Legitimate businesses have a contributing role in preventing the misuse of financial and professional services. Businesses operating in the financial, legal, property and high-value goods markets are at the frontline for countering criminal activity in NZ. They are the gatekeepers.
These gatekeeper businesses and professions provide, in the ordinary course of their business, services and products that can be used to facilitate money laundering. They are therefore legally required to put measures in place to help foil the entry of illegal funds into the legitimate financial system. They have to implement systems and processes to deter criminals from trying to exploit them, and to report suspicious transactions and activities to law enforcement agencies.
The businesses and professionals covered by phase 1 of the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act are banks, financial service providers, casinos, and trust and company service providers. More recently the Act has been extended to cover lawyers, conveyancers, accountants, bookkeepers and real estate agents in an effort to ensure illegal funds aren’t washed through property purchases.
Businesses trading in high-value goods have also been brought under the AML/CFT regime (effective 1 August 2019) with the aim of stopping legitimate assets being bought with under-the-table cash. Criminals target dealers in jewellery, precious metals, precious stones, watches, motor vehicles, boats, art or antiquities to launder money. A common ploy is to buy expensive things with cash, then sell them and get ‘clean’ money back. However, businesses that deal in high-value goods won’t have to do anything under the regime if they don’t accept or make cash payments at or above the applicable threshold.
The businesses and professionals covered by the AML/CFT regime are known as reporting entities. The regime doesn’t see reporting entities as the bad guys; the criminals who want to launder the funds through legitimate businesses are the bad guys.
The aim of the regime is for the regulators and the business community to work together to disrupt crime. It does this by facilitating cooperation amongst reporting entities, supervisors and other government agencies, in particular law enforcement and regulatory agencies.
Is your team aware of the risks of ML/TF faced by your business, and how they should respond when they encounter those risks?
The Act uses a risk-based approach. Depending on the size and complexity of the client’s business, what products it offers, who it deals with and where those contacts are based, more or less work must be done to ensure the client is legitimate.
Essentially, it means reporting entities have to get to know their clients even more closely than they already do. Clients who work through trusts or companies with nominee shareholders – custodians for the real owners – will be an immediate flag for heightened scrutiny. Beneficial owners will need to be identified and verified with evidence.
Then, a sharper eye has to be focused on the transactions clients make. One of the questions to ask is: What’s not normal practice for that particular type of client? Reporting entities are looking for transactions that don’t make financial sense; unusual transactions that are seeking to take advantage of legitimate business.
Another question to ask: Where’s the money coming from? Unexplained wealth should be another flag. Keen scrutiny applied to transactions of a certain minimum value might not eliminate illegal activity of this kind but it makes it harder, which acts as a deterrent.
Reporting entities make a big difference in disrupting money laundering, terrorism financing and other serious crimes, in both New Zealand and around the world. Businesses that implement measures to detect and deter crime make a significant contribution to the global fight against crime, money laundering, weapons proliferation and terrorism.
Next in The Dirty Money Series: If your business is covered by the AML/CFT regime, what do you have to do?