Review of anti-money-laundering and counter-terrorism financing suggests looser settings for some as $1.3b cost mounts

The Government has finally released a long-awaited and delayed set of proposals to improve anti-money-laundering rules estimated to cost businesses and taxpayers about $260 million per annum and up to $1.3 billion over the next decade.

Justice Minister Kiri Allan announced the review after the release of a critical evaluation by the global Financial Action Task Force (FATF) found New Zealand needed to strengthen its laws. However, the focus in the response was more on reducing the costs of compliance.

“We’ve listened to businesses and agencies and heard what wasn’t working for them. We’re now taking immediate action to improve the regime’s effectiveness,” Allan said.

The changes included:

• relaxing the requirement on businesses to verify the address of most customers;
• extending the timeframe for businesses to submit Prescribed Transactions Reports; and,
• exempting registered charities from AML/CFT obligations when they are providing small loans.

"Further changes will address areas of known risk or vulnerabilities, improving efficiencies and reducing compliance costs, and improving compliance with international money laundering standards," Allan said.

The review concluded that the rules introduced in 2009 were now costing $260m per annum, split between private sector costs of $246m per year and Government costs of $16m.

It found the AML/CFT regime was not always sufficiently resourced.

"This means that the regime is not as effective as it could be, and it is harder (and likely more expensive) than it needs to be for businesses to comply with the Act," the Ministry concluded.

"Ultimately this undermines efforts from businesses to detect and deter money laundering and terrorism financing," it said.

"We received clear feedback from those within agencies that they do not have enough resources to fulfil their responsibilities. Insufficient resourcing was also identified by the FATF as a deficiency. Furthermore, the private sector does not consider the regime to be sufficiently resourced, which has limited how responsive the regime is to the needs of industry.

"The insufficient resource levels, along with an absence of mechanisms to ensure appropriate resource allocation across the regime, is likely contributing to the operation of the Act not being sufficiently risk based. These issues are likely further compounded by multiple agencies’ having to coordinate their efforts to deliver services in the regime, such as supervision.

"The net outcome of these issues is that the regime is not as effective as it could be, and it is harder (and likely more expensive) than it needs to be for businesses to comply with the Act. Ultimately this undermines efforts from businesses to detect and deter money laundering and terrorism financing. We received clear feedback from industry that they thought the regime largely takes a ‘one size fits all’ approach, in that a provincial law firm is expected to comply with the Act in the same way as a large multinational bank.

"Given that most businesses in the regime are small, we consider that more needs to be done to make it easy for these businesses to comply with their obligations. In turn, this will make the regime more effective."

'Don't forget our dodgy politicians too'

The review found the FATF had criticised New Zealand's definition of foreign Politically Exposed Persons (PEPs) in the Act.

"We also recommend that the definition of PEP should be amended to include domestic PEPs, given there have been several instances of public sector corruption and fraud observed while the Act has been in operation," the Ministry said.

"However, we recognise that domestic PEPs are typically less risky than foreign PEPs and recommend lesser requirements for identifying and mitigating the risk of a domestic PEP compared with foreign PEPs," it said.

Elsewhere, the review recommended:

• introducing limited requirements to collect identity about the parties to an international wire transfers below NZ$1,000 as well as further obligations on intermediary and beneficiary institutions to detect and respond to incomplete wire transfers;
• considering whether any further AML/CFT obligations for real estate agents and law firms should be introduced;
• considering revoking the rules excluding internet auction providers from the Act; and,
• consider the feasibility of a register of beneficial ownership of trusts and legal arrangements.