The first tranche of regulations to support the implementation of the latest (2017) amendments to the New Zealand Anti-Money-Laundering/Countering Terrorist Financing Act 2009, referred to as Phase 2 AML/CFT Reforms, has been approved by the Cabinet and is now in the Government's New Zealand Gazette.

Justice Minister Andrew Little told reporters: “The AML/CFT Act has been in force since 2013, applying to banks, casinos, a range of financial service providers and some trust and company service providers covered under Phase 1."

The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act 2017 puts in place "Phase 2" of New Zealand's AML/CFT laws.

The new laws extend the current AML/CFT Act to cover more businesses (including real estate agents and conveyancers; many lawyers and accountants; some businesses that deal in expensive goods; and betting on sports and racing). They also make some changes that affect 'Phase 1' businesses (including banks, casinos and a range of financial service providers) who have had to comply with the Act since 2013.

Each year, the Government believes, about NZ$1.35 billion (US$957 million) from the proceeds of fraud and illegal drugs is laundered through the country's businesses. The law will come into effect in stages for different sectors to give businesses time to prepare for the changes.

Lawyers and conveyancers will be the first sectors that have to comply, starting in July 2018.

Valuable items and real estate

On the subject of dealers in goods of high value, the Ministry of Justice writes: "You’ll need to comply with the AML/CFT Act if you buy or sell jewellery, precious metals, precious stones, watches, motor vehicles, boats, art or antiquities, and you [either] accept or make cash payments of NZ$15,000 (US$10,640) or more in one transaction [or] accept or make a series of related cash payments that total $15,000 or more. If you accept or make cash payments of NZ$15,000 or more, you’ll have to comply from 1 August 2019.

"You have to verify the identity of the customer, keep a record of the customer’s identity and their transaction [and] send a prescribed transaction report to the Police Financial Intelligence Unit (FIU), setting out details about the transaction. If a customer’s activity is suspicious, you may decide to file a suspicious activity report with the FIU. For high-value dealers, this is optional."

Real-estate agents will have to comply by the same date. Each firm will have to designate someone as an AML/CFT compliance officer, weigh up and write down the risks associated with money laundering that it may face and establish an AML/CFT compliance programme that sets out ways of detecting and offsetting such risks. It will then have to verify the identities of clients and also of purchasers who pay cash deposits of NZ$10,000 (US$7,000) or more. In some circumstances (if, for instance, they represent a company or trust) it may also need to ask for information about where money came from and the other people involved. The firm must also:

• submit a Prescribed Transaction Report to the Police Financial Intelligence Unit (FIU) if a client wants to conduct a transaction in cash that is worth NZ$10,000 or more, or an international wire transfer of $1,000 or more;
• monitor customers’ accounts to identify warning signs of money laundering, report any suspicious transactions or activity to the FIU;
• review its risk assessment and compliance programme regularly;
• have the programme audited regularly; and
• submit an annual report to the Department of Internal Affairs, which will supervise the sector for AML purposes.

Reliance

If another business also has a relationship with the firm's customers, it may be able to rely on that business to carry out CDD for it if that business agrees to do so. However, the firm can only rely on it if:

• it is also a New Zealand business or a professional who has to comply with the AML/CFT Act, or is based overseas and has similar obligations in a country with sufficient AML/CFT controls; and
• it already has a relationship with the firm's customer and has carried out CDD ('customer due diligence') to the required standard; and
• it can hand over its CDD documents immediately upon request.

This may be an option if the firm has existing agreements or business relationships with other reporting entities. For example, a real estate agent and a conveyancer may agree that only one of them carries out CDD in a real estate transaction. Any business that relies on another business, however, is still legally responsible for ensuring that the CDD meets the required standard.

Phase 1 businesses

Some of the changes also affect Phase 1 businesses that have had to comply with the Act since 2013 (that is, banks, casinos, a range of financial service providers and some trust and company service providers). Suspicious activities (as well as suspicious transactions) will have to be reported. Phase 1 businesses will have to do this on 1 July 2018 - later than originally planned. It will also be easier for them to share their AML/CFT obligations with other businesses.

The regulatory set-up

The Financial Markets Authority took over the AML/CFT functions of its predecessor, the Securities Commission of New Zealand, in 2011. It supervises issuers of securities, licensed supervisors, fund managers, brokers and custodians, financial advisors, issuers of derivatives, discretionary investment management service providers and peer-to-peer lending and equity crowd funding service providers. Other regulators cover other sectors.

New Zealand has been late to regulate the kinds of business to be found in phase 2, with most other Western-style countries having done so a decade ago. In the words of the country's Law Society, “The AML/CFT regime introduced in New Zealand by Phase One to be enhanced by Phase Two is generally comparable to regimes that have existed in other jurisdictions (including nearly all of New Zealand’s major trading partners) for several years.”