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Understanding the Anti-Money Laundering and Countering Financing of Terrorism Rules

By July 12, 2022 No Comments
Understanding the Anti-Money Laundering and Countering Financing of Terrorism Rules

The Anti-Money Laundering and Counter Financing of Terrorism Act 2009 (AML/CFT Act) is designed to prevent criminals from using banks, financial institutions, and other businesses to hide their ill-gotten gains. The purpose of the Act is to stop criminals from using the financial system for criminal activity, such as drug trafficking and money laundering. In this article, we’ll look at the rules you need to follow and the measures you need to put in place to achieve compliance with these rules.

What do we mean by money laundering and terrorist financing?

Money laundering is the process of making illegally obtained money appear to have been gained through legal means. Terrorist financing is the process of making illegally obtained money look legitimate for the purpose of supporting terrorism.

What are the Anti-Money Laundering and Countering  Financing of Terrorism (AML/CFT) Rules?

The AML/CFT Rules are a set of legislative requirements that apply to reporting entities. They are contained in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).

These include rules around:

  • assessing your entity’s money laundering and terrorism financing risk
  • appointing an AML/CFT compliance officer
  • designing, implementing and maintaining an AML/CFT compliance programme setting out the procedures, policies, and internal controls for:
    • vetting and training relevant staff
    • carrying out customer due diligence (CDD) checks
    • ongoing monitoring of customer accounts and activities
    • reporting suspicious activities and transactions
    • record-keeping
  • independently auditing and reviewing the risk assessment and compliance programme
  • submitting an annual report to their AML/CFT supervisor.

Onboarding and Monitoring

Reporting entities must carry out CDD checks when onboarding customers to verify each customer’s identity and establish the level of risk they present.

Additional CDD checks must also be conducted if there has been a “material change” in the nature or purpose of the business relationship, and you determine that you have “insufficient information” about that customer, or you identify that a customer’s risk profile has changed over time. Beyond identify verification, this should include:

  • Politically Exposed Person (PEP) Screening: Checking whether a customer or beneficial owner is a politically exposed person and therefore at higher risk of money laundering.
  • Adverse Media Screening: Monitoring news media for reports that might link customers to serious crimes such as money laundering, fraud, or drug trafficking.

Firms must also monitor accounts for suspicious activity such as:

  • Transactions that are complex have no clear purpose, or involve an unusually large amount of money (NZD10,000 or more).
  • Material changes in behaviour, for example, a sudden increase in deposit frequency or unusual patterns of transactions or activity that you would not expect from a client of this type.
  • Any other activity that you have reasonable grounds to believe could be related to criminal activity.

Reporting Suspicious Activity

Reporting entities must report all prescribed transactions, suspicious activities, and suspicious transactions to the New Zealand Police Financial Intelligence Unit (FIU) via its internet platform ‘goAML’.

The AML/CFT Act 2009 imposes reporting rules for the following prescribed transactions:

  • Large cash transactions: When handling a domestic, physical cash transaction of NZD10,000 or more involving physical currency (i.e. coin and printed money designated as legal tender), businesses must submit a Large Cash Transaction (LCT) report to the FIU.
  • International funds transfers: When handling international funds transfers of NZD1,000 or more where at least one of the parties involved in the transaction (i.e. ordering, intermediary or beneficiary) is in New Zealand, and at least one is outside of New Zealand, businesses must submit an International Fund Transfer (IFT) report to the FIU.

The AML/CFT Act 2009 also imposes reporting rules for identified suspicious activities and transactions as part of ongoing monitoring:

  • Suspicious activities: When customers engage in any kind of suspicious activity, businesses must submit a Suspicious Activity Report (SAR) to the FIU within three working days of reasonable grounds for suspicion being formed.

 

  • Suspicious transactions: When handling any transactions that are inconsistent with a client’s usual activities or what you’d expect for that type of client, the business must submit a Suspicious Transaction Report (STR) to the FIU within three working days.

When do the AML/CFT Rules apply to reporting entities?

The AML/CFT Rules apply to all reporting entities. A reporting entity is any person that provides a designated service, or any other person who carries out a service that has the characteristics of a designated service. The full list of designated services is outlined in the AML/CFT 2009 Act.

How do the AML/CFT Rules support compliance?

The AML/CFT Rules support compliance by providing a set of minimum standards to help reporting entities identify, assess, and mitigate money laundering and terrorist financing risks. They are designed to be flexible, allowing reporting entities to develop their own risk-based approach to compliance.

How OneAML Audit Can Help You Comply With The AML Rules in New Zealand

The Money Laundering and Counter Financing of Terrorism Rules are an important part of protecting the integrity of the New Zealand financial system. They also help protect the security of New Zealand’s community, economy, and international reputation.

If you’re a reporting entity that provides any designated services listed under section 6 of the AML/CFT Act 2009, it’s important that you understand what these rules mean for your business and how you can comply with them.

As experienced AML/CFT consultancy experts, we can help you stay up-to-date on the latest rules and regulations, set up the right systems in place to detect suspicious activity, and navigate the complexities of the AML/CFT Act 2009 to make sure your business is compliant.

Book a free 15-minute consultation to see how we can help you comply with the AML/CFT rules here.