New Zealand | Anti Money Laundering (Aaron Lloyd)
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New Zealand | Anti Money Laundering (Aaron Lloyd)
- 1. Anti-Money Laundering and Countering the Financing of Terrorism Aaron Lloyd, Minter Ellison Rudd Watts Auckland, 14 March 2013 6737740
- 2. Agenda • What is money laundering? • What is financing of terrorism? • International framework • New Zealand framework • Our new regime? • How the new regime works • AML/CFT for the non AML/CFT regulator • Importance of registry information • Interplay with other white collar compliance risks • Conclusions 2
- 3. What is Money Laundering? • A transaction that involves converting „dirty‟ money into „clean‟ money, for example via • Cash conversion – currency exchanges • International money transfers • “Structuring” – break down transactions into non- reportable transactions • “Smurfing” – is where several people used to deposit cash • Purchases of vehicles and equipment, property etc • Market trading 3
- 4. What is Money Laundering? • Money laundering is comprised of three stages • Placement – placing the illegal or “dirty” funds into the financial system • Layering - Converting the unlawfully gained assets into other forms and creating complex layers with the intent of breaking the audit trail and hiding the amount of money involved . This stage makes it difficult to trace the true source and ownerships of the assets. • Integration – investing the money into legal businesses or investments – the money can now not be traced to its criminal origin. Money is now “clean.” 4
- 5. What is Money Laundering? • Money laundering in New Zealand • The top three money laundering mechanisms in New Zealand are wire transfers, purchase of valuable assets and purchase of valuable commodities (Financial Intelligence Unit New Zealand Police National Risk Assessment for AML/CFT). • Core criminal offences • Offence under section 243 Crimes Act 1961 • Concealing proceeds of a serious offence (i.e. 5 years jail) • Offence under section12B Misuse of Drugs Act 1975 • Concealing proceeds of a serious drug offence • Act overseas which if committed in NZ would be an offence under the above • Knowledge or recklessness mens rea 5
- 6. What is Financing of Terrorism? • A person will be financing terrorism if they provide or collect funds intending or knowing that • they be used in full or in part to carry out 1 or more acts that, if they were carried out, would be a “terrorist act”; or • they will benefit, an entity that the person knows is an entity that carries out, or participates in the carrying out of “terrorist acts” • Caught even if providing funding generally and not for a specific terrorist act • Does require actual intent or knowledge, not recklessness – but knowledge can just be of the acts done, not required to know they amount to a “terrorist act” 6
- 7. What is Financing of Terrorism? • Terrorist Acts • an act for purpose of ideological, political or religious cause • to induce terror in civilian population; or • to force a government, or international organisation to do or abstain from any act • an act against specified terrorism conventions e.g. • unlawful seizure of aircraft • unlawful taking of hostages • unlawful acts against safety of maritime navigation • unlawful acts against safety of fixed platforms on continental shelf • terrorist act in an in an armed conflict • New Zealand anti-terror legislation has a very wide potential reach – including into activist funding. • Unlike UK law, no clear provision for funding approval 7
- 8. International framework • FATF – Financial Action Task Force • Inter-governmental body developing and promoting policies to combat money laundering and terrorist financing. • “The FATF 40 +8” – Forty internationally endorsed global standards against money laundering and terrorist financing, plus 8 additional recommendations. • Current iteration – February 2012 AML/CFT Policies and Co-ordination Creating offences & confiscation regimes Terrorist financing offences Preventative measures Transparency & beneficial ownership Regulation, Supervision and Enforcement International co-operation 8
- 9. New Zealand framework • New Zealand has lagged behind internationally recommendations on AML & CFT • Financial Transactions Reporting Act 1996 • Mutual evaluation reports identify New Zealand as internationally non- compliant • Anti-Money Laundering and Countering Financing of Terrorism Act 2009 designed to bring NZ up to speed • Full implementation June 2013 • New regime much more complex and thorough than old regime • New offences • Requirement for compliance programmes, compliance officers, risk assessments, transaction monitoring • Increased customer due diligence (CDD) requirements 9
