AML/CFT Phase II. Kate Reid NZLS CLE live stream 28 November /11/2017. Check it out by logging in at:

Transcription

1 Check it out by logging in at: AML/CFT Phase II Kate Reid NZLS CLE live stream 28 November

2 What this presentation is about Phase II what and why What you have to do What you can expect from us What we are doing about Phase II What we expect of you 1. Overview: ML, AML, and Phase II 2

3 What is money laundering and terrorist financing? Money laundering is the process criminals use to clean the money they make from crimes, by making the money look like it comes from a legitimate source Funds are channelled through things such as property, expensive goods and financial services Terrorism financing uses similar methods to money laundering to channel funds to violent causes How big is the problem in New Zealand? Estimated about $1.35 billion from fraud and illegal drugs laundered in New Zealand each year However, the true cost and impact is much higher Tax evaders and international criminals try to launder funds through New Zealand businesses New Zealand is also exposed to threats relating to financing of terrorism 3

4 ML/TF vulnerabilities in New Zealand Cash and liquidity New payment technologies Real estate Anonymity and complexity Lack of ML/TF awareness (from draft Phase II Sector Risk Assessment) ML/TF high risk factors in New Zealand Trusts and shell companies International payments Client accounts (trust accounts) High risk customers and jurisdictions Politically exposed persons and high net worth individuals (from draft Phase II Sector Risk Assessment) 4

5 Legal sector inherent risk Risk of ML/TF occurring within the legal sector = medium high Complex client relationships Ease of access, wide geographic spread Gatekeeper role Veneer of respectability Services attractive to launderers (from draft Phase II Sector Risk Assessment) Two trajectories of involvement Source: Financial Action Task Force (2013), Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals 5

6 AML/CFT overview Businesses have to put in place systems and processes to deter criminals from trying to exploit them, and to report suspicious transactions and activities Effective AML/CFT measures: Help stop criminals laundering proceeds of crime Allow authorities to trace the proceeds of crime and seize illegally earned money and assets Over 10 years, estimated to disrupt about $1.7 billion of drug and fraud crime May prevent up to $5 billion in broader criminal activity and reduce about $800 million in social harm A risk based regime Risk assessed at three levels: national, sector, entity Ensure AML/CFT measures are proportionate and high risk areas take priority Not all businesses will adopt the same controls Allows reporting entities to determine their own risk appetite 6

7 What Phase II does The new laws: Extend the current AML/CFT Act to cover more businesses (including real estate agents and conveyancers; many lawyers and accountants; some businesses that deal in expensive goods; and betting on sports and racing) Make some changes that affect Phase 1 businesses (including banks, casinos and a range of financial service providers) Timeframes Lawyers and conveyancers 1 July 2018 Accountants 1 October 2018 Real estate agents 1 January 2019 High value dealers, Racing Board 1 August

8 Why are the new sectors being brought into the regime? Services provided by professionals and high value dealers are vulnerable to ML/TF Introducing AML/CFT measures will deter criminals from using your services and help detect them if they do Strengthens the overall AML/CFT system Brings NZ into line with international standards What activities are covered? in your ordinary course of business Acting as a formation agent of legal persons or legal arrangements Acting as, or arranging for a person to act as, a nominee director or nominee shareholder or trustee in relation to legal persons or legal arrangements Providing a registered office or a business, correspondence or administrative address for a legal person or arrangement Managing client funds, accounts, securities, or other assets Conveyancing and real estate transactions Buying, transferring, or selling OR creating, operating and managing businesses and legal persons/ arrangements 8

9 2. Your AML/CFT obligations AML/CFT first steps Compliance Officer Risk Assessment AML/CFT programme 9

10 Compliance Officer A critical role Responsible for administering and maintaining the AML/CFT programme. Liaison with AML/CFT supervisor The right person! Your risk assessment Assess the business and identify the ML/FT risks that may be faced in the ordinary course of business. Use what you know! Use the Sector Risk Assessment when it comes out in December International literature (eg from FATF) is available now Review and update regularly 10

