1209 Money Laundering

1. 30 SEPTEMBER 2012 31SEPTEMBER 2012 FEATURE Anti Money Laundering N ew Zealand is one of the last OECD countries to implement enhanced legislation around Anti Money Laundering/Countering the Financing of Terrorism (AML/CFT) and is currently not on the European Union (EU) banking and corporate “white list”. This position is unlikely to be reversed until 30 June 2013, when phase one of New Zealand’s new AML/CFT regime begins. Preventing New Zealand businesses being used for criminal activities is essential to upholding public and international confidence in New Zealand’s financial systems. Make sure the new AML/CFT regime is on your clients’ agendas if they are considered to be a reporting entity. Your clients should start planning now What will reporting entities need to do? 1.Set out their risk assessment in writing, and include a description of how this risk assessment will be kept up to date. 2.Use their risk assessment to develop their AML/CFT programme, which must include procedures to detect, deter, manage and mitigate the risk of money laundering and the financing of terrorism. 3.Appoint a compliance officer to administer and maintain their AML/ CFT programme. 4.Develop customer due diligence processes including customer identification and verification of identity. 5.Create suspicious transaction reporting, auditing and annual reporting systems and processes. A RISK-BASED APPROACH All reporting entities must have appropriate policies and procedures in place for assessing and managing the risk of their business being used for money laundering or terrorist financing, and for reporting suspicious transactions. A risk-based approach to AML/CFT incurs a cost which is proportionate to this risk, focusing effort where it has most impact. AML/CFT procedures and policies may be integrated into existing risk management systems or be controlled separately. In either case, these policies and procedures are valuable to businesses, in contributing to the control of risks to both businesses and individuals in this and other areas. Reporting entities can decide for themselves how to carry out their risk assessment, which may be simple or sophisticated depending on the nature of their business. Each reporting entity needs to make a reasoned decision as to how it intends to manage money laundering risk. A risk-based approach enables them to target their effort on conducting customer due diligence more effectively, with increased depth of work being conducted where the risks are perceived to be higher. CLIENT ACCEPTANCE AND CONTINUANCE Customer due diligence (CDD) is an essential part of any AML/CFT system and is a cornerstone requirement of the New Zealand regime. Reporting entities are required to ensure CDD procedures are applied to all clients, both new and existing. There are three levels of CDD: standard, enhanced and simplified. The level a reporting entity should use in any instance will depend on the customer, and the type of transactions they conduct. Each level of CDD has its own requirements, which may require a reporting entity to obtain an understanding of: • who the client is • who owns it, including the ultimate beneficiary • who controls it • the purpose and intended nature of the business relationship • the nature of the client • the client’s source of funds • the client’s business and economic purpose. This is often referred to as “know your client” or “KYC” information. Reporting entities need to set out clear requirements for collecting information about their clients and for conducting verification of identity, to a depth suitable to the assessed level of risk. They also need to be continually alert for changes in the nature or ownership of the client, its business model, and its susceptibility to (or evidence of) money laundering/terrorist financing. The occasional transaction threshold for CDD obligations is $9,999, which has numerical, rather than value, alignment with Australia. Enhanced CDD must be applied for higher risk clients such as politically exposed persons (PEPs) and those with complex transactions. Trusts are high risk by default, as they are easy to set up and not maintained on a register. In addition to the normal CDD requirements for trusts, Regulation 6 of the AML/CFT (Requirements and Compliance) Regulations 2011 requires reporting entities to obtain the name and date of birth of each beneficiary of the trust (or if there are more than ten beneficiaries to obtain a description of the class or type of beneficiary, and if the trust is a charitable trust, its objects). Simplified CDD can be conducted on a specified set of organisations such as government departments, local authorities, the New Zealand Police and certain listed companies. REPORTING REQUIREMENTS An AML/CFT compliance officer (who reports to senior management) must be appointed to manage and maintain the AML/CFT programme. When there is a business relationship between a reporting entity and a customer, the reporting entity must conduct ongoing CDD and undertake account monitoring to ensure, among other things, that they identify any grounds for reporting a suspicious transaction (such as transactions which have no apparent economic or visible lawful purpose). If a suspicious transaction is identified, it must be reported to the Financial Intelligence Unit. If there are suspicions, tipping off the client must be avoided. Tipping off is seen as assisting the perpetrator to commit the offence which may be considered a crime in itself, even if accidental. All staff involved in AML/CFT related matters should have regular training co-ordinated by the