- 10. New AML/CFT laws (NZ) AML / CFT Act Regulations Codes of practice Guidance Material 10
- 11. Who is covered by the AML/CFT regime? • The regime only applies to “reporting entities”. Initially this means: • Financial Institutions - activity based definition • e.g. banks, non bank deposit takers (NBDTs), lenders, trustee companies, securities issuers, collective investment schemes, insurance companies, share brokers, fund managers, financial advisers • Casinos • Others to be added in approx 3 – 4 years e.g. lawyers, accountants, real estate agents, pawnbrokers 11
- 12. AML/CFT supervisors • 3 supervisors: • Reserve Bank • Financial Markets Authority • Department of Internal Affairs • No Single AUSTRAC Equivalent (Australia) • Involvement by other entities including: • Financial Intelligence Unit (FIU) from Police • AML/CFT National Co-ordination Committee • Customs • Ministry of Justice 12
- 13. How the new regime works: key obligations under the AML/CFT Act • Obligations • Ongoing Compliance Programme and Monitoring • AML/CFT Compliance Officer • Customer Due Diligence (“CDD”) • Reporting of Suspicious Transactions • Detailed Record Keeping Requirements • Cross border transportation of cash • Offences • Money laundering and terrorist financing (already discussed) • Failure to comply with requirements of further obligations above 13
- 14. How the new regime works: customer due diligence (CDD) • The type of CDD that will apply will depend on the type of customers and the way in which reporting entities establish customer relations • normal • simplified • enhanced • Must generally conduct on: • customers • beneficial owner of a customer • any person acting on behalf of a customer 14
- 15. AML/CFT for the non-AML/CFT regulator • How does an increase focus on AML/CFT impact on a non-AML/CFT regulator? • I suggest it does so in two main ways • Data integrity – critical that data which you are responsible for maintaining is accurate and can be relied on by other regulators and end users • Companies Office Database • Financial Service Providers Database • Inter-play with other white collar risks 15
- 16. Interplay with other white collar compliance risks • FATCA • US legislation designed to force foreign financial institutions (FFIs) to disclose their US account holders • Operates by imposing 30% withholding on payments • In NZ, will most likely apply via an Inter Governmental Agreement (IGA) • IGA will align FATCA more with FATF concepts but will apply to FFIs even if no US assets • Requires additional KYC/CDD over AML/CFT requirements • Will require inter-agency cooperation and information sharing 16
- 17. Interplay with other white collar compliance risks • Sanctions • Complex sanctions obligations: UN, domestic legislation, consider foreign restrictions (eg. US) • Regulatory and commercial considerations • KYC/CDD • Terrorist financing risk tie-ins • entity lists • activities (risk flags for further KYC/CDD) • If serious enforcement contemplated, requires inter-agency cooperation 17
- 18. Interplay with other white collar compliance risks • Anti-bribery & corruption • Current law Crimes Act 1961 • Domestic and foreign bribery • Increased international focus on foreign bribery • FCPA and UK Bribery Act compliance • “Prevention of bribery” • Anticipating the strengthening of NZ laws • Overlap = compliance training, risk assessment • Requires international and inter-agency cooperation 18
- 19. Conclusions • AML/CFT is the “latest” in a long line of criminalisation of corporate misconduct • Even if your agency is not directly involved, it plays an important role through • Integrity of data • Inter-play of white collar criminal detection and enforcement • Stopping the financial flow is the new way of combating crime and terrorism 19
- 20. Minter Ellison Rudd Watts AML/CFT Team contacts LEFT TO RIGHT Aaron Lloyd Partner T +64 9 353 9971 M +64 21 532 000 Lloyd Kavanagh Partner T +64 9 353 9976 M +64 21 786 172 Karen Mace Senior Associate T +64 4 498 5106 M +64 21 221 7513 EMAIL aaron.lloyd@minterellison.co.nz lloyd.kavanagh@minterellison.co.nz karen.mace@minterellison.co.nz 20
Editor's Notes
