The Department of Internal Affairs

Te Tari Taiwhenua | Department of Internal Affairs

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    Services › Anti-Money Laundering › AML/CFT News - March 2012

    In this issue:

    Getting started with AML/CFT compliance

    As a reporting entity it is your responsibility to comply with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) and you need to make sure you are complying by 30 June 2013.

    Here are some steps to get you started:
    • Know who your supervisor is. The three AML/CFT supervisors are the Department of Internal Affairs, Financial Markets Authority and Reserve Bank of New Zealand. Your supervisor is probably the agency that sent you this newsletter. If you are not sure, email us.
    • Add our email address to your address book so you receive our email updates and our emails do not show up as spam in your Junk folder.
    • Look at your supervisor’s website. There is guidance on each of the supervisors’ websites for setting up the systems and processes you need to detect and deter money laundering and terrorist financing. There are also links to other web-based resources.
    • Attend our roadshows. We had a successful roadshow last year and we are planning another one in the first half of this year. Other agencies and firms (such as law firms, consultants, and NZ Police) also offer AML/CFT seminars and presentations that you can link into.
    • Contact your lawyer if you need advice on how the AML/CFT Act applies to your business.
    • Consider engaging a consultant. A number of firms provide support with developing an AML/CFT risk assessment and programme. Some of these consultancies are setting themselves up to cater for the needs of smaller businesses.
    • Think about getting AML/CFT training. Some organisations offer web-based training on how to set up and run an AML/CFT programme.
    • Contact your industry association (if you have one). Some industry associations offer support to businesses to help them with AML/CFT compliance.
    • Email us if you need more help or information. Email addresses for Internal Affairs and Financial Markets Authority are at the end of this newsletter.

    The Financial Intelligence Unit and Suspicious Transaction Reports

    Financial Intelligence Unit (FIU)

    The FIU is part of the Financial Crime Group (FCG), which was established in December 2009. The FCG consists of four Asset Recovery Units (located in Auckland, Hamilton, Wellington, and Christchurch), a core administrative/analytical team and the FIU itself. The FIU has been operational since 1996 and one of its core functions is to receive, collate, analyse and disseminate information contained in Suspicious Transaction Reports (STRs), Suspicious Property Reports (SPRs) and Border Cash Reports (BCRs). Significant work has been undertaken by the FIU to develop and implement the new AML/CFT Act 2009, including the enhancement of inter-agency co-operation and communication with relevant stakeholders.

    Suspicious Transaction Reports (STRs)

    STRs are one of the main sources of information available to the FIU to detect suspected money laundering offences. A STR can indicate that money laundering activity is occurring through a transaction or a series of transactions and can also direct investigators to identify a predicate offence. There are no monetary thresholds for reporting. The FIU receives a large number of STRs from a broad range of agencies. Currently STRs can be received electronically, by fax, by email, in hard copy or on disk. However, once the AML/CFT Act 2009 becomes fully implemented all STRs will be received electronically. The FIU receives around 5,000 STRs each year with the number of STRs anticipated to increase significantly as new and enhanced AML/CFT compliance measures become business as usual. The majority of STRs submitted to the FIU involve the following:
    • Wire transfers/remittance
    • Use of nominees
    • Currency exchange/cash conversion
    • Gambling activities
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    New legislation

    Currently submission of STRs is still under the Financial Transaction Reporting Act 1996 (FTRA). Looking forward to the AML/CFT Act 2009, sections 40-48 detail the STR process while sections 142-148 detail the financial intelligence functions of the Commissioner of Police. These functions are delegated to the FIU.

    Defensive reporting

    Defensive reporting is where a reporting entity submits STRs when little or no suspicion exists, in order to appear compliant with legal requirements. The FIU strongly discourages defensive reporting, as it masks genuine reporting, skews the resulting data and could impact on investigations

    What is suspicious?

    Suspicion is subjective. However, there should always be a rationale behind forming a suspicion and it is this critical thinking that the FIU would like to see included in STRs. When considering the factors which make up a good STR the word 'unusual' may be a better word than 'suspicious'. The FIU would like to know why the transaction is unusual; was it the size of the transaction, the use of unnecessarily complex structures, the behaviour of the person etc. Unusual activity can be based on any combination of factors, including for example the type of customer or their behaviour, the nature of the financial product, or the country/countries involved in the transaction. While the FIU will ultimately decide if a STR is indeed suspicious it is vital that reporting entities identify and submit STRs in relation to unusual activity.

