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TINZ recommendations on the Phase 2 Countering Financing of Terrorism (AML/CFT) Law Reforms Exposure draft amendment Bill

George White

George White

George White

TINZ Staff Member responsible for Social Networking and Research

Phase 1 of the AML/CFT laws came into effect in 2013, covering businesses such as banks, casinos, certain trust and company service providers and certain financial advisers, among others. TINZ strongly supports the fast tracking of the AML provisions that prevent the negative impact of money laundering in this country.

A recommendation of the Shewan Inquiry into Foreign Trusts was to fast track the Phase 2 AMl/CFT legislation to tighten up the foreign trust structures to prevent the investment of funds from illegal or illicit sources in New Zealand.

Ideally, the Phase 2 legislation would have been passed into law prior to Christmas 2016.  Instead, it was decided to have a further phase of consultation about the current version of the legislation.  It is important that this additional consultation resolves questions that have arisen about its regulatory impact on lawyers, accountants, real estate agents and other high-value dealers. It is important to gain support from these sectors to get the new systems and processes in place as soon as possible.

Submissions for the AML/CFT law closed Friday, 27 January 2017.

This latest consultation process, while slowing the timeline somewhat, has also enabled more thought to go into the practical measures to protect businesses and to work with them to further develop provisions to make it harder for criminals to profit from and fund illegal activity.

The reforms are estimated to have cost the industry up to $1.6 billion over the past ten years and it is the level of compliance costs that are seen by some accountants, lawyers, real estate agents and high value goods traders as weaknesses of the legislation.

TINZ's analysis finds that these costs are more than offset by the benefits. What individual businesses fail to take into account is that the tidal wave of money moving towards New Zealand to be laundered grows daily as other countries become aware of the impact and tighten up their laws and existing procedures. The amount of money looking for a place to be laundered exceeds New Zealand’s total GDP. Were substantial amounts to get into the financial system here, it would have a great impact on property, housing, art, luxury cars and motorcycle prices, adding to the already unaffordable cost of these for many New Zealanders.

New Zealand’s reputation as a leader in preventing corruption and strengthening international integrity systems is also important. This reputation is an asset and leads to activities which are an investment in the future of this country.

The amount of damage caused by corruption and money-laundering worldwide shows that it is vital to remain vigilant and at the forefront of fighting corruption by using preventative, instead of reactionary, legislation.

TINZ's submission asks the government to keep the pedal on so that the Bill can be passed into legislation by mid-2017. It supports the provisions for combatting crime and ensuring New Zealand meets its international obligations.

TINZ’s key recommendations are:

  1. Address the shortfalls in current trust legislation exposed by the Panama Papers requiring lawyers and accountants to establish the identities of those creating trusts in New Zealand. This is more important than ever considering the confusion surrounding the Panama Papers leak, and the subsequent report by John Shewan. There must be no grey area when it comes to the identity of foreign agents placing money in New Zealand trusts.
  2. Ensure that each entity holds up-to-date key relevant information about their clients and that there is a robust system for the appropriate information to be shared, taking into account principles of privacy.  With good processes in place, this has the potential to reduce compliance costs by cutting out the duplication of each business entity vetting possible customers. Under the Phase 2 Bill, entities may rely on other reporting entities to vet possible customers and then the documents used to undertake due diligence don’t have to be provided unless requested.  Unless this process is tightened up, it has the potential to considerably weaken the regime, as it allows entities to “pass the buck” in terms of due diligence reporting to another entity. The legislation needs to require processes that ensure that the checks placed on intermediaries are strong.
  3. Businesses that trade in high-value goods have several new reporting, record keeping and customer due diligence obligations under the Bill. However, the threshold for the obligations of businesses dealing in high-value goods is a 50 percent higher than the threshold set for banks. For transactions of $10,000 and more, banks must keep a record of the depositor, report the deposit and volunteer any suspicious activity to the police. In contrast, businesses dealing in high-value goods such as jewellery, art, boats and luxury vehicles (goods often invested in by those using illicit money) must only report, record and declare suspicious activity if the goods are valued at $15,000 or more. TINZ has asked for there to be more transparency and information surrounding the disparity between the two thresholds amounts to help ensure that there was fairness across different countries.

TINZ supports the process to progress the AML Phase 2 Bill and endorses the government’s commitment to a realistic timeline. The new legislation will be even more effective if it considers TINZ’s three recommendations

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