compliance officer. AML/CFT risk assessments and compliance programmesmustbeauditedbyanappropriately qualified, independent person every two years. A reporting entity must be able to justify to its supervisor how its auditor is appropriately qualified. This does not necessarily mean that the person has to be a chartered accountant, or qualified to undertake financial audits. It means that the person has the relevant skills and experience to conduct the assessment. To be independent, the individual must not be involved in the development of a reporting entity’s risk assessment, or the establishment, implementation or maintenance of its AML/ CFT programme. Therefore a reporting entity may choose to appoint an external person to undertake the risk assessment audit. Reporting entities must prepare an annual AML/CFT report for their supervisor. The government agencies tasked with supervising the AML/CFT regime and the reporting entities they will monitor are: • the Reserve Bank of New Zealand – banks, life insurers and non-bank deposit takers • the Financial Markets Authority – issuers of securities, trustee companies, futures dealers, collective investment schemes, brokers, and financial advisers • the Department of Internal Affairs – casinos, non-deposit taking lenders, money changers, and any other financial institutions not supervised by the Reserve Bank or the FMA. The websites of these agencies provide a ready source of information about the new AML/CFT regime. A number of guidelines are available. There is also an Identity Verification Code of Practice. The Ministry of Justice released a consultation document in July which set out the proposed annual reporting form and content of a suspicious transaction report under the AML/CFT Act. Electronic reporting will be preferred. Supervisors have adopted a collaborative approach towards implementation of the new AML/CFT regime. Be aware though – non- compliance will not be dealt with lightly. There is a mix of civil liability provisions and criminal offences, with differing levels of potential penalties – fines of up to NZ$300,000 and two years imprisonment for individuals, and fines of up to NZ$5m for corporations. There are many opportunities for chartered accountants to assist clients who are reporting entities – including in the provision of auditing services for AML/CFT risk assessment and compliance programmes. Zowie Murray CA is the Audit & Assurance Specialist on the NZICA Technical Services Team. Appearances can be deceiving CAs can assist their clients in meeting new requirements aimed at preventing money laundering and the financing of terrorism. BY ZOWIE MURRAY There is a mix of civil liability provisions and criminal offences, with differing levels of potential penalties

2. 30 SEPTEMBER 2012 31SEPTEMBER 2012 FEATURE Anti Money Laundering N ew Zealand is one of the last OECD countries to implement enhanced legislation around Anti Money Laundering/Countering the Financing of Terrorism (AML/CFT) and is currently not on the European Union (EU) banking and corporate “white list”. This position is unlikely to be reversed until 30 June 2013, when phase one of New Zealand’s new AML/CFT regime begins. Preventing New Zealand businesses being used for criminal activities is essential to upholding public and international confidence in New Zealand’s financial systems. Make sure the new AML/CFT regime is on your clients’ agendas if they are considered to be a reporting entity. Your clients should start planning now What will reporting entities need to do? 1.Set out their risk assessment in writing, and include a description of how this risk assessment will be kept up to date. 2.Use their risk assessment to develop their AML/CFT programme, which must include procedures to detect, deter, manage and mitigate the risk of money laundering and the financing of terrorism. 3.Appoint a compliance officer to administer and maintain their AML/ CFT programme. 4.Develop customer due diligence processes including customer identification and verification of identity. 5.Create suspicious transaction reporting, auditing and annual reporting systems and processes. A RISK-BASED APPROACH All reporting entities must have appropriate policies and procedures in place for assessing and managing the risk of their business being used for money laundering or terrorist financing, and for reporting suspicious transactions. A risk-based approach to AML/CFT incurs a cost which is proportionate to this risk, focusing effort where it has most impact. AML/CFT procedures and policies may be integrated into existing risk management systems or be controlled separately. In either case, these policies and procedures are valuable to businesses, in contributing to the control of risks to both businesses and individuals in this and other areas. Reporting entities can decide for themselves how to carry out their risk assessment, which may be simple or sophisticated depending on the nature of their business. Each reporting entity needs to make a reasoned decision as to how it intends to manage money laundering risk. A risk-based approach enables them to target their effort on conducting customer due diligence more effectively, with increased depth of work being conducted where the risks are perceived to be higher. CLIENT ACCEPTANCE AND CONTINUANCE Customer due diligence (CDD) is an essential part of any AML/CFT system and is a cornerstone requirement of the New Zealand regime. Reporting entities are required to ensure CDD procedures are applied to all clients, both new and existing. There are three levels of CDD: standard, enhanced and simplified. The level