- Defined in Terrorism Suppression Act as follows:(1) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they be used, or knowing that they are to be used, in full or in part, in order to carry out 1 or more acts of a kind that, if they were carried out, would be 1 or more “terrorist acts”.(2) [Repealed](2A) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they benefit, or knowing that they will benefit, an entity that the person knows is an entity that carries out, or participates in the carrying out of, 1 or more “terrorist acts”.(3) In a prosecution for financing of terrorism, it is not necessary for the prosecutor to prove that the funds collected or provided were actually used, in full or in part, to carry out a “terrorist act”.(4) A person who commits financing of terrorism is liable on conviction on indictment to imprisonment for a term not exceeding 14 years. Terrorist act defined(1) An act is a terrorist act for the purposes of this Act if—(a) the act falls within subsection (2); or(b) the act is an act against a specified terrorism convention (as defined in section 4(1)); or(c) the act is a terrorist act in armed conflict (as defined in section 4(1)).(2) An act falls within this subsection if it is intended to cause, in any 1 or more countries, 1 or more of the outcomes specified in subsection (3), and is carried out for the purpose of advancing an ideological, political, or religious cause, and with the following intention:(a) to induce terror in a civilian population; or(b) to unduly compel or to force a government or an international organisation to do or abstain from doing any act.(3) The outcomes referred to in subsection (2) are—(a) the death of, or other serious bodily injury to, 1 or more persons (other than a person carrying out the act):(b) a serious risk to the health or safety of a population:(c) destruction of, or serious damage to, property of great value or importance, or major economic loss, or major environmental damage, if likely to result in 1 or more outcomes specified in paragraphs (a), (b), and (d):(d) serious interference with, or serious disruption to, an infrastructure facility, if likely to endanger human life:(e) introduction or release of a disease-bearing organism, if likely to devastate the national economy of a country.(4) However, an act does not fall within subsection (2) if it occurs in a situation of armed conflict and is, at the time and in the place that it occurs, in accordance with rules of international law applicable to the conflict.(5) To avoid doubt, the fact that a person engages in any protest, advocacy, or dissent, or engages in any strike, lockout, or other industrial action, is not, by itself, a sufficient basis for inferring that the person—(a) is carrying out an act for a purpose, or with an intention, specified in subsection (2); or(b) intends to cause an outcome specified in subsection (3).Compare: 1969 No 24 s 2(1); 1987 No 74 s 2(1); 1987 No 179 s 2(1); Terrorism
- Defined in Terrorism Suppression Act as follows:(1) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they be used, or knowing that they are to be used, in full or in part, in order to carry out 1 or more acts of a kind that, if they were carried out, would be 1 or more “terrorist acts”.(2) [Repealed](2A) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they benefit, or knowing that they will benefit, an entity that the person knows is an entity that carries out, or participates in the carrying out of, 1 or more “terrorist acts”.(3) In a prosecution for financing of terrorism, it is not necessary for the prosecutor to prove that the funds collected or provided were actually used, in full or in part, to carry out a “terrorist act”.(4) A person who commits financing of terrorism is liable on conviction on indictment to imprisonment for a term not exceeding 14 years. Terrorist act defined(1) An act is a terrorist act for the purposes of this Act if—(a) the act falls within subsection (2); or(b) the act is an act against a specified terrorism convention (as defined in section 4(1)); or(c) the act is a terrorist act in armed conflict (as defined in section 4(1)).(2) An act falls within this subsection if it is intended to cause, in any 1 or more countries, 1 or more of the outcomes specified in subsection (3), and is carried out for the purpose of advancing an ideological, political, or religious cause, and with the following intention:(a) to induce terror in a civilian population; or(b) to unduly compel or to force a government or an international organisation to do or abstain from doing any act.