‘Related’ for the formation of Designated Business Groups - Designated Non-Financial Businesses or Professions (DNFBPs)

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Section 32 of the AML/CFT Act allows a reporting entity to rely on another member of a designated business group (DBG) to fulfil some of its obligations under the AML/CFT Act.

One way in which reporting entities which are DNFBPs can form a DBG is if they are ‘related’ (as per paragraphs (vi) – (xi) of the definition of a DBG in section 5 of the AML/CFT Act).

The Department of Internal Affairs (DIA) considers that ‘related’ in this context should be interpreted to mean “connected” or “associated”. We note that DNFBPs may only be considered ‘related’ if they operate in the same sector, i.e. the entities are all law firms, or all accounting practices, or all real estate agents.

That means a commercial agreement or alliance between a group or law firms, or group of accounting practices, may cause those firms to be related. Similarly, a franchise arrangement may cause franchisees to be related, for example a group of real estate agent franchisees that operate as part of one brand.

Relevant considerations are likely to include the type of commercial agreement or franchise model and the extent of the connection or association between the potential DBG members. This may include consideration of whether they are in the same geographical region as opposed to a wider spread (where there may be less of a connection/association), or whether services are provided in conjunction with each other.

Please note that eligibility to form a DBG is determined on a case by case basis. Any notification to the DIA should include supporting documentation that establishes why the members consider themselves ‘related’, for example copies of franchise agreements, commercial agreements and other explanatory commentary.

To help you with this, you can also refer to the DIA’s other guidance on DBGs, including what obligations may be shared by members of a DBG and the process for notifying your supervisor about the formation of a DBG. Those guidelines can be found below.

Designated Business Group - Scope Guideline (updated December 2017)

Designated Business Group - Formation Guideline (updated February 2020)