Lawyers are currently required to report on suspicious financial transactions however The Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 ("the Act") will place further and more strenuous requirements on them (and therefore their clients) from 1 July 2018.
The Act will require lawyers to undertake a written risk assessment of their practice to determine what money laundering and terrorist financing risks that the firm will face based upon a number of factors including types of transactions, types of clients, client structures and source of client funds and then formulate an AML Policy.
The Act requires that assessment of each client and transaction from 1 July 2108 will need to be assessed from an AML/CFT perspective and that assessment will need to be recorded. The Department of Internal Affairs have been tasked to audit legal practices to ensure compliance with the Act and the firms AML Policy.
There will be particular attention paid to new clients and transactions that seem unusual. Lawyers will need to identify their clients by such means as capturing passport identity, tax information and evidence of residency. This will apply not only to individuals but also to entities - directors and shareholders of companies, and settlors, trustees and beneficiaries of trusts. The concept is known as "know your clients". In transactions that the law firm is acting upon, the lawyer will also need to satisfactorily identify the source of funds. Are they from an inheritance, the sale of a property or from business endeavours. It may be appropriate for your lawyer to ask for tax returns. In general practice the requirements may not be onerous but if the client is a new client, an overseas resident or requiring unusual or complicated commercial structures the lawyer is required to obtain evidence on the client and the transactional funds. However compliance with Act will undoubtedly increase professional hours spent on transactional work by lawyers on behalf of the client.
A provision of the Act is that suspicious transactions must be reported. The concept of client confidentiality creates pressures upon lawyers in that a lawyer can be subject to disciplinary proceedings if, in a situation other than in bad faith, a lawyer provides privileged material either negligently or without taking due care. The Act requires a reporting entity to report any suspicious activity to the Financial Intelligence Unit of the New Zealand Police. Whilst the Police do not see lawyers as detectives the Act will require information gathering and reporting compliance.
AML is not uncommon even in New Zealand and there has been an upsurge internationally on making compliance of AML/CFT requirements a worldwide expectation. Money laundering does not necessarily mean large sums of money being transmitted. It could be regular small amounts, or amounts of funds being transmitted from a client's bank to a lawyers' trust account and for the transaction to be cancelled and the funds refunded but to another client nominated bank account or the client requiring unusually complicated structures to be established for a transaction.
Compliance requirements are already in place under Phase 1 of the Act since 2013. It applies to banks, casinos and a range of financial service providers. Phase 2 will extend the AML/CFT laws to cover real estate agents, conveyancers, many lawyers, accountants, and some additional gambling operators and some businesses that trade in high-value goods such as cars, boats, jewellery, bullion, art and antiquities. Evidence shows these businesses are at high risk of being targeted by criminals to launder money. The AML/CFT law aims to put in place practical measures to protect businesses and make it harder for criminals to profit from and fund illegal activity