Source: https://www.dia.govt.nz/AML-CFT-Frequently-Asked-Questions-for-DIA-Reporting-Entities?OpenDocument
Timestamp: 2019-10-20 06:41:43
Document Index: 540233566

Matched Legal Cases: ['art 3', 'art 3', 'art 3', 'arts 1', 'art 2', 'art 1', 'art 2', 'art 1', 'art 2', 'art 1', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2']

AML-CFT Frequently Asked Questions for DIA Reporting Entities - dia.govt.nz
Content refreshed May 2019.
B. Types of customers:
A customer that is a company
Unit Title body corporates
D. Customer due diligence (CDD):
Verifying a customer’s name and date of birth
Existing customers/clients
Wire transfers and Prescribed Transaction Reporting requirements
EDD - Source of wealth or source of funds
E. Large Cash Transaction - Prescribed transaction reports
F. Suspicious activity reporting
G. Staff vetting
H. Independent audits / auditors
I. Annual AML/CFT Report
J. For law firms and accountants:
Designated non-financial business or profession (DNFBP) Activity (a)(ii)
DNFBP Activity a(iii)
DNFBP Activity (a)(iv)
DNFBP Activity (a)(vi)(E)
Other questions relating to captured activities
Information for law firms and accountants – wire transfer and prescribed transaction reporting
K. For Real Estate Agents
A. Compliance Officer:
1. What does the Compliance Officer have to do?
Section 56(2) of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) stipulates that a reporting entity must designate an employee as a Compliance Officer to administer and maintain its AML/CFT programme.
The AML/CFT Act does not exclude a Compliance Officer from performing other functions outside of the role of Compliance Officer.
2. Who can be a Compliance Officer?
The Compliance Officer must be an employee of the reporting entity and report to a senior manager. Alternatively, the Compliance Officer may be a senior manager themselves.
Only where a reporting entity has no employees can an external person be appointed as a Compliance Officer. For example you may appoint an external person as a Compliance Officer if you are a sole practitioner (i.e. self-employed), if you have no employees, and if you are not able to be the Compliance Officer yourself.
3. Can a partner of a reporting entity that is a partnership be the Compliance Officer?
Yes. Section 56(5) of the AML/CFT Act (effective 8 September 2018) allows a partner in a partnership (including law firms or accounting practice partnerships) to be the Compliance Officer for the partnership. The partner acting as the Compliance Officer must report to another partner on AML/CFT matters.
CDD on a customer that is a company
4. Can all entities in an approved designated business group (DBG) have a single compliance officer?
5. Can I use the Companies Register to assist me in conducting CDD on a customer that is a New Zealand incorporated company?
If your customer is a New Zealand incorporated company, the online Companies Register may assist you in conducting CDD.
The Companies Office records will enable you to identify those directors and shareholders who may be beneficial owners of your customer. You will still, according to level of risk involved, then need to verify the identity of these persons (please refer to question 9 below). You will also need to identify and verify the identity of any additional persons that are beneficial owners, such as those with effective control of the company.
In addition, you will need to identify and verify the identity of any person acting on behalf of the customer, as well as their authority to act.
For further guidance, please refer to the following links:
Companies: Customer Due Diligence - Companies (PDF, 160KB)
Beneficial ownership: Benificial Ownership Guideline (PDF, 241KB)
Acting on behalf of others: ‘Acting on behalf of a customer’ fact sheet (PDF, 167KB)
6. What do I have to do if I have a customer that is a Unit Title body corporate (under the Unit Titles Act 2010)?
As with other types of customers, where a reporting entity has a customer that is a Unit Title body corporate, the reporting entity is required to identify and verify the identity of the body corporate, its beneficial owner(s) and any person acting on behalf of the body corporate (i.e. dealing with the reporting entity).