    The FIU have produced a best practice guidelines document for us with the Financial Transactions Reporting Act 1996. Much of the information is still relevant to the AML/CFT Act environment and a new set of guidelines will be developed by the FIU in the latter half of 2012.

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    AML/CFT Programme Guideline

    In December 2011 the AML/CFT supervisors published an AML/CFT Programme Guideline to assist reporting entities in developing their AML/CFT programme. The Guideline outlines the minimum requirements for a AML/CFT programme and explains who is responsible for a reporting entity's AML/CFT programme.

    The Guideline is available on each of the AML/CFT supervisors’ websites.

    First steps: You should complete a risk assessment before developing your AML/CFT programme. Once your risk assessment has been completed, you can develop your AML/CFT programme to minimise or mitigate the risks. Your AML/CFT programme should be developed in relation to the AML/CFT Act and Regulations, and how they relate to your business and your AML/CFT risk assessment.

    Reporting entities must have an AML/CFT programme in place when the Act comes into full force on 30 June 2013.

    Guide for small financial adviser businesses

    The Financial Markets Authority published a guideline in January 2012 to help financial advisers working independently or in a small business comply with their obligations under the AML/CFT Act. The
    guideline is available on the FMA website.

    AML/CFT Survey

    Internal Affairs’ reporting entities will soon be invited to complete a detailed survey to help us identify the scope of your business activities. Your responses will assist us in managing our supervisory responsibilities.

    You will receive a link to the survey via email. Your cooperation in answering this will be greatly appreciated.

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    Electronic Identity Verification and the Identity Verification Code of Practice

    The Identity Verification Code of Practice was issued in July 2011 under section 64 of the AML/CFT Act 2009. It provides suggested best practice for reporting entities when they conduct verification of name and date of birth on customers assessed as low-to-medium risk. The Code of Practice allows for electronic identity verification (that is, verification of identity from electronic sources, without the requirement for the reporting entity to sight identity documents).

    Since the public consultation on the Code of Practice, the Electronic Identity Verification Bill has been introduced to Parliament. The Bill, once enacted, will enable agencies authorised by Cabinet to use the igovt identity verification service. While the Bill enables a wide range of robust identity verification processes in the issuance of igovt IDs, some individuals may not necessarily be subject to checks against multiple sources of name information as required by the Code of Practice.

    As a result, we may need to make a minor amendment to the Code of Practice, to allow for appropriate exception handling processes for individuals who do not have two independent electronic sources of identification. Any amendment will be subject to Ministers' approval.

    All AML/CFT supervisors aim is to ensure that compliance with the Code of Practice allows for use of igovt or other robust forms of electronic identity verification.

    Roadshow 2012

    The second round of the AML/CFT Roadshow will take place from 14 May to 8 June 2012. The roadshow will be presented in Wellington, Napier, Palmerston North, Auckland Central, Auckland North Shore, South Auckland, Hamilton, Tauranga, Dunedin and Christchurch.

    Specific dates, times and venue details will be confirmed soon.

    Supervisors' work programme - milestones

    Many reporting entities have asked what supervisors are working on and when future guidelines can be expected. The following are the approximate milestones supervisors are working towards.

    Countries assessmentMarch 2012
    Issuers of securities April 2012
    Second round of roadshows 14 May - 8 June 2012
    Beneficial ownershipJune 2012
    Designated business groups June 2012
    Other guidelines (including sector specific) As required
    Annual report form (via regulations) estimated August 2012
    AML/CFT Act 2009 in full force 30 June 2013

    Contact us

    Internal Affairs is your supervisor if you are a casino, money service business, payroll remittance business, non-deposit taking lender, financial leasor, safe deposit/cash storage provider, non-bank credit card provider, trust and company service provider or any other financial institution not supervised by the Reserve Bank or Financial Markets Authority.

    Please email if you have any questions.

    The Financial Markets Authority is your supervisor if you are an issuer of securities, broker, financial adviser, trustee company, collective investment scheme or futures dealer.

    Please email if you have any questions.

    Images: Department of Internal Affairs logo and Financial Markets Authority logo