July 2006 Top Story:
***MLI ARCHIVE***
NZ’s second round of consultation gets under way
Wellington: As Australian practitioners await the government’s second round of consultation on the AML draft bill, New Zealand got its second round under way, releasing a discussion document to industry which will aid the country in conforming to the Financial Action Task Force recommendations.
Associate Minister of Justice Clayton Cosgrove released the document in mid June to enable New Zealand to comply with the Financial Action TaskForce 40 + 9 recommendations on fighting money laundering and terrorism financing. Much like Australia, the New Zealand government expects to introduce legislation in early 2007 and have it passed before the country is next evaluated by the FATF in 2008.
The government proposes an overhaul of the Financial Transaction Reporting Act 1996, which had become outdated and which was “deficient in many areas”.
Cosgrove said that while there had been no evidence of terrorist financing in New Zealand, it was important to have a system which could not be exploited by those seeking avenues through which to move illicit funds around the globe.
Part of the package includes extending coverage of the FATF requirements to groups outside the core financial sector, more stringent checks on customer identity and verification, more detailed record keeping and reporting requirements and increased monitoring of compliance with the FATF requirements.
The net will extend existing requirements on lawyers, accountants, real estate agents and casinos and will be applied to jewellers, investment brokers and precious metal dealers.
“We are proposing a flexible approach to implementing the FATF requirements, to allow for sector differences and varying levels of risk across services, entities and clients,” said Cosgrove. “A one-size-fits-all approach will not work and wouldn’t be cost effective,” he said.
Customer due diligence requirements, now limited to cash transactions of $10,000, may be extended to non-cash transactions of that value, and to all transactions carried out on behalf of someone else.
There will also be enhanced CDD for politically exposed persons. Submissions to the government will close on 31 July.
Phil Divett, a director of PRC Consulting, which provides advice to the private sector on AML issues, told Money Laundering Intelligence that there had generally been a “very low level of awareness” in New Zealand about the full implications of the proposed new regulatory framework.
“Consequently, there has been very little resistance to the government’s proposals here from the financial sector.
“I am sure there will be some push back from institutions, but precisely when this will occur is difficult to predict,” he said.
Divett said the current phase of the policy development process was “critical for institutional or business groups wishing to influence the final policy framework”.
In his view the government officials had not provided the businesses affected with the level of operational detail necessary “to fully assess the financial implications of the proposals”.
“For example, the costs associated with several risk-based elements of the new requirements will vary markedly between businesses operating at different ends of the risk spectrum,” he said.
“In order for businesses to accurately assess these costs the government needs to tell them where it believes they sit in the risk spectrum and to ‘paint the picture’ of what a satisfactory compliance framework looks like in their particular business environment.
“If this level of information is not provided there is a real risk that the full extent of the cost of the reforms will not be apparent to institutions until they come to implement them.”
Divett, who was formerly the manager of criminal and international law at the New Zealand Ministry of Justice, also said that the concept of risk-based compliance, often talked about as a mechanism for reducing compliance costs “might give some businesses and institutions a false sense of comfort about the impact of AML reforms”.
“The approach will have the opposite effect for those businesses operating in what the government considers to be a high risk environment.”
DelMonte Publications July 2006
