Money laundering is rife in New Zealand, with an estimated $1.35 billion being laundered each year. 

Legislation was put in place in 2009 to try to identify, and prevent, money laundering and financing of terrorism in New Zealand, in the form of the Anti-Money Laundering and Financing of Terrorism Act.

Since January this year, this legislation has applied to real estate agents. 

Agents were included into the regime as it was considered that given the nature, size and complexity of property dealings, real estate transactions are vulnerable to money laundering activity.

The legislation creates an obligation to carry out ‘risk-based’ assessments of transactions, carry out ‘Customer Due Diligence’ and report suspicious behaviour.

Customer Due Diligence

The legislation requires you as agents to identify and carry out Customer Due Diligence (CDD) on your clients.

Depending on the level of risk involved in the transaction, you may be required to carry out a higher level of due diligence.

Who is a ‘client’ for the purposes of the legislation?

A “client” will include anyone who signs an agency agreement (usually the vendor, but can be a prospective purchaser). CDD will need to be completed before the start of the business relationship (that is, before an agency agreement is signed).  The amount of information required to be gathered will depend on the risk level of the transaction.

In the usual circumstances, CDD does not need to be completed on the purchaser unless they seek to carry out an “occasional transaction or occasional activity”.  An example of an occasional transaction is where a purchaser makes a deposit of over $10,000 by way of cash or cheque to the Real Estate Agent.  You would need to complete CDD on the purchaser before that transaction could take place.

What ID do you need to receive?

The best form of identification to obtain is a passport (as no secondary form of ID is required when a passport is used), but otherwise you can request a driver’s licence plus a credit card or letter from the customer’s bank or a government agency (among other options).

The documents need to be verified to be true copies of the originals, and the photo on the document needs to be confirmed to be a true likeness to the individual offering the document.

Verification can either be done face to face/in person (by you or someone within your agency, depending on what policy your agency puts in place), or if that is not possible, then the documents can be certified by someone in the “trusted referee” category under the legislation.  In this case, the documents can be scanned to you once certified. You can only use copies that have been certified by a trusted referee in the preceding three months.

You will need to receive ID for each named individual vendor.  This means you need each vendor to present their ID to you (or the trusted referee) as the person certifying or verifying the ID cannot confirm a true likeness of an individual if the person is not in their presence.

For companies, you need to carry out CDD on all of the directors, as well as any shareholders of companies who have effective control (being over 25% shareholding in the company).

You also need to obtain the client’s home address and be satisfied that this is correct.

Enhanced Due Diligence for Trusts

Transactions with trusts involved are automatically considered ‘high risk’ under the legislation.  This is because the identities behind the transaction and the source of the funds involved can be kept anonymous.

With trusts, you will need to carry out CDD on the trustees and obtain the names, addresses and dates of birth of the beneficiaries, as well as establish who has effective control of the trust.

You will also need to obtain proof of the source of funds or wealth in ‘high risk’ transactions, which may include obtaining copies of pay slips or bank statements, or a copy of Probate in the case of an inheritance. 

Suspicious Activity Reports

Agencies have a duty to report suspicious transactions to the Financial Intelligence Unit (FIU) of the Police.  This can be done by way of the GoAML programme, which your Money Laundering Compliance Officer should sign up to.

What sort of activity might be considered suspicious?

Examples of money laundering methods are as follows:

• Deposit – request for repayment

• An international purchaser puts a conditional offer on a large commercial building and pays a deposit of $500,000 (NB, they will be very keen to pay the deposit!).
• The offer includes several difficult conditions and in reality the offer is unlikely to proceed further.
• The negotiations eventually fall over and the deposit is paid back to the purchaser from a real estate or law firm trust account (freshly laundered).

• “Flipping” properties

• Buying and selling properties in short succession in order to confuse the audit trail of “dirty money”.

What happens if you don’t comply with the legislation?

The legislation sets out harsh sanctions for non-compliance with AML regulations. These penalties include formal warnings for minor breaches, or fines and prison terms for serious breaches.  Individuals may face sentences of up to two years imprisonment and could be fined up to $300,000.  Body corporates (e.g. companies) may be fined up to $5 million.

It therefore pays to make sure you comply!

If you have any queries in relation to AML requirements please contact Laurie at lpallett@raineycollins.co.nz or 04 473 6850.