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Anti money laundering reforms open for discussion

7 June 2006

Anti money laundering reforms open for discussion

Associate Minister of Justice Clayton Cosgrove today released a discussion document on enhancing measures to counter money laundering and the financing of terrorism. The release marks a second consultation round.

The document proposes regulatory changes to enable New Zealand to comply with the Financial Action Task Force (FATF) - an inter-governmental body that sets international standards for combating money laundering and terrorist financing. Its 33 members include New Zealand, the United States, Great Britain, Canada and Australia.

Mr Cosgrove said although there is currently no evidence of terrorist financing in New Zealand, it is important to have a system which cannot be exploited by those overseas looking for avenues through which to move illicit funds around the globe.

“New Zealand refuses to be a possible weak target for international criminals and terrorists,” he said. "We propose an overhaul of the Financial Transactions Reporting Act 1996, which pre-dates the current FATF requirements and is deficient in several areas."

Proposals to address deficiencies in the Act include extending coverage of the FATF requirements to groups outside the core financial sector, more stringent checks on customer identity and verification, more detailed record keeping and reporting requirements, and increased monitoring of compliance with the FATF requirements.

Mr Cosgrove said the net needed to be widened beyond the financial sector, to include other industries and professions where money laundering could occur, including lawyers, accountants, real estate agents, casinos and jewellers. He said industry feedback from the first consultation round has been taken onboard.

“We are proposing a flexible approach to implementing the FATF requirements, to allow for sector differences and varying levels of risk across services, entities and clients, " said Mr Cosgrove. "A one-size fits all approach will not work, and wouldn't be cost effective."

“Most people will not be directly affected in their ordinary financial transactions and will not notice any significant change under the proposed regulatory changes to comply with the international FATF standards,” said Mr Cosgrove.

The document Anti-Money Laundering and Countering the Financing of Terrorism: New Zealand's Compliance with FATF Recommendations is available on the Ministry of Justice’s website at www.justice.govt.nz and submissions close on 31 July 2006.


Backgrounder

Why are regulatory changes necessary?
New Zealand must meet its FATF international obligations relating to anti-money laundering and countering the financing of terrorism (AML/CFT). Most of New Zealand's AML/CFT legislative requirements are contained in the Financial Transactions Reporting Act 1996. This Act pre-dates the current FATF standards and is deficient in some areas. New Zealand is due for evaluation by the FATF in 2008.

What happens if we don’t meet our FATF obligations?
New Zealand’s reputation as a safe place to do business could be compromised as well as its relationships with existing and potential trading partners who are FATF members. New Zealand might be seen as an easier target by international organised crime groups looking to operate in countries with weak AML/CFT systems.

What changes are proposed?

The Act currently applies to financial institutions including banks.

- It is proposed the Act is extended to include “designated non-financial businesses and professions” such as lawyers, accountants, real estate agents and jewellers. Some of these groups are already covered by the Act but not to the extent required by the FATF.

- Customer due diligence (CDD) is the process by which customers are identified and verified. It is proposed that CDD requirements currently limited to cash transactions of $10,000 or more be extended to non-cash transactions of that value, and to all transactions carried out on behalf of someone else. There will be a requirement for ongoing customer monitoring to identify transaction patterns that could indicate money laundering and terrorist financing. There will also be enhanced CDD for Politically Exposed Persons (PEPs), who may be of higher risk of bribery and corruption due to their prominent positions.

- There are also proposals to extend the current record keeping requirements and implement and audit internal AML/CFT policies.

- The introduction of an AML/CFT supervisory framework to identify money laundering risks, oversee implementation of effective systems and processes, and to educate affected industry and the wider public.
A third discussion document planned for release later this year will address this requirement more fully.

Will the proposed changes affect everyday purchases or sales?

Most consumer transactions won't be affected. For example, those buying or selling jewellery through a jeweller will not be affected unless the value is $10,000 or more, or they are acting on behalf of someone else, and then CDD checks will apply.

Currently, CDD applies to casino transactions of $10,000 or more. FATF recommends this value is lowered to transactions equivalent to either US or Euro $3000-plus.

Are there any privacy issues in relation to the proposed changes?
The Privacy Commissioner will continue to be consulted throughout the legislative process, to ensure that any proposals do not breach the Privacy Act 1993.

What will be the cost of compliance?
Every endeavour will be made to keep industry compliance costs to a minimum. A better indication of the cost will become apparent during this round of consultation.

ENDS

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