- CA ANZ expresses disappointment on behalf of members who face uncertainty over AML rules
- Government says an exemption would run counter to the legislation’s intention and purpose
- CA ANZ says it will urgently seek more clarity
The Associate Minister of Justice, Aupito William Sio, has declined our application for an exemption from the AML rules for tax transfers conducted by tax agents.
He gave the following reasons for declining our application:
- Granting an exemption would run counter to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009's intention and purpose;
- There is a medium risk of money laundering/terrorism financing (ML/TF) associated with tax transfers;
- Granting an exemption in respect of entities that are not proven to be low risk and whose customers can be structured in complex ways could be detrimental to New Zealand's international reputation;
- An absence of customer due diligence leads to a heightened risk of ML/TF, which would negatively impact the prevention, detection and prosecution of ML/TF offences; and
- The level of regulatory burden on accounting and professional services practices in respect of tax transfers is proportionate to the level of risk identified.
"We are disappointed with the decision and we know members will be too" said Peter Vial, New Zealand Country Head for CA ANZ.
The decision to decline our exemption application, coupled with the inconclusive nature of the DIA's initial guidance, creates significant uncertainty about the application of the rules to tax transfers conducted by tax agents. We are looking carefully at our options, including further engagement with the DIA. We will keep members informed.
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In October 2018 CA ANZ applied to the Ministry of Justice (MoJ) for a Ministerial Exemption from the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 in relation to tax transfers performed by tax agents.
This was in response to the Explanatory Note (Involvement in Tax Transfers, Payments and Refunds) issued by the Department of Internal Affairs (DIA) on the working day before the AML/CFT Act became effective for accounting practices. It deemed tax transfers "may" be captured activities as either 'managing client funds' or 'engaging in/giving instructions for a transaction in relation to creating, operating or managing a legal person/arrangement'.
The starting point for our exemption application was predicated on tax transfers not being captured and that the exemption was being sought to clarify the uncertainty created by the DIA's statement.
Over the last 18 months we have worked with a group of dedicated members from across a range of public practices to prepare our initial application and then respond to questions raised by the MoJ and provide further information and evidence.
As part of the exemption process, the DIA had to provide a formal risk assessment to the MoJ which in turn would underpin the MoJ's recommendation to the Minister. The DIA engaged with Inland Revenue (IR) when preparing its risk assessment.
In May 2019, the MoJ informed us that its preliminary recommendation to the Minister was to decline our application. We engaged Chapman Tripp as our external legal counsel to assist us with our approach.
In June 2019, we submitted an Official Information Act request to obtain the formal risk assessment prepared by the DIA. This request was originally declined, but following further correspondence with the DIA, it voluntarily reviewed its decision and decided to release the risk assessment to us. Our high level observations on the DIA's risk assessment were:
1. It did not identify any specific examples of how money laundering or terrorism financing (ML/TF) could occur through a tax transfer or any particular typologies that give rise to a heightened ML/TF risk.
2. The lack of identifiable ML/TF risk was consistent with our international scan, which did not identify any jurisdictions where tax transfers are considered to pose a ML/TF risk.
3. We considered some of the matters raised were either inaccurate or overstated or incorrectly calibrated the ML/TF risk.
In August 2019 we provided a comprehensive 50 page response to the MoJ on its draft recommendation. In our view, the ML/TF risks of tax transfers are negligible, and, as such, the regulatory burden would be disproportionate.
We set out how the Financial Action Task Force (FATF), the Financial Intelligence Unit (FIU) and AML/CFT joint supervisors' own material supports this proposition. We put forward a strong argument that granting the exemption would be consistent with the policy objectives of the Act and the Ministerial Exemptions policy.
We understand that the MoJ's final recommendation to the Minister was presented to the National AML/CFT Coordination Committee, on which IR, the DIA and the FIU sit, for approval on 26 November.
Given the implications of the exemption not being granted for the tax system and for all tax agents we wrote to the Associate Minister of Justice and the Minister of Revenue outlining why we believed the exemption was justified in December 2019.
The exemption application has now been declined.
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