Anti-Money Laundering and Countering Financing of

Terrorism (AML/CFT) Act 2009

– the impact for immigration practitioners

24 May 2018 Rob Milnes Senior AML/CFT Compliance Officer

How does the AML/CFT Act impact on immigration practitioners?

Today we will be discussing:

• What is money laundering and terrorism financing?

• What is the AML/CFT Act?

• Phase 1 vs Phase 2

• Are you caught by Phase 2 of the AML/CFT Act?

• If so, what do you have to do?

• What you can expect from DIA?

What is money laundering and terrorism financing? • Money laundering is the process criminals

use to ‘clean’ the money they make from crime.

• This involves hiding its illegal origins so that it looks like it comes from a legitimate source and can then be used.

• Often involves complex transactions and/or across multiple jurisdictions.

• Terrorism financing uses similar methods to money laundering to channel funds to violent causes.

Estimated $1.35 billion from fraud and illegal drugs laundered in New Zealand each year.

However, the true cost and social impact is much higher.

Tax evaders, international and local criminals try to launder funds through New Zealand businesses.

Funds may be channelled between countries and through things such as property, expensive goods, businesses and financial services.

How big is the problem in New Zealand?

What is the AML/CFT Act?

The purposes of the AML/CFT Act are:

To detect and deter money laundering and the financing of terrorism (ML/FT).

To maintain and enhance New Zealand’s international reputation by adopting international standards for combatting ML/FT.

To contribute to public confidence in the financial system.

Refer s3 of the AML/CFT Act for full text

Effective AML/CFT measures will: • Help stop criminals laundering the proceeds of crime

• Allow authorities to trace the proceeds of crime and seize illegally earned money and assets

• Over 10 years - estimated to disrupt about $1.7 billion of drug and fraud crime

• Prevent up to an estimated $5 billion in broader criminal activity and reduce about $800 million in social harm

• Protect the reputation and integrity of your business and reputation and New Zealand as a safe place to do business

Who does the Act apply to? Phase 1 of the AML/CFT Act commenced on 30 June 2013.

Currently applies to financial institutions, casinos and some businesses that provide trust and company formation and representation services.

There are 3 supervisory agencies of the AML/CFT Act:

- The Reserve Bank of New Zealand – supervises banks, life insurers and non-bank deposit takers.

- The Financial Markets Authority – sectors supervised include issuers of securities, fund managers, derivative issuers and financial advisors.

- The Department of Internal Affairs – sectors supervised include casinos, money remitters, currency exchangers, non-deposit taking lenders and trust and company service providers.

What is Phase 2 of the Act? Phase 2 of the AML/CFT Act extends the scope of the legislation to cover more businesses (if they carry out one or more service as specified in section 5 of the AML/CFT Act):

1 July 2018 – Law firms, conveyancers and some businesses that provide trust and company services (may include some immigration advisors?)

1 Oct 2018 – Accounting practices

1 Jan 2019 – Real Estate agents

1 Aug 2019 – New Zealand Racing Board and some High Value dealers

All of these reporting entities will be supervised by the Department of Internal Affairs.

Why are professional service sectors being brought into the regime? • Lawyers, accountants, real estate

agents and trust and company service providers provide professional services that are attractive to criminals:

- Add respectability and a perception of legitimacy

- Provide skills and expertise to assist conceal proceeds of crime

• Strengthen overall AML/CFT system

• Bring NZ into line with international AML/CFT best practice around the world

Are you a reporting

entity under Phase 2

of the AML/CFT Act?

Activities caught by the AML/CFT Act: You will be a reporting entity under the AML/CFT Act if in the ordinary course of business, you carry out one or more of the following activities:

Acting as a formation agent of legal persons or legal arrangements.

Acting as, or arranging for a person to act as, a nominee director or nominee shareholder or trustee in relation to legal persons or legal arrangements.

Providing a registered office or a business, correspondence or administrative address for a legal person or arrangement.

Refer to section 5 of the AML/CFT Act for full legal definitions

Activities caught by the AML/CFT Act: You will be a reporting entity under the AML/CFT Act if in the ordinary course of business, you carry out one or more of the following activities:

Managing client funds, accounts, securities, or other assets (other than fees for professional services)

Conveyancing and real estate transactions

Engaging in or giving instructions (on behalf of a customer) for a transaction in relation to the buying, transferring or selling of property, a business or any other legal arrangement

Engaging in or giving instructions (on behalf of a customer) for a transaction in relation to creating, operating and managing a business or any other legal arrangement

Refer to section 5 AML/CFT Act for legal definitions

ML/FT risks - professional services: Appearance of legitimacy when a professional is involved

Shell companies, multiple layers of ownership or complex legal structures can obscure or conceal ownership by criminals.

Professional services provide a protective layer between criminal and their transactions, particularly when multiple professionals in a chain.

Use of address not at physical location creates distance from criminal activity and transaction.

Obscuring trail when funds, securities or other assets change hands – eg. through professionals’ trust accounts, control or authority over accounts

Who is the reporting entity? The legal entity that carries out

the specified activities is the reporting entity (i.e. not individual lawyers or immigration advisors unless they are self employed).

All staff engaged in AML/CFT related activities need to be vetted and trained.

The AML/CFT Act only applies to the specified activities.

What does a

reporting entity need

to do?

Certain businesses (known as reporting entities) must implement an AML/CFT programme to help tackle ML/FT. This includes:

• Customer Due Diligence - Have procedures in place to identify and verify the identity of customers and other associated persons and assess the risk of ML/FT that they pose. Verification of documents to a prescribed standard and if accepting copies, must be certified copies.

• Enhanced Customer Due Diligence - In certain situations where ML/FT risk is higher, must examine source of customer’s wealth or funds.

• Suspicious Activity Reports (SARs) - In circumstances where there are reasonable grounds to suspect that an activity or transaction conducted for a customer relates to ML/FT or associated criminal activity, this must be reported to the Police Financial Intelligence Unit (FIU).

What does the AML/CFT Act require?

What does the AML/CFT Act require? Certain businesses (known as reporting entities) must implement an AML/CFT programme to help tackle ML/FT. This includes:

Prescribed Transaction Reports (PTRs) - All cash transactions in New Zealand of $10,000 or more, and all international wire transfers of $1,000 or more, to the FIU.

Record keeping – Keep all records relating to customers, activities and transactions so that they can be reconstructed at a later date.

Appoint a compliance officer, conduct a risk assessment, internal review, independent audit & annual report

A reporting entity’s AML/CFT programme should align and operate alongside existing policies and procedures used to conduct its business.

What do I have to do next?

First Steps, completed by July 1..

Find out your compliance requirements

Appoint your Compliance Officer

Identify your ML/TF risks by conducting a Risk Assessment

Prepare your AML/CFT programme

Ensure you know your customers to the appropriate level

Know where to get support

The first thing do is READ THE GUIDANCE

Compliance Officer A critical role reporting to senior management

Responsible for administering and maintaining the AML/CFT programme

Liaison with AML/CFT supervisor

The right person! Must have a good understanding of the business and influence

Developing your risk assessment Assess the business and identify the ML/FT risks

that may be faced in the ordinary course of business

Use what you know!

Use the Sector Risk Assessment and Prompts and Notes guidance on DIA website

It is a living process – not a one off

AML/CFT programme Your manual to comply with the requirements of the Act

Must be based on the risks identified in your risk assessment

Includes procedures to verify clients’ identity (CDD) and identify and report suspicious activity (SAR)

Tailor your approach to suit your business – there’s no template – you know your business best

Using and applying legal professional privilege when submitting SARs The Act does not require any person (lawyer or otherwise) to disclose

any information that the person believes, on reasonable grounds, is a privileged communication

When the lawyer reasonably believes the information is for a dishonest purpose or to aid or commit a crime, privilege does not apply

It will be for lawyers to determine whether a “prima facie case” exists on the facts before them

Transaction records of lawyers’ trust accounts are not privileged

How does DIA supervise?

A risk based approach

Work with other supervisory agencies and jurisdictions

Guidance, advice and information

Desk based reviews of AML/CFT programmes

On-site inspections of reporting entities

Use a range of tools from education and remediation to warnings, enforceable undertakings and court action

Cooperate and collaborate across government and with private sector.

Rob Milnes Senior Compliance Officer - AML/CFT

Department of Internal Affairs DDI: 09 353 7238

Email: Robert.Milnes@dia.govt.nz