The Ministry of Justice is consulting on an “early package” of money laundering law changes. This follows on from its statutory review last year of the functioning of the Anti‑Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) and how to improve this.

The proposed changes are intended to:

• ensure that New Zealand complies more fully with the global FATF^[1] Recommendations - eg in relation to wire transfers

• close existing gaps in high‑risk areas - eg in respect of cash, virtual assets, high‑risk countries, and high-risk customers - and improve visibility on remittance networks’ operations

• scale back some compliance obligations that are disproportionate to the risk

• update or refine certain definitions and terminology.

To give you some highlights out of the many proposals, here are some areas of proposed relief:

• Address verification - except for enhanced customer due diligence (CDD), a reporting entity will not be required to conduct address verification (and need instead merely verify, according to the level of risk, that an address is genuine)

• Low-risk trusts - the requirement to verify source of wealth or funds for "low risk trusts" will be removed (noting that how a “low risk trust” will be defined or described is still very much under development)

• Stored value instruments (gift cards, loyalty cards, etc) - the exemption is currently arguably limited to physical cards but will be made technology-neutral, and the availability of the exemption where cards are bulk-sold to corporate customers for distribution to multiple recipients will be clarified

• Registered charities providing low-value loans - these will be exempted from being reporting entities, if they make only one loan per customer of up to $6,000

• Timeframe for submitting prescribed transaction reports (PTRs) - this will be increased to 20 days.

However there will also be new obligations, including:

• CDD:
  • It will become mandatory to risk-rate customers and to verify a customer’s legal form, control, and beneficial ownership;
  • CDD will be required whenever there may be grounds to report a suspicious activity (even if the relevant transaction is below the threshold for an occasional transaction or activity);
  • Some enhanced CDD obligations will be increased.

• Wire transfers - there will be enhanced obligations to ensure that information about the parties to a wire transfer is available to all financial institutions that are part of a chain of transactions and to government agencies, to improve the transparency of payments

• Non-financial business or profession (DNFBP) reporting entities - will be required to monitor not only a customer’s financial transactions (as currently), but also non‑financial transactions (but law firms will get longer for the submission of suspicious activity reports, given the time needed to consider information required to be withheld as privileged communications)

• Trusts - it will become necessary to identify a trust’s settlors and protectors

• High-risk customers - additional measures will be required for high-risk business relationships

• Record-keeping - reporting entities will need to keep records of PTRs, account files, business correspondence, and written findings for five years

• Online marketplaces - will have suspicious activity reporting obligations where a buyer transacts more than $10,000 in a 12-month period

• Remittance networks - these will need to consider both sides of a wire transfer where they have access to this, to monitor for suspicious activities

• Use of new technologies - increased risk assessment obligations will apply

• Virtual assets - the position of virtual asset service providers (VASPs) will be comprehensively regulated

• Reliance - a reporting entity’s ability to rely on third parties in overseas jurisdictions will be tightened up.

The above is merely a taster of the numerous proposed amendments.

Given that the changes are either required for compliance with the FATF Recommendations, or were well-supported by submitters on last year’s AML/CFT Act statutory review, their policy is not open for debate. The underlying policy decisions have been agreed to by Cabinet and are unlikely to change.

Instead, the Ministry seeks feedback on the drafting. It is mainly interested in whether the wording of the draft regulations is sufficiently clear and meets the intended purpose of the regulations, and whether any drafting may create unintended consequences. For some regulations, it does ask specific questions to identify the best way to provide clarity to a broader regulatory goal, eg in relaxing the requirements for low-risk trusts.

The AML/CFT Act and regulations are notorious for lack of clarity and the creation of unanticipated and undesirable consequences. This, then, is a key opportunity to contribute to getting the “fixes” right.

The consultation closes on 14 April 2023. Let us know if you want to discuss how you can get involved or if you would like assistance with making submissions.