Money laundering is the method by which people disguise the illegal origins of the proceeds of their crimes, to protect their money.  

Financers of terrorism also use similar techniques to avoid detection by the authorities and protect the identity of those providing and receiving funds.  

In Aotearoa New Zealand, money laundering is becoming increasingly problematic with an estimated $1.35 billion being laundered annually.  To combat this, the Anti-Money Laundering and Countering Financing of Terrorism Act was created in 2009.

The Act identifies a number of at-risk services such as financial institutions, casinos, virtual assets service providers, accountants, lawyers, conveyancers and high value dealers.

These professionals and providers under the Act have obligations to take appropriate measures to detect and deter money laundering and terrorism financing. As such, they are considered ‘reporting entities.’  

In particular, the legal profession is considered at risk for money laundering due to its involvement with certain transactions such as property and business sales and purchases. Therefore, their legal skills or Trust accounts can be misused to inadvertently assist with these criminal activities and unknowingly add respectability to suspicious transactions. 

When you engage lawyers to perform services on your behalf, we have obligations under the Act to engage in a managed risk assessment that determines the level of Customer Due Diligence (CDD), if any, that is required for the matter.

Each matter or file will first be assessed as to the level of risk it poses based on various criteria.

Customer Due Diligence (i.e., carrying out due diligence on customers/clients) is necessary for certain activities which are captured by the Act. These are:

• The management or holding of client funds
• The sale and purchase of real estate or other property
• Acting as a registered office as a standalone service
• Forming legal arrangements such as Trusts and Companies

Depending on the nature of the client there are varying levels of Customer Due Diligence:

• Standard Due Diligence for individuals and non-publicly listed companies
• Enhanced Due Diligence for Trusts and other high-risk transactions
• Simplified Due Diligence for entities like Councils and publicly listed companies.

For all levels of CDD, lawyers must receive a verified copy of the client’s identification. This may be either: their passport, or firearms licence and bank card, or driver’s licence and bank card. Lawyers must also receive proof of their residential address through a utility bill or bank statement.

Additional steps are required to ensure that clients are not politically exposed people.

For Enhanced Due Diligence, Trusts will need to provide proof of where funds used for the transaction, and funds held more generally by the Trust, have come from.

Ultimately, these steps help to ensure the reduction of undetected financial crimes and promote New Zealand’s international reputation as a safe place to do business.

If you have questions about what you as a client are required to do, or if you are a reporting entity unsure of its obligations, it pays to speak to a legal adviser experienced in this area.

 

Claire Tyler

Commercial Lawyer
Wellington