In most circumstances, it will not be necessary to verify the identity of every unit title owner (unless one of them owns more than 25%). Rather, the beneficial owners are likely to be the natural persons with effective control of the body corporate. A reporting entity must identify and verify the identity of these persons (according to the level of risk involved) so that it is satisfied it knows who they are.
However, if enhanced CDD is triggered in relation to a body corporate, there could be some circumstances, particularly where it relates to an individual transaction, where a reporting entity may need to consider (and identify) an individual Unit Title owner.
7. Does DIA provide a template that I can use to write my risk assessment?
No. Every reporting entity is different and requires a risk assessment relating to its own ML/FT risks. There is guidance available in relation to risk assessments on the Department’s website: AML/CFT Risk Assessment Guideline (PDF, 153KB)
8. I have obtained a template from an external provider. Can I use this as my risk assessment?
The Department is aware that some external providers offer templates for risk assessments.
A template may assist a reporting entity in structuring a risk assessment. However, it is important to remember that the requirements of section 58 of the AML/CFT Act require a reporting entity to undertake an assessment of the ML/FT risks that it may reasonably expect to face in the course of its business. In turn, this must enable the reporting entity to determine the level of risk involved in relation to its relevant AML/CFT obligations. To do this, a reporting entity must have regard to the various factors set out in section 58(2) of the AML/CFT Act as they apply to that reporting entity’s business.
Generic content relating to the ML/FT risks associated with a sector, without consideration of that reporting entity’s business, will not comply with section 58 of the AML/CFT Act.
9. What do I need to do for Standard CDD?
When undertaking standard CDD, you must obtain:
(c) if the person is not the customer, the person’s relationship to the customer; and
(d) the person’s address or registered office; and
(e) the person’s company identifier or registration number; and
(f) any information prescribed by regulations.You must do this for your customer, any beneficial owner of your customer and any person acting on behalf of your customer.
For your customer, you must then take reasonable steps to verify this information to be satisfied it is correct. You must also, according to the level of risk involved, take reasonable steps to verify the identity of any beneficial owners, and to verify the identity and authority of any person acting on behalf of your customer.
For customers that are natural persons and assessed to be of low or medium risk, please refer to the Amended Identity Verification Code of Practice 2013 (IVCOP) for how to verify identity here: Amended Identity Verification Code of Practice 2013 (PDF, 131KB)
You must also obtain information on the nature and purpose of the proposed business relationship between you and the customer, as well as sufficient information to determine whether the customer should be subject to enhanced customer due diligence. This is an important part of CDD and assists you to assess the level of risk associated with a customer. It is equally important for your ongoing CDD and account monitoring obligations as your business relationship continues (pursuant to section 31 of the AML/CFT Act).
10. What does ‘reasonable steps’ mean when conducting CDD?
It refers to an objective view of what actions are proportionate and suitable given the risks involved and the obligations in the AML/CFT Act.
11: Can we utilise a third-party electronic identity verification service to assist complete our CDD obligations?
Yes. A reporting entity may utilise a third-party provider to assist with conducting CDD. Responsibility for ensuring that the CDD requirements of the Act are met remains with the reporting entity.
Part 3 of the Amended Identity Verification Code of Practice 2013 (IVCOP) provides a suggested best practice for reporting entities conducting name and date of birth identity verification on customers that are assessed as low to medium risk.
When using two reliable and independent electronic sources to conduct election verification under Part 3 of IVCOP, a reporting entity must follow the steps set out in clauses 17 and 18. Further information in relation to the requirements of Part 3 of IVCOP are contained in IVCOP Explanatory Note 2017.
When considering (or selecting) a third-party provider to assist you to conduct electronic verification, we recommend you ask them to set out how they enable compliance with IVCOP, in particular the steps set out in clauses 17 and 18.
Electronic verification may also assist a reporting entity to meet its CDD obligations in relation to a customer’s address. In addition, electronic verification may assist in verifying the biographical information of a high-risk customer, although increased or more sophisticated measures may be required.
Please note that if relying on electronic identity verification as a method of carrying out CDD obligations, this would be well documented in your AML programme and risk assessment.
12. What is the Amended Identity Verification Code of Practice 2013?
The IVCOP provides suggested best practice for all reporting entities conducting name and date of birth identity verification on customers (that are natural persons) assessed as low to medium risk. IVCOP can be found on the Department’s website: Amended Identity Verification Code of Practice 2013 (PDF, 131KB)
Identification involves obtaining information from the customer about their identity. Verification involves confirming this information using documents, data or information from reliable and independent sources. TheIVCOP provides for two ways of conducting identity verification, via documentary verification and via electronic verification (under Parts 1 or 3). Part 2 of the Code provides for the certification of documents. This allows for non-face-to-face documentary verification.
13. Is it mandatory to comply with IVCOP?
No. Complying with a code of practice such as IVCOP is not mandatory. The AML/CFT regime allows for flexibility and scope for innovation because reporting entities can opt out of a code of practice. However, if fully complied with, a code of practice such as IVCOP operates as a ‘safe harbour’. The legal effect of a code of practice is described in section 67 of the AML/CFT Act.
Please note that if a reporting entity opts out of a code of practice it does not receive the benefit of the safe harbour. In these circumstances, the reporting entity must comply with the relevant statutory obligation by some other equally effective means. In order for this to be a defence to any act or omission by the reporting entity, the reporting entity must have provided written notification to its AML/CFT supervisor that it has opted out of compliance with IVCOP and intends to satisfy its obligations by some other equally effective means.
14. I have an elderly customer with no form of appropriate photographic ID. What should I do?
There are many different types of documents that can be used under the IVCOP. However, there will always be some people that don’t have the required identification documents under Part 1 or Part 2 of IVCOP.
In order to comply with IVCOP, you must have exception handling procedures in place for these customers. Your exception handling procedures may only be used where the person demonstrates that they are unable to comply with Part 1 or Part 2. Please note that it is a business decision as to how you carry out the exception handling procedure.
15. Do I need to certify copies of original identity documents provided for CDD purposes?
No. If you, or your agent, have sighted the original identity documents of your customer, you comply with Part 1 of IVCOP. You should take copies of the documents and note the date on which you sighted them.
In these circumstances, there is no requirement for you to also obtain certified copies of these documents (under Part 2 of IVCOP). Part 2 of IVCOP is for situations where the original identity documents are not available.
16. Is it sufficient that my customer provides me with certified copies of documents (i.e. not originals) for CDD purposes?
Yes, certified copies of identity documents are acceptable under Part 2 of IVCOP. As per above, Part 2 of IVCOP should be used in situations where the original identity documents are not available.
Please refer to IVCOP to determine who is able to certify copies of a document as a trusted referee.
17. How should the trusted referee certify the copy of the identity document?
There is no specified wording in either the IVCOP or in legislation. Part 2 of IVCOP only states that the trusted referee “make a statement to the effect that the documents provided are a true copy and represent the identity of the named individual (link to the presenter)”.
You might find the New Zealand Law Society practice briefing helpful in relation to certification and verification under the AML/CFT Act: Certification and Verification under the AML/CFT Act 2009 (PDF, 171KB - NZ Law Society website).
18. Can I accept a scanned copy of a certified identity document by email for CDD purposes?
A scan of a certified copy of an identity document that is emailed to you is not normally acceptable for CDD purposes. This is because it could easily have been falsified or tampered with prior to being emailed to you.
Notwithstanding this, in some circumstances, the AML/CFT Act allows for the verification component of CDD to be completed after a business relationship has been established (see sections 16(3) and 24(3)). This may only be done if the following apply:
(a) It is essential not to interrupt normal business practice; and
(b) Money laundering and financing of terrorism risks are effectively managed through procedures of transaction limitations and account monitoring or (if the reporting entity is not a financial institution) through other appropriate risk management procedures; and
(c) Verification of identity is completed as soon as is practicable once the business relationship has been established.Identity verification requirements of CDD for a customer conducting an occasional transaction or occasional activity must always be completed before conducting the transaction or activity.
19. How do I verify the address of a customer?
Unlike for the name and date of birth of a customer, there is no code of practice for verifying the address of a customer.
This gives you some flexibility in the approach you take. However, pursuant to section 16(1)(a) of the AML/CFT Act, you must still take reasonable steps to ensure the address information obtained is correct. When doing this, you must use documents, data or information from a reliable and independent source.
Ultimately, it is a business decision in relation to how your firm chooses to verify an address, and this should be explained in your AML/CFT programme. For example, you could ask for a bank statement or a utility bill which contains the full name of the customer and their residential address. It should also be recent. In a higher risk scenario you may decide to apply more rigorous address verification. For example, you could seek two or more forms of address verification.
20. My client is currently residing overseas, however they own a house in NZ. How do I verify their address, and what address would we use in this case?
The address you would need to verify would be where they are currently residing. See question 19 for proof of address.
21. Can I use electronic bills/statements to verify address?
This is a business decision for you to make. If you are satisfied that the email copy is genuine, this may be acceptable.
22. How do I verify the address of a trust?
You can refer to the Trust Deed to verify the address of a trust. You should take steps to confirm this is the current address. If the trust does not have an address, you should obtain the address of the person acting on behalf of the trust.
23. Who is an existing customer?
An existing customer is someone who was in a business relationship with your reporting entity immediately before the AML/CFT Act began applying to the reporting entity.
24. When do I need to conduct CDD on existing customers?
The AML/CFT Act requires you to conduct CDD on an existing customer 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. The Department considers that “insufficient information” means that CDD has not been conducted to the level required by the AML/CFT Act.
You must also conduct ongoing CDD on an existing customer. This requires you to ensure that the business relationship, including the activities and transactions within it, are consistent with your knowledge about the customer, their business and risk profile. When doing this, you must regularly review any information you hold about the existing customer.
The requirement to conduct ongoing CDD and account monitoring on an existing customer may require you to update your CDD records even in the absence of a “material change” in the business relationship.
25. Can you define ‘material change’?
‘Material change’ is not defined in the AML/CFT Act. However, the supervisors’ AML/CFT Programme Guidanceadopts a working definition of “an event, activity or situation that you identify that could change the level of ML/TF risk you may encounter”: AML/CFT Programme Guidance (PDF, 168KB)
Wire transfers and Prescribed Transaction Reporting requirements (for international wire transfers):
26. I am confused about the EDD requirements for wire transfers, what are they?
The EDD requirements for wire transfers are contained in sections 22(3), 27-28 of the AML/CFT Act.
The EDD wire transfer provisions are applied and relate specifically to the information that must accompany a transfer of funds by electronic means. Wire transfers present a high risk of money laundering which is why these additional enhanced CDD requirements exist.
The EDD wire transfer provisions are dependent on whether the reporting entity is an Ordering, Intermediary or Beneficiary Institution in relation to each transaction it is involved in (that meets the definition of wire transfer). These terms are defined in section 5 of the AML/CFT Act (and see response to question 71 below).
The relevant obligations differ depending on whether a wire transfer is domestic or international.
In summary, an Ordering Institution of a wire transfer must identify and verify the identity of the originator of a wire transfer. Relevant information (which differs depending whether it is a domestic or international wire transfer) must be transmitted to the next reporting entity in the chain, and in turn, through to the Beneficiary Institution. The Beneficiary Institution therefore has visibility of who is sending money to its client. If a Beneficiary Institution does not receive the required information with a wire transfer, it is required to use appropriate risk based procedures for handling its receipt of those funds and consider whether the wire transfer constitutes a suspicious activity. Further information is available in the Wire Transfer Guidance (PDF, 153KB).
Where a wire transfer is an international wire transfer of $1,000 or more, there is also the requirement that an Ordering and Beneficiary Institution submit an international wire transfer prescribed transaction report (IFT-PTR) to the New Zealand Police Financial Intelligence Unit (FIU).
For the application of the wire transfer and IFT-PTR provisions for law firms and accountants, please refer to questions 69-71 in Section J at the end of these FAQs. For the application of the wire transfer and IFT-PTR provisions to money remitters that utilise an informal or hawala system of money transfer, please refer to the Department’s information sheet on this subject.
27. What is the difference between the EDD wire transfer provisions and the other EDD circumstances where I have to verify the source of the funds or the wealth of the customer?
We understand that the use of the term EDD for two different sets of requirements can cause confusion.
As outlined above, the EDD wire transfer provisions apply to transfers of funds by electronic means (as set out in sections 22(3) and 26-27 of the AML/CFT Act).
The EDD requirements to identify and verify the source of the funds or the wealth of the customer are wider. These requirements apply to certain high risk customers, certain transactions and activities, or politically exposed persons (as set out in other parts of section 22 and sections 23-26 of the AML/CFT Act). In these circumstances, a reporting entity is required to examine the legitimacy (or potential illegitimacy) of the source of the customer’s wealth or funds. In many situations, this may extend far beyond the originator of any particular wire transfer.
Further information is available in the EDD Guidance here: Enhanced Customer Due Diligence Guideline (PDF, 556KB) Word document version: Enhanced Customer Due Diligence Guideline (DOC, 1.3MB)
28. What is the difference between a customer’s source of wealth and their source of funds?
Your customer's source of wealth (SoW) is the origin of their entire body of assets. This information gives an indication of the amount of wealth your customer would be expected to have and a picture of how they acquired it.
Your customer's source of funds (SoF) is more narrowly focused. It is the origin of the funds used for the transactions or activities that occur within the business relationship with you.
29. When do I have to examine a customer’s source of wealth versus their source of funds?
It is for you to determine when to examine your customer's SoW, when to examine their SoF, or when to examine both.
However, it is important to remember that your customer's SoW and SoF are not mutually exclusive. A situation where an individual transaction is disproportionately large compared to your knowledge of a customer's wealth, should trigger a more detailed examination of the SoF of that particular transaction.
30. How far do you have to verify the customer’s source of wealth or funds?
How far you identify and verify the customer’s source of wealth (SoW) or funds (SoF) must be according to the level of risk involved. The AML/CFT Act requires you to take reasonable steps, according to the level of risk involved, to verify the SoW of SoF using reliable and independent sources.
Where you identify that the origin of your customer’s funds or wealth has come from their beneficial owner(s), it may be necessary, according to the level of risk involved, for you to extend your level of verification to include the SoW or SoF of these persons. However, you do not ordinarily need to obtain and verify SoW and SoF for every beneficial owner where they have nothing to do with the “customer’s” SoW or SoF.There is further information on this topic on pages 16 and 17 of the EDD Guideline here:
Enhanced Customer Due Diligence Guideline (PDF, 210KB)
31. Why is examining a customer’s source of wealth or funds important? If something looks or meets the criteria for high risk, why don’t I just make an SAR?
The EDD provisions relating to SoW or SoF are a very important part of the AML/CFT regime.
It is EDD that assists you to distinguish between a customer that has a high risk profile, activity or transaction, but is not involved in ML/FT, versus a customer whose activities or transactions may be linked to ML/FT. This also ensures that the FIU receive useful and actionable SARs where there are genuine grounds for suspicion.
32. When conducting EDD on a trust, when do I have to verify the identities of the beneficiaries?
You will need to verify the identity of a beneficiary of a trust when they are a natural person and a beneficial owner of the trust. A beneficiary will meet the definition of beneficial owner of a trust when they have a vested interest of more than 25% in the trust property. Further information is available in the Trusts as a customer fact sheet (PDF, 133KB)
For example, if a family trust is set up for the equal benefit of three beneficiaries, each of those beneficiaries will have a 33.33% interest in the trust property, so all three beneficiaries will be beneficial owners.
