Legislation to combat money laundering and the financing of terrorism took effect in New Zealand from 30 June 2013. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009, a mouthful referred to as the AML/CFT Act by most users, is significant legislation that imposes requirements on many different types of entities.
Yet many do not appear to be aware of this legislation. This article looks at what it covers and who may be caught.
This Act applies to “reporting entities” which are defined by the types of transactions they undertake. The type of transactions list has been drafted very broadly and casts the net very wide, meaning a large number of entities will be captured by this legislation. We believe this includes many that are likely to be unaware that the legislation applies to them.
What is money laundering?
Money laundering is the process by which criminals attempt to assert that the proceeds of their crimes are ‘clean’. Once an asset is changed from one kind to another, the money has been ‘laundered’.
The actions used to ‘launder’ money are carried out legitimately every day; for example depositing cash into an overseas investment, purchasing an asset, borrowing and lending money, or cancelling an insurance product. However, money laundering becomes a criminal offence when the funds have been derived from another serious offence. The challenge for governments is to define effective legislation and regulation to assist in identifying which laundering transactions are legitimate, and which are criminal offences.
This issue has taken on increased significance internationally in recent years in relation to the illegal financing of terrorism activities. As this has proven to be a cross border issue there has been significant pressure placed on the New Zealand Government to adopt measures of a comparable standard with other major economies such as the US, UK, and Australia. Unusually New Zealand is relatively late in introducing this legislation compared to our main international counterparts. However the legislation and regulations were fully effective from 30 June 2013.
What types of transactions are caught?
A person falls within the definition of a “financial institution” if, in the ordinary course of business, they undertake any of the following activities:
- accepting deposits or other repayable funds from the public;
- lending to or for a customer, including consumer credit, mortgage credit, factoring (with or without recourse), and financing of commercial transactions (including forfeiting);
- financial leasing (excluding financial leasing arrangements in relation to consumer products)
- transferring money or value for, or on behalf of, a customer
- issuing or managing the means of payment (for example, credit or debit cards, cheques, travellers cheques, money orders, bankers drafts or electronic money)
- undertaking financial guarantees and commitments;
- trading for the person’s own account or for the accounts of customers in any of the following:
- money market instruments (for example, cheques, bills, certificates of deposit, or derivatives);
- foreign exchange;
- exchange, interest rate, or index instruments;
- transferable securities;
- commodity futures trading;
- participating in securities issues and the provision of financial services related to those issues;
- managing individual or collective portfolios;
- safe keeping or administering of cash or liquid securities on behalf of other persons
- investing, administering, or managing funds or money on behalf of other persons;
- issuing, or undertaking liability under, life insurance policies as an insurer; or
- money or currency changing.
In terms of application of this legislation one naturally thinks of banks and other for profit financial institutions. However other less obvious entities such as your average SME company or not-for-profit entity may also be captured due to the occasional involvement in transactions such as those listed above. Loans to third parties would appear to be an example that commonly occur in many organisations and may result in the entity being caught by this legislation. For example a philanthropic trust making social loans would appear to be caught.
We therefore suggest it important that entities carefully consider the nature of their activities and whether they are likely to be caught by the provisions of this new legislation.
If caught by the Act, entities need to implement comprehensive policies and procedures to assess and cover potential risk. They need to demonstrate that they are complying with the Act and regulations and will need to report to the relevant statutory supervisors (please see list of websites for these agencies at the end of this article). The requirements include:
- Developing a written assessment of the money laundering and terrorism risks you face
- Appointing an AML/CFT compliance officer
- Vetting and training staff
- Undertaking customer identification and identity verification
- Undertaking on-going customer due diligence
- Reporting suspicious transactions
- Record keeping, auditing the system and annual reporting.
In some cases exemptions are available or can be applied for. However significant penalties exist for parties that fail to comply with the Act.
This is an area where you may need legal or other professional assistance to determine the impact on your business or organisation.
Some further helpful information from the relevant agencies charged with providing general information and policing this area is provided on their websites: