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Growth Pains of AML

Growth Pains of AML

New Zealand is still in its developmental stage with its anti-money laundering and countering financing terrorism (AML/CFT) compliance regime. Although Phase 1 entities such as financial institutions and casinos have been subject to the AML/CFT Act since 2013, Phase 2 entities such as designated non-financial businesses and professions notably lawyers, accountants, bookkeepers, real estate agents and now high value dealers, like the motor industry, and the NZ racing board have only been under the Act since 1st July 2018 at earliest; we are still in relative infancy. 

Designated non-financial businesses and professions (DNFBPs) are still feeling their way through the legislation, the guidelines and the day to day issues that confound and test their compliance efforts and understanding.   Many struggled with the annual report to the supervisor, whilst others are being proactive and booking their bi-annual audits early to get a handle on what they need to do and how to stay ahead. The Phase 2 entities supervisor, the Department of Internal Affairs (DIA), is working with these reporting entities to further understand the issues facing them and supporting them with the AML/CFT Act requirements. 

Whilst the DIA is providing support and help to theses newbies they and the other supervisors have still been busy with enforcing the Act for those captured earlier.  For example, the DIA issued a formal warning on 13 June 2019 to seven reporting entities within the Regus Management Ltd designated business group. On 24th June it issued a formal warning to Customhouse Safe Deposits Limited (CSDL). Trading as Commonwealth Vault, CSDL is the largest safe deposit provider in New Zealand and trades in gold and silver bullion.

It was issued for: 

failing to meet AML/CFT Act requirements including failing to conduct customer due diligence and failing to adequately monitor accounts and transactions 

failing to keep records 

failing to establish, implement or maintain an AML/CFT programme.

It is not alleged that CSDL was involved in money laundering or the financing of terrorism, but rather a case of repeated non-compliance, with little regard for money laundering risks.

There have been many other formal warnings issued this year with the majority being repeated non-compliance as above.  In addition, civil proceedings have started making an appearance with Ping An Finance being fined $5.3m and Qian DuoDuo Limited imposed with a civil pecuniary penalty of $356,000.  There are others in the court system awaiting outcomes.  DIA’s resources have expanded with additional full-time staff and a broader geographical reach.  Expect further investigations and enforcement activity to come.

As reported late July by RNZ, The FIU reports show lawyers, accountants and real estate agents have submitted 250 reports over the past year, with 34 passed on to authorities such as the police, to investigate.  In fact more than a tenth of suspicious financial transaction reported to authorities under the AML laws are resulting in an investigation.

The most common reports included the use of trusts, shell companies, and specially structured transactions to disguise suspected tax evasion, fraud, and laundering of the proceeds of drugs and other criminal ventures.

So whilst New Zealand is going through its growth pains here’s a few snippets from the rest of the world:

Australia:

31 July

A South Australian man has been jailed after trying to fraudulently claim tax refunds of almost $1.5 million. The Australian Taxation Office said Adam Hamshere, 39, used his accounting knowledge to set up a fake business, claiming he sold cigars. In March 2016, he lodged five business activity statements claiming he was entitled to GST and Wine Equalisation Tax refunds of $1,444,069.

12 July

Sydney authorities arrested three individuals on Thursday for running a business that acted as a front for a US$70 million money laundering syndicate serving organized crime groups, a New South Wales Police press release announced.

India:

2 August

The Enforcement Directorate (ED) has registered a money laundering case against Samajwadi Party leader and controversial Parliamentarian Azam Khan in connection with multiple land grab cases registered against him by the Uttar Pradesh police.

Philippines:

30 July

Following orders from President Rodrigo Duterte, authorities have closed all state gambling facilities on Sunday and will keep them closed until the end of a massive corruption probe. In total, more than 30,000 lottery and gambling kiosks managed by the Philippine Charity Sweepstakes Office (PCSO) - the institution suspected of corruption - were locked by police across the country.

Bangladesh:

10 July

The Anti-Corruption Commission (ACC) has filed a case against 11 people, including former chief justice Surendra Kumar Sinha, and six officials of the now defunct Farmers Bank Ltd, for their alleged involvement in embezzlement, and money laundering. ACC Director Syed Iqbal Hossain filed the case with the anti-graft watchdog’s Integrated District Office-1 in Dhaka on Wednesday, ACC Secretary Mohammad Delwar Bakth told reporters.

United States:

City National Bank of New Jersey handled $20 million for firm tied to Venezuelan laundering scheme featuring multiple million dollar wire transfers, a mutual fund registered in the Cayman Islands, a Venezuelan state-run oil firm PDVSA, a Colombian American “professional money launderer” based in Miami and multiple omissions in reporting.  A true crime story.  This was settled for an undisclosed sum.

Updated Guidelines

On the 8th August 2019 the AML/CFT supervisors issued a joint guidance document regarding the use of expired passports as part of Customer Due Diligence procedures.  This guidance clarifies that a valid, ie not expired passport, should be used when using the Amended Identity Verification Code of Practice 2013.  An expired passport does not meet this standard.  However, an expired passport may still be acceptable through the application of exception handling procedures and that there is not a maximum timeframe of expiry that a reporting entity may accept as part of this procedure.   Always document your decisions and rational for accepting an expired passport and make sure you are satisfied that any identification you accept is reliable and accurate.

That’s all for this month…..