AML/CFT customer due diligence changes

18/06/2021·4 mins to read

AML/CFT customer due diligence changes

A number of AML/CFT customer due diligence changes will come into force on 9 July 2021, under amendments to Regulations issued recently.

A suite of four Amendment Regulations (Regulations)* relating to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) has been notified.

These amendments come into force on 9 July 2021 and will result in a number of changes to the AML/CFT Act’s compliance requirements. For example, going forward AML/CFT programmes will generally need to be audited every three years (as opposed to every two years, as currently), and there will be some new class exemptions.

Importantly, various customer due diligence (CDD) changes will apply from 9 July 2001. This article highlights some of the key CDD changes.

Nominees

When doing standard CDD on a customer, a reporting entity will need to establish:

whether the customer is a company, a limited partnership (LP), or an overseas limited partnership (OLP); and
if so, whether the customer has any nominee directors and/or nominee shareholders (for companies) or nominee general partners (for LPS and OLPS); and
if so, the name of each such nominee director, nominee shareholder, or nominee general partner.

The reporting entity will need to take reasonable steps (according to the level of risk involved) to verify the existence and name of any nominee director, nominee shareholder, or nominee general partner, so that the reporting entity is satisfied that it knows that information. However, the reporting entity will not be required to verify this information on the basis of documents, data, or information issued by a reliable and independent source (as normally required for identity verification); other reasonable steps will be adequate.

Additionally, if the customer has a nominee director or nominee general partner, the Regulations will require the reporting entity to do enhanced CDD (ECDD). This requirement will supplement the existing obligation under the AML/CFT Act to do ECDD if a customer is a company with a nominee shareholder.

Reporting entities should also bear in mind their existing obligation under the AML/CFT Act to do CDD on any person that has effective control of a customer (such person being included in the definition of “beneficial owner”). The Regulations will not explicitly require reporting entities to obtain the name of the nominator (despite this having been signalled in an earlier consultation). However, the fact that there is a nominee director, shareholder, or general partner could in a particular case mean that a nominator has effective control of the customer and should, on that basis, be subject to CDD.

Real estate agents

The Regulations have clarified that the time at which a real estate agent must carry out CDD in relation to a commercial lease transaction, specifically, is before the real estate agent presents an offer of lease to the relevant landlord. For other real estate transactions, the time for CDD remains before the real estate agent enters into the agency agreement with the customer.

The Regulations will also exclude certain persons from being a “customer” of a real estate agent, including for CDD purposes. A party to a real estate transaction on whose behalf the real estate agent is not carrying out real estate agency work, is not a “customer” of the real estate agent unless the person conducts occasional transactions with the real estate agent.

Deceased estates

Executors and administrators of estates will no longer have to conduct CDD in respect of services to the estate. They will also be exempt from most other provisions of the AML/CFT Act – but not from suspicious activity reporting and certain record-keeping obligations.

Where a reporting entity is providing services to an executor or administrator, the reporting entity will not need to undertake CDD on the executor or administrator if that executor or administrator is itself also a reporting entity. Otherwise, ie if the executor or administrator receiving the relevant service is not itself a reporting entity, CDD on the executor or administrator is still required; however, there are exemptions from section 24(1)(b) of the AML/CFT Act (relating to verification of the customer’s source of funds or wealth, when doing ECDD) and section 37 (which prohibits doing business with a customer where CDD cannot be conducted).

“Tipping off” Police suspects

A reporting entity providing a relevant service to a person who is the subject of a Commissioner’s order under section 143 of the AML/CFT Act, or to a production order made under the Search and Surveillance Act 2012, is temporarily exempt from the obligation to conduct ECDD, ongoing CDD, and account monitoring and from the prohibition on doing business with a person on whom CDD cannot be conducted. This is to avoid compromising the Police’s investigation.

Other

The Regulations also provide partial exemptions for (among others) court-appointed liquidators and for DNFBPs making certain disbursements.

They will further clarify which wire transfers over $1,000 are classed as “occasional transactions”, and which accordingly require (among other things) CDD. There is an occasional transaction if the wire transfer is outside a business relationship of either the ordering institution or the beneficiary institution.

Next steps

It seems that the Regulations have not been well-publicised. Reporting entities will need to give urgent attention to what changes may be required to their forms and processes ahead of 9 July 2021.

Please contact one of our experts if you need more information about these specific developments, or for general assistance with AML/CFT compliance.

* These Regulations are:

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