Feedback wanted on review of AML/CFT Act

The Ministry of Justice (MoJ) is seeking feedback on a review of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act).

Submissions are due by Friday 3 December 2021.

Scope of consultation

The review covers four broad areas.

Institutional arrangements and stewardship

This engages with the design of the Act and looks at whether:

the purposes of the Act remain appropriate and relevant to New Zealand
there have been any unintended consequences for New Zealanders (such as, for example, the inability for some people to access banking services)
the risk-based approach underlying the compliance obligations for reporting entities strikes the right balance between certainty and discretion, and
a licensing or registration regime should be inserted in the Act.

Scope of the Act

The MoJ has identified several issues bearing on the Act’s scope:

the fact that the categories of “financial activities” (a) are in some cases unclear and overlap with one another, and (b) do not fully align with the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP Act)
the key phrase “in the ordinary course of business” is not defined
difficulties in applying the Act to businesses with multiple types of activities, some of which are not caught by the Act, and
the territorial jurisdiction of the Act is not specified, which is problematic given the increase in offshore financial service providers servicing New Zealand-based clients¹.

In addition the MoJ is considering whether the AML Act’s scope should be expanded to include:

people who act as secretaries for companies, partners in partnerships, or equivalent positions for other legal persons
all businesses which provide “virtual asset” (e.g. cryptocurrency) services
businesses that prepare or process invoices and/or prepare annual accounts and tax statements
criminal defence lawyers and non-life insurance companies (with very limited obligations), and
non-profit organisations which are not registered charities and which send or receive money to or from overseas.

Supervision, regulation and enforcement

The MoJ is seeking feedback as to whether the current supervision model (which has the Financial Markets Authority, Reserve Bank of New Zealand, and Department of Internal Affairs taking responsibility different business sectors) is appropriate and promotes consistency, and whether the powers granted to the supervisors are appropriate.

In this context the MoJ is considering whether:

consultants providing advice to reporting entities on their AML-CFT obligations should themselves be regulated by the Act
the offences set out in the Act and the penalties for non-compliance remain appropriate, and
liability should be extended to employees, senior managers, and directors.

Preventive measures

This asks whether the core obligations of reporting entities “work” for business and protect New Zealand from harm. These include:

customer due diligence obligations
obligations to manage the risk of politically exposed persons
obligations regarding wire transfers
prescribed transaction reporting obligations
obligations when dealing with customers in higher-risk countries, and
suspicious activity reporting obligations.

The MoJ is also asking whether the obligations should be tailored for particular types of reporting entities, including virtual asset service providers (i.e. providers in the cryptocurrency sector) and high value dealers.

Our comment

We welcome the opportunity to make the AML/CFT legislation’s requirements more suitable, pragmatic and efficient, but fear the potential for “legislative creep” in any review. The legislation’s requirements are economically burdensome, and it is desirable that its costs are weighed when considering the merits of any changes.

We encourage affected businesses (for instance, non-life insurers) to engage in the consultation process to ensure that any amendments to the Act are fit for purpose.