11 AML/CFT programme Your manual to comply with the requirements of the Act procedures, policies, and internal controls Must be based on the risks identified in your risk assessment Must be specific to your business What you do and how you do it Start early! Include in your AML/CFT programme: Customer due diligence Prescribed Transaction Reports Monitoring customers accounts Reporting suspicious transactions or activity Vetting and training staff Record keeping Regular review Regular audit Annual report 11

12 Customer due diligence Three levels standard, simplified, enhanced Key elements: Identification and identity verification Nature and purpose of business relationship Identity of beneficial owners For enhanced due diligence: Source of funds or wealth Verify this information according to level of risk Suspicious activity reports Broader than just transactions includes service provision and requests/proposals to provide services Report to Police FIU on GoAML You don t have to be a detective Protections and confidentiality of SAR information 12

13 Example customer red flags (FATF) Activity that is inconsistent with business activity or profile of customer Customer does not fit the normal profile for your business Customer avoids CDD, acts through an intermediary or obscures beneficial owner Customer is unconcerned by loss or makes uneconomical trades Example transaction red flags Structured payments Account appears to be used as a depository or conduit Unusual international transactions Unusually complex transactions Companies involved with obscure business purposes Uneconomic quick buy and sell 13

14 Legal professional privilege Will continue to apply, except when there is a prima facie case that the information is for a dishonest purpose or to aid or commit a crime Information kept in relation to lawyers trust accounts will not be privileged If it is possible for you to file an SAR without disclosing a privileged communication, you must do so. It is accepted that in some cases this will not be possible. PTRs prescribed transaction reports International fund transfers $1000 and over Physical cash transactions $10,000 and over Beneficial and ordering institutions submit PTRs Intermediary institutions are exempt Guidance from FIU and supervisors PTRs and SARS together provide the FIU with better intelligence and asset seizure capability. 14

15 Annual report Submitted to supervisor electronically Reporting starts 2019 and will cover 1 July June 2019 Prescribed format set in regulations to come Questions about size and nature of customer base, type of business, numbers of transactions etc Audit of AML/CFT programme Every 2 years or as supervisor requests Suitably qualified person 15

16 3. DIA s role and approach What DIA does Compliance checks (reviews and inspections) Guidance, advice and information Sector risk assessment Receives and processes annual reports Work with other agencies and jurisdictions A range of tools from education and remediation to warnings, enforceable undertakings and court action 16

17 We are a responsive regulator We want To understand your business and the challenges you face To help you to keep criminals from misusing your business To be accessible, consistent, and fair To ensure a level playing field f We prioritise our activity to decide what should be done, informed by risk We are here to help! 4. Phase II implementation 17

18 Phase II what we are doing Late 2017 Regulations (Justice) Sector Risk Assessment Guidance lawyers and conveyancers, etc (December) Early 2018 Roadshows begin Guidance accountants Mid 2018 Guidance real estate Lawyers and conveyancers guidance Know. Your ML/TF risks If the AML/CFT Act applies to your business How legal professional privilege applies Your compliance requirements Your customer The red flags Your AML/CFT supervisor Where to get support 18

19 Sector risk assessment Applies to all Phase 2 entities Overall sector risk and specific vulnerabilities Assesses inherent risk (before AML/CFT controls applied) Use it to inform (but not dictate) the risk assessment for your business Prompts and notes Suggestions to help guide your thinking in developing your AML/CFT risk assessment and programme Basic information on supervisory expectations For Phase 1 and 2 reporting entities Not a template or a step by step guide 19

20 Other guidance out soon Ordinary course of business Designated business group Enhanced due diligence. And more to come 5. Final points and suggestions 20

21 Working with others to reduce your compliance costs Form a designated business group (DBG) Rely on another business for customer due diligence (CDD) Outsource CDD to a third party Tips Get started now Don t wait for regulations and guidance start by using existing material Don t over invest assess your risks first 21

22 What we expect of you Be willing to do the right thing Own and understand your AML/CFT programme Contact us ASAP to advise us of your AML/CFT compliance officer Ask for help if you need it Contact details New address for phase 2 amlphase2@dia.govt.nz Our webpage: moneylaundering and countering financing of terrorism Justice webpage: policy/key initiatives/aml cft/ 22

23 Questions Thank You Kate Reid 46 23

24 AML/CFT Phase II Kate Reid NZLS CLE live stream 28 November