In other circumstances, such as where a beneficiary has an interest of 25% or less in the trust property, a beneficiary of a trust may not be a beneficial owner (please refer to question 33 and 34 below).
33. What about EDD when a beneficiary is not a beneficial owner? Or for charitable trusts, discretionary trusts or any type of trust that has multiple beneficiaries?
Section 23 of the AML/CFT Act specifies the EDD requirements in relation to beneficiaries of trusts.
Where a beneficiary is a natural person, but not a beneficial owner, you are only required to obtain the beneficiary’s name and date of birth. You do not have to verify this information. As clarified in the Trusts as a customer fact sheet (PDF, 133KB), this arises if a beneficiary has an interest of 25% or less in the trust property and does not have effective control of the trust.
Where your customer is a discretionary trust, a charitable trust, or any type of trust that has more than ten beneficiaries, section 23(2)(b) of the AML/CFT Act allows you to relax this requirement further. In such cases you are only required to obtain:
a description of each class or type of beneficiary; and
in the case of a charitable trust, the objects of the trust.
34. What other natural persons associated to a trust do I need to identify and verify?
As with any type of customer, the identity information of all beneficial owners must be obtained and verified.
For a trust, the beneficial owners will be:
beneficiaries that have 25% or more interest in the trust property
any individual who has effective control over the trust or specific trust property
any person that has the power to amend the trust’s deeds, or remove or appoint trustees. This might include a protector or special trustee (if there are any).
You will also need to identify and verify the identity of any other person who has authority to act on behalf of the trust.
In relation to the SoW and SoF of a trust, you will need to examine the identity of the individuals who are the settlor(s), and the origin of their wealth or funds.
Customer Due Diligence – Trusts
Trusts as a customer
EDD Guideline
35. How can I determine whether a country does not have sufficient AML/CFT systems in place? Or whether it is otherwise of high risk?
There is no definitive list of countries that do not have sufficient AML/CFT systems and measures in place or are otherwise high risk.
Reporting entities will therefore need to consider a range of factors when determining the level of risk associated with a particular country. These include whether a country is:
Identified by the Financial Action Task Force (FATF) as a high risk or monitored jurisdiction?
Recognised as having supporters of terrorism or financing terrorism?
Considered to have problems with corruption?
You can find the list of FATF high risk or monitored jurisdictions on the FATF website.
You may also find page 11 of the Prompts and Notes guidance provided by the Department (PDF, 847KB) useful when assessing country risk. The Country Assessment Guideline (PDF, 138KB) that is referred to in the Prompts and Notes document (PDF, 847KB) can also be found on our website.
Additional resources you might find useful are:
The Basel AML Index 2017 Report
Ministry of Foreign Affairs & Trade – UN Sanctions List
KnowYourCountry Ratings Table
36. When do I have to submit a large cash transaction prescribed transaction report (LCT-PTR)?
A LCT-PTR must be submitted for any cash transaction of $10,000 or more involving physical currency (i.e. actual coin or printed money). A LCT-PTR must be submitted to the Police FIU using the goAML system.
Further information in relation to both large cash (and international wire transfer PTRs) is available on the New Zealand Police Financial Intelligence Unit’s website.
37. Do I have to submit a large cash transaction PTR if my customer goes to my bank and pays the cash into my account?
No. In this situation, you (as a reporting entity) are not handling the cash. Your bank will be submitting a LCT-PTR.
However, that a cash deposit has been paid into your bank account may still be relevant to your wider AML/CFT programme, in particular, for your account monitoring obligations for this customer under section 31 of the AML/CFT Act.
F. Suspicious activity reporting:
38. How do I register for goAML?
Please