(3) The outcomes referred to in subsection (2) are—(a) the death of, or other serious bodily injury to, 1 or more persons (other than a person carrying out the act):(b) a serious risk to the health or safety of a population:(c) destruction of, or serious damage to, property of great value or importance, or major economic loss, or major environmental damage, if likely to result in 1 or more outcomes specified in paragraphs (a), (b), and (d):(d) serious interference with, or serious disruption to, an infrastructure facility, if likely to endanger human life:(e) introduction or release of a disease-bearing organism, if likely to devastate the national economy of a country.(4) However, an act does not fall within subsection (2) if it occurs in a situation of armed conflict and is, at the time and in the place that it occurs, in accordance with rules of international law applicable to the conflict.(5) To avoid doubt, the fact that a person engages in any protest, advocacy, or dissent, or engages in any strike, lockout, or other industrial action, is not, by itself, a sufficient basis for inferring that the person—(a) is carrying out an act for a purpose, or with an intention, specified in subsection (2); or(b) intends to cause an outcome specified in subsection (3).Compare: 1969 No 24 s 2(1); 1987 No 74 s 2(1); 1987 No 179 s 2(1); Terrorism
- Defined in Terrorism Suppression Act as follows:(1) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they be used, or knowing that they are to be used, in full or in part, in order to carry out 1 or more acts of a kind that, if they were carried out, would be 1 or more “terrorist acts”.(2) [Repealed](2A) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they benefit, or knowing that they will benefit, an entity that the person knows is an entity that carries out, or participates in the carrying out of, 1 or more “terrorist acts”.(3) In a prosecution for financing of terrorism, it is not necessary for the prosecutor to prove that the funds collected or provided were actually used, in full or in part, to carry out a “terrorist act”.(4) A person who commits financing of terrorism is liable on conviction on indictment to imprisonment for a term not exceeding 14 years. Terrorist act defined(1) An act is a terrorist act for the purposes of this Act if—(a) the act falls within subsection (2); or(b) the act is an act against a specified terrorism convention (as defined in section 4(1)); or(c) the act is a terrorist act in armed conflict (as defined in section 4(1)).(2) An act falls within this subsection if it is intended to cause, in any 1 or more countries, 1 or more of the outcomes specified in subsection (3), and is carried out for the purpose of advancing an ideological, political, or religious cause, and with the following intention:(a) to induce terror in a civilian population; or(b) to unduly compel or to force a government or an international organisation to do or abstain from doing any act.(3) The outcomes referred to in subsection (2) are—(a) the death of, or other serious bodily injury to, 1 or more persons (other than a person carrying out the act):(b) a serious risk to the health or safety of a population:(c) destruction of, or serious damage to, property of great value or importance, or major economic loss, or major environmental damage, if likely to result in 1 or more outcomes specified in paragraphs (a), (b), and (d):(d) serious interference with, or serious disruption to, an infrastructure facility, if likely to endanger human life:(e) introduction or release of a disease-bearing organism, if likely to devastate the national economy of a country.(4) However, an act does not fall within subsection (2) if it occurs in a situation of armed conflict and is, at the time and in the place that it occurs, in accordance with rules of international law applicable to the conflict.(5) To avoid doubt, the fact that a person engages in any protest, advocacy, or dissent, or engages in any strike, lockout, or other industrial action, is not, by itself, a sufficient basis for inferring that the person—(a) is carrying out an act for a purpose, or with an intention, specified in subsection (2); or(b) intends to cause an outcome specified in subsection (3).Compare: 1969 No 24 s 2(1); 1987 No 74 s 2(1); 1987 No 179 s 2(1); Terrorism
