Lessons To Be Learnt From NZ On Tackling Money Laundering and Terrorism Financing
With the Australian Transaction Reports and Analysis Centre (AUSTRAC) launching legal action in November against Westpac accusing them of breaching Australia’s anti-money laundering and counter-terrorism finance laws over 23 million times, stating, "These contraventions are the result of systemic failures in its control environment, indifference by senior management and inadequate oversight by the board," this has once again brought the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act into the spotlight.
It has been estimated that around $1.35 billion NZD from the proceeds of fraud offending and illegal drugs are laundered through New Zealand businesses each year, with the true cost being much higher due to the social harm that is caused. In Australia, the estimate is significantly higher, yet New Zealand is ahead of Australia with how they are trying to tackle the issue.
The table below summarises the current status and the expected impact of AML/CTF legislation in both countries:
Monitoring the financial sector. This tranche included banks, casinos and a range of financial services providers.
Impacting 1,200 entities
Impacting 14,000 entities
Monitoring designated non-financial businesses and professions (DNFBPs), being accountants, real estate agents, conveyancers, lawyers and high-value dealers (such as jewellers and vehicle dealers).
Introduced in waves:
- Lawyers –
1 July 2018
- Accountants –
1 October 2018
- Real Estate Agents –
1 January 2019
- High-Value Dealers -
1 August 2019
Impacting 7,600 entities
Not been implemented yet, expected to impact over 100,000 entities
New Zealand was one of the first countries to enact Tranche 2 laws. It is inevitable that Australia will have to follow suit as the government signed up to The Financial Action Task Force (FATF) which is an intergovernmental organisation designed to develop policies to combat money laundering. Australia has been promising since 2006 to introduce Tranche 2 and is being highly criticised by FATF for the lack of commitment, with no set timeline.
The overall number of entities affected under Tranche 2 might seem small on the scale of the total number of businesses in New Zealand and Australia, however, there is a massive flow-on effect in that you have to think of all the number of clients undergoing customer due diligence (CDD) from these lawyers, accountants and real estate agents. Clients are now being asked to provide evidence of their ID, proof of address and in some cases, like when a Family Trust is involved, source of wealth when captured activities are carried out. As a result, it’s hard to go anywhere in New Zealand without AML coming up in conversation, be it from the entities complying with the Act or clients affected by the new requirements.
“Knowing your client” is the cornerstone of the strengthened regulatory framework. This requires a more in-depth data capture which should keep dodgy customers from the door, or if they come knocking, the AML reporting obligations require the reporting entity to file a ‘suspicious activity report’.
With AML/CTF receiving more media coverage on both sides of the ditch you would think this would be increasing the pressure on the Australian federal government to roll out the second phase of the AML/CTF Act. It was supposed to be passed by the end of 2018, however, the likes of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Industry, amongst other issues we imagine, have meant AML legislation has been set aside.
Also, the effectiveness of the AML/CTF regime has come into question, as Tranche 1 has not necessarily been working with the Westpac current allegations and the Commonwealth Bank previous breaches. Despite this, it is bringing the issue into the spotlight more and more.
We are now at the beginning of 2020 with no legislation in sight for the second tranche, handicapping the country’s ability to fight transnational crime and terrorism financing.
All is not at a standstill though, as there were amendments (referred to as “Phase 1.5”) made in Australia during October 2019, to clarify the existing obligations of casinos, banks and other large financial institutions. The expectation has been made by commentators that although the shape and timeframe of the Tranche 2 legislation are uncertain, Australia is watching what is happening in New Zealand and should bring in their own legislation in 2020 or 2021. Others believe this is over-optimistic.
Australia should learn from the mistakes made in New Zealand before rolling out Tranche 2. The mistakes ranged from how the sector supervisor DIA understood the Tranche 2 professions it now had to regulate, to how it managed its role. This coupled with the speed they introduced the legislation, which many people thought was too fast and lacked consultation.
With the inevitable Tranche 2 on the horizon, our experience with the New Zealand rollout has highlighted the following items Australian entities should be thinking about:
- Be involved with the regulatory consultation process when draft legislation comes through. Make your voice heard to ensure the framework is fit for purpose and workable in practice;
- Attend your regulator roadshows and training sessions held by both your Industry Representatives as well as PKF on AML compliance;
- Plan ahead. You will need to prepare a comprehensive Risk Assessment and AML Programme, along with appointing an AML Compliance Officer and carry out vetting and training of staff;
- Research what information you will be required to report on in your Annual AML/CTF Report to be filed with the regulator. This will ensure the information is being captured from the start of the legislation being implemented.
- Keep your clients informed of the additional identification and paperwork required under the new legislation, the more prepared they are the easier it becomes for you; and
- Contact your local PKF office to discuss the required appointment of an AML/CTF Auditor.
Remember – when Tranche 2 comes into effect in Australia it is important legislation for the country’s safety and security, so engage positively with the new laws and embrace their heightened obligations. The cost of non-compliance is high, and even unintended non-compliance can give rise to penalties.