did not know which tools were available to help them to be compliant and to protect themselves from use by criminals.

This is partly the nature of the problem. One of the key deliverables for businesses is to carry out a risk assessment and document it but, as each business is subtly different, there is no single "template" that everyone can use.

In response to these concerns we prepared a series of 'how to' guides specifically designed to support accounting practices in New Zealand be compliant which can be accessed on the CA ANZ website.

CA ANZ is hosting a webinar on Wednesday 14 November where you can hear directly from AML experts at the NZ Police Financial Intelligence Unit as well as representatives from the RegTech community and other CA ANZ members to get a better understanding of the steps and solutions available to transition to the new regulatory regime.

Register for AML webcast

Your questions answered by NZ Police, industry and CA Members. Register now for 14 Nov webcast.

Click Here

This article and the November Webcast are initiatives of the new CA Catalyst program which is designed to address members' issues and pain-points – and provide information about technology based solutions.