- Defined in Terrorism Suppression Act as follows:(1) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they be used, or knowing that they are to be used, in full or in part, in order to carry out 1 or more acts of a kind that, if they were carried out, would be 1 or more “terrorist acts”.(2) [Repealed](2A) A person commits an offence who, directly or indirectly, wilfully and without lawful justification or reasonable excuse, provides or collects funds intending that they benefit, or knowing that they will benefit, an entity that the person knows is an entity that carries out, or participates in the carrying out of, 1 or more “terrorist acts”.(3) In a prosecution for financing of terrorism, it is not necessary for the prosecutor to prove that the funds collected or provided were actually used, in full or in part, to carry out a “terrorist act”.(4) A person who commits financing of terrorism is liable on conviction on indictment to imprisonment for a term not exceeding 14 years. Terrorist act defined(1) An act is a terrorist act for the purposes of this Act if—(a) the act falls within subsection (2); or(b) the act is an act against a specified terrorism convention (as defined in section 4(1)); or(c) the act is a terrorist act in armed conflict (as defined in section 4(1)).(2) An act falls within this subsection if it is intended to cause, in any 1 or more countries, 1 or more of the outcomes specified in subsection (3), and is carried out for the purpose of advancing an ideological, political, or religious cause, and with the following intention:(a) to induce terror in a civilian population; or(b) to unduly compel or to force a government or an international organisation to do or abstain from doing any act.(3) The outcomes referred to in subsection (2) are—(a) the death of, or other serious bodily injury to, 1 or more persons (other than a person carrying out the act):(b) a serious risk to the health or safety of a population:(c) destruction of, or serious damage to, property of great value or importance, or major economic loss, or major environmental damage, if likely to result in 1 or more outcomes specified in paragraphs (a), (b), and (d):(d) serious interference with, or serious disruption to, an infrastructure facility, if likely to endanger human life:(e) introduction or release of a disease-bearing organism, if likely to devastate the national economy of a country.(4) However, an act does not fall within subsection (2) if it occurs in a situation of armed conflict and is, at the time and in the place that it occurs, in accordance with rules of international law applicable to the conflict.(5) To avoid doubt, the fact that a person engages in any protest, advocacy, or dissent, or engages in any strike, lockout, or other industrial action, is not, by itself, a sufficient basis for inferring that the person—(a) is carrying out an act for a purpose, or with an intention, specified in subsection (2); or(b) intends to cause an outcome specified in subsection (3).Compare: 1969 No 24 s 2(1); 1987 No 74 s 2(1); 1987 No 179 s 2(1); Terrorism
- LegislationSets out risk based approach and minimum FATF standardsRegulationsDetail application of, application, exemptions and thresholds. Five Regulations have now been passed into law.Codes of practiceTo be issued by Supervisors as safe harbours with opt out. For example, the first AML/CFT code of practice was issued on 1 September 2011 – the Identity Verification Code of Practice. It sets out what the Supervisors consider to be best practice for verifying the name and date of birth of individuals that have been assessed as being low to medium risk. The Code is not mandatory but is a “safe harbour” for REs. It comes into effect on 30 June 2013.Guidance MaterialTo be issued by supervisors FIU and industry. For example, the Supervisors (RBNZ, FMA and DIA) have released guidelines to assist entities on conducting their risk assessments. Following the Guidelines is not mandatory and reporting entities may choose to use different methodologies to conduct a risk assessment.
- SupervisorsReserve Bank for banks, life insurers and NBDTsFinancial Markets Authority for issuers of securities, trustee companies, futures dealers, collective investment schemes, brokers and financial advisers)Department of Internal Affairs for casinos and othersOthers key participantsFinancial Intelligence Unit (FIU), a section of the NZ Police, will continue its current policing roleMinistry of Justice lead policy adviser and overseer of this areaCustoms have responsibility in relation to cross-border matters The AML/CFT national coordination committee (comprising officials from Ministry of Justice, Police, the supervisors and other agencies) can appoint a single supervisor for an entire designated business group.Some REs may have a choice when their business group falls into more than one category
- Must conduct on a customer, any beneficial owner of a customer and any person acting on behalf of a customer.Three levelsstandardsimplifiedEnhancedMust conduct CDD on a customer, any beneficial owner of a customer, and any person acting on behalf of a customer.