New Obligations For Law Firms In Relation To Money Laundering

The Anti Money Laundering and Countering Financing of Terrorism Act 2009 (“Act”) comes into full force on 30 June 2013.  The objects of this Act are:

  • to detect and deter money laundering and the financing of terrorism;
  • to maintain and enhance New Zealand’s international reputation by adopting recommendations issued by the Financial Action Task Force (an inter-governmental body); and
  • to contribute to public confidence in the financial system.

The Act introduces a co-operative approach to achieving these aims; between reporting entities, their supervisors and government agencies (particularly law enforcement and regulatory bodies).  The effect of the Act is that more rigorous obligations are imposed on “reporting entities”.

Who is a “reporting entity”?

The definition of “reporting entity” captures all persons who, in the ordinary course of business, accept deposits or other repayable funds from the public, lend, undertake financial leasing, transfer money, manage credit or debit cards, trade on behalf of someone, engage in currency changing or invest, administer or manage funds on behalf of others.

When the Act comes into full force on 30 June 2013, law firms carrying on some of these activities in the ordinary course of their business will be exempt from the requirements of a “reporting entity” under the Act.  But it is intended that law firms will be required to comply as a reporting entity from July next year.

What are the Obligations?

A reporting entity under the Act must:

  • establish, implement and maintain internal policies and procedures relating to anti-money laundering and countering of financing of terrorism;
  • identify and verify the identity of customers and undertake ongoing customer due diligence;
  • identify the source of money used by customers in their transactions;
  • report suspicious transactions;
  • keep and maintain records; and
  • have a compliance and reporting officer.

What will be the effect on law firms generally?

From 30 June 2013 there will be a flow-on effect for law firms from the new requirements under the Act.  Many of the organisations that law firms routinely deal with (such as banks) are reporting entities under the Act and it is expected that those organisations will sometimes delegate the information gathering and due diligence in relation to mutual clients to the law firm.  Law firms will be required to have a compliance officer who will make reports on compliance by the firm to the supervisory body.

It is also expected that when a “second phase” of reform is introduced, the same obligations will be placed directly on law firms (along with accountancy firms, conveyancing practitioners and real estate agents).  It is expected that this second phase will take effect in July 2014.

What will this mean for Fortune Manning’s clients?

From 30 June 2013, where we are dealing with a bank (or other financial institution) in the capacity of providing trustee services to a client Trust or as agent for a client, we will likely be required to provide identifying information to the bank about the trustees, the beneficiaries, the source of funds etc, and to give certifications to the bank.  In other words, the bank may pass its customer due diligence obligations onto us.  We will therefore, in those cases, require full information from the client and will need to independently verify that information ourselves (where possible), before giving the necessary information and certifications to the bank.  From July 2014, we will have these obligations ourselves.

Clients could therefore find law firms asking for full information and evidence regarding identity (including identity of trust beneficiaries) and evidence of the source of client funds.