Anti-Money Laundering and Countering Financing of Terrorism : Phase 2

As an Accountant I am captured by the recent changes to bring in phase 2 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).  Phase 2 extends the current AML/CFT Act 2009 to cover more businesses. It now includes lawyers & conveyancers, accountants,  real estate agents, and the New Zealand Racing Board (aka the TAB) as well as some businesses that deal in expensive goods.

These changes came/come into force on the following dates:

  • Lawyers and conveyancers – 1 July 2018
  • Accountants – 1 October 2018
  • Real estate agents – 1 January 2019
  • The TAB – 1 August 2019
  • Businesses that deal in expensive goods – 1 August 2019

As an accountant I was preparing for these changes in the lead up to 1 October 2018.  I had to document a “risk assessment,” “risk rating” and “anti-money laundering programme.”  These documents form part of the process that is required in our office in order to comply with the AML/CFT Act.  The compliance programme also needs to be audited every two years and can be subject to spot checks and penalties can be applied for non-compliance.

What does this mean for clients of accountants?

Accountants will now require more information from their clients before they can act for them. Client due diligence (CDD) must be completed on new and existing clients.  This process includes verifying identity documents, addresses, entity structure and in some cases the client’s source of wealth (enhanced due diligence).  Once these documents are obtained reasonable steps must be taken to verify their authenticity.

Enhanced due diligence will be required for the following types of clients:

  • All trusts
  • Charities/Incorporated Societies
  • All companies that have a trust that is a shareholder
  • Clients that come from countries that are deemed high risk (such as tax havens and non-democratic countries)
  • Clients with significant wealth

So what happens after CDD?

Accountants will be required monitor and report to the financial intelligence unit of the New Zealand Police:

  • any suspicious transactions
  • where a client wants to conduct a transaction with more than $10,000 of cash; or
  • by international wire transfer over $1000.

Also, the accountant is obliged not to tell the client that they have reported them to the relevant authority.

Reaction of some accountants

In the circles of small practitioners I associate with, initially some decided that they would restructure their accounting practices so that they would not be captured by the act.

I have only heard of one small practitioner managing to not be captured under the AML/CFT Act as he doesn’t do any captured activities.  For my practice this wouldn’t work as most clients expect me to do these captured activities.  Most practitioners have now accepted that they are captured and it now means an additional compliance cost they will bear.  Ultimately and unfortunately this cost will end up being passed onto the client.

From discussions with other practitioners, for many new clients completing CDD has not been a problem.  However, some existing clients that have been with firms for many years have been questioning the process.  There is also an issue with clients that accountants act for that do not visit due to being in different regions or countries.  This has required some clients to visit solicitors or justices of the peace to certify documents and post them to the accountant. In most cases I have seen the compliance burden from complying with the act turn a relatively straightforward and quick job into something that can take weeks to start, especially with overseas based clients.  Do you remember how quick it used to be to open a bank account?

With respect to the legislation/regulations, personally, I believe this is the government extending itself into a police state.  Also the examples listed in Appendix A of the Department of Internal Affairs Guidelines for accountants only involve accountants that wilfully and knowingly entered into money laundering transactions on behalf of criminal clients.  None involved cases cited were examples of an accountant that unwittingly laundered money for a client.  All this legislation does is essentially apply a hammer to crack a nut mentality and will not stop the types of accountants that are mentioned in the cases from doing doing business with people who want to launder money.

This also places me in a conflicted position.  Professionally under my code of ethics I take client confidentiality very seriously.  This is to the point if the IRD is not formally requesting information under their powers under the Tax Administration Act I won’t give it to them until they compel me to do it.  Now I am obliged to report clients to the FIU and not alert them. This makes me feel uneasy.

In any case watch this space it has only been six weeks since implementation.  I am sure that I will post some further comment on AML/CFT and the way it is affecting clients and accountants.

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