Banks, accountants' lobby groups push for new Australian-style single anti-money laundering regulator

By Gareth Vaughan

The industry bodies for both banks and accountants are calling on the Government to establish a new, single supervisor to oversee compliance with the Anti-Money Laundering and Countering the Financing of Terrorism Act as it moves to extend the Act. In contrast, the New Zealand Law Society wants to supervise lawyers' compliance itself.

These positions are set out in the three groups' submissions to a Ministry of Justice consultation paper on implementing so-called phase two of the AML/CFT Act.

Phase two, which the Government wants to pass into law by July next year, comes three years after the AML/CFT Act took effect. It proposes bringing lawyers, accountants, real estate agents, conveyancers, some high-value goods dealers, and the New Zealand Racing Board and the New Zealand Lotteries Commission into the AML/CFT Act regulatory net. 

However, the key issue of who will supervise all these groups for compliance remains unclear, and the Ministry of Justice has not proposed a preferred method. Currently NZ has a multi-agency AML/CFT Act supervision model with three supervisors.

The Reserve Bank (RBNZ) supervises banks, life insurers, and non-bank deposit takers. The Financial Markets Authority (FMA) supervises securities, trustee corporations, futures dealers, collective investment schemes, brokers and financial advisers. The Department of Internal Affairs (DIA) supervises casinos, money changers, trust and company service providers, and what are described as "reporting entities" not covered by the RBNZ and FMA.

The Ministry of Justice has suggested either a single supervisor model, such as Australia has with AUSTRAC, or using a combination of the existing supervisors plus self-regulatory bodies as Britain does.

'Look beyond short term establishment costs and consider the longer term benefits'

In its submission bank lobby group the New Zealand Bankers' Association (NZBA) says the existing multi-agency supervisory model presents challenges. These include slow publication of regulatory guidance, and inconsistencies in approaches to supervision across the three. Thus NZBA argues a model similar to those in Australia with AUSTRAC and Canada with FINTRAC should be adopted in NZ.

"NZBA appreciates that the creation of a single supervisor will have resourcing and cost challenges. However, the fundamental goal of legislative reform should be to enhance the current AML/CFT regime. It is therefore important to look beyond short term establishment costs and consider the longer term benefits to New Zealand, and ensure an effective, equitable and sustainable model," NZBA says.

"NZBA recommends that the Ministry of Justice requests an appropriate allocation of funds for the financing of a single supervisor model from the Proceeds of Crime Fund (per the Criminal Proceeds Recovery Act 2009) as part of this review." 

"NZBA supports the inclusion of lawyers, accountants, real estate agents, conveyancers, high value goods dealers and additional gambling service providers as reporting entities under the AML/CFT Act. In the view of NZBA and its members, these businesses and professions potentially present an inherently high risk of money laundering and accordingly NZBA submits that it is appropriate for them to be subject to the AML/CFT Act," NZBA says.

The bank lobby group suggests the professions being dragged into the AML/CFT net through phase two are given an implementation timeframe of two years. And NZBA is also calling for a centralised public register of all reporting entities.

'It's critical that there's a single supervisor'

In its submission Chartered Accountants Australia and New Zealand says it's "critical" given the national importance of AML/CFT issues that there's a single supervisor.

"We note that Australia has a single supervisor (AUSTRAC) and there may be benefit in an aligned trans-Tasman approach," Chartered Accountants Australia and New Zealand argues.

"In our view, consistency across all reporting entities should be the primary factor when considering the most appropriate supervisory model. Under the current multi-agency model, disparity among supervisors' interpretation and application of the AML/CFT Act is an additional cost to business."

Chartered Accountants Australia and New Zealand goes on to say it's vital that supervisors are adequately funded, noting the Ministry of Justice paper is "silent" on whether phase two of the AML/CFT Act will be government funded.

"We believe that these costs should be fairly and proportionately borne by those who benefit according to the user pays principle. We note that the objectives of the regime, particularly 'contribute to public confidence in New Zealand's financial system' are public benefits. Given this, we consider it to be appropriate for the taxpayer (ie through the Government) to meet this cost."

The group says it does support the extension of the AML/CFT Act to cover the accounting profession in principle, as this is in the public interest.

"However, our support is contingent on the regime being practical and cost-effective. This balance is best achieved through ongoing consultation with stakeholders, and appropriate and reasonable transitional timetables being agreed on."

Chartered Accountants Australia and New Zealand wants a "robust awareness campaign" and practical training for its members, offering to help with this.

'Insufficient evidence justifying lawyers inclusion'

In its submission the NZ Law Society says its "preliminary view" is the best supervisory model for phase two of the AML/CFT Act would be multiple agencies with self-regulatory bodies.

"In relation to lawyers, the Law Society considers it has the necessary experience and capabilities to be the supervisor of the legal profession for AML/CFT purposes, and the supervisor role logically fits with the Law Society's current regulatory responsibilities for the profession."

The Law Society does, however, note a concern over how the Law Society would be funded to carry out this supervisory role.

Interestingly, the group notes that while it recognises the case for lawyers being reporting entities under the AML/CFT Act, some lawyers question this claiming there's insufficient evidence justifying their inclusion.

Nonetheless the Law Society itself "accepts that the New Zealand legal profession is not immune from the mischief which the AML/CFT regime is designed to deter and detect and has a responsibility to co-operate in the global response to money laundering and terrorist financing."

The NZ Herald recently reported that reports released under the Official Information Act show police believe lawyers, accountants and real estate agents are being increasingly used to launder $1.6 billion in dirty money annually.

Meanwhile, the Law Society argues the proposed AML/CFT obligations for lawyers are fundamentally inconsistent with the traditional solicitor/client relationship of trust and confidence.

"The new obligations will need to be carefully crafted to ensure the solicitor/client relationship is preserved to the greatest extent possible, while still delivering on New Zealand's AML/CFT commitments to the international community."

(Also see: If you're going to do something, do it properly).

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