a reporting entity should use in any instance will depend on the customer, and the type of transactions they conduct. Each level of CDD has its own requirements, which may require a reporting entity to obtain an understanding of: • who the client is • who owns it, including the ultimate beneficiary • who controls it • the purpose and intended nature of the business relationship • the nature of the client • the client’s source of funds • the client’s business and economic purpose. This is often referred to as “know your client” or “KYC” information. Reporting entities need to set out clear requirements for collecting information about their clients and for conducting verification of identity, to a depth suitable to the assessed level of risk. They also need to be continually alert for changes in the nature or ownership of the client, its business model, and its susceptibility to (or evidence of) money laundering/terrorist financing. The occasional transaction threshold for CDD obligations is $9,999, which has numerical, rather than value, alignment with Australia. Enhanced CDD must be applied for higher risk clients such as politically exposed persons (PEPs) and those with complex transactions. Trusts are high risk by default, as they are easy to set up and not maintained on a register. In addition to the normal CDD requirements for trusts, Regulation 6 of the AML/CFT (Requirements and Compliance) Regulations 2011 requires reporting entities to obtain the name and date of birth of each beneficiary of the trust (or if there are more than ten beneficiaries to obtain a description of the class or type of beneficiary, and if the trust is a charitable trust, its objects). Simplified CDD can be conducted on a specified set of organisations such as government departments, local authorities, the New Zealand Police and certain listed companies. REPORTING REQUIREMENTS An AML/CFT compliance officer (who reports to senior management) must be appointed to manage and maintain the AML/CFT programme. When there is a business relationship between a reporting entity and a customer, the reporting entity must conduct ongoing CDD and undertake account monitoring to ensure, among other things, that they identify any grounds for reporting a suspicious transaction (such as transactions which have no apparent economic or visible lawful purpose). If a suspicious transaction is identified, it must be reported to the Financial Intelligence Unit. If there are suspicions, tipping off the client must be avoided. Tipping off is seen as assisting the perpetrator to commit the offence which may be considered a crime in itself, even if accidental. All staff involved in AML/CFT related matters should have regular training co-ordinated by the compliance officer. AML/CFT risk assessments and compliance programmesmustbeauditedbyanappropriately qualified, independent person every two years. A reporting entity must be able to justify to its supervisor how its auditor is appropriately qualified. This does not necessarily mean that the person has to be a chartered accountant, or qualified to undertake financial audits. It means that the person has the relevant skills and experience to conduct the assessment. To be independent, the individual must not be involved in the development of a reporting entity’s risk assessment, or the establishment, implementation or maintenance of its AML/ CFT programme. Therefore a reporting entity may choose to appoint an external person to undertake the risk assessment audit. Reporting entities must prepare an annual AML/CFT report for their supervisor. The government agencies tasked with supervising the AML/CFT regime and the reporting entities they will monitor are: • the Reserve Bank of New Zealand – banks, life insurers and non-bank deposit takers • the Financial Markets Authority – issuers of securities, trustee companies, futures dealers, collective investment schemes, brokers, and financial advisers • the Department of Internal Affairs – casinos, non-deposit taking lenders, money changers, and any other financial institutions not supervised by the Reserve Bank or the FMA. The websites of these agencies provide a ready source of information about the new AML/CFT regime. A number of guidelines are available. There is also an Identity Verification Code of Practice. The Ministry of Justice released a consultation document in July which set out the proposed annual reporting form and content of a suspicious transaction report under the AML/CFT Act. Electronic reporting will be preferred. Supervisors have adopted a collaborative approach towards implementation of the new AML/CFT regime. Be aware though – non- compliance will not be dealt with lightly. There is a mix of civil liability provisions and criminal offences, with differing levels of potential penalties – fines of up to NZ$300,000 and two years imprisonment for individuals, and fines of up to NZ$5m for corporations. There are many opportunities for chartered accountants to assist clients who are reporting entities – including in the provision of auditing services for AML/CFT risk assessment and compliance programmes. Zowie Murray CA is the Audit & Assurance Specialist on the NZICA Technical Services Team. Appearances can be deceiving CAs can assist their clients in meeting new requirements aimed at preventing money laundering and the financing of terrorism. BY ZOWIE MURRAY There is a mix of civil liability provisions and criminal offences, with differing levels of potential penalties

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1209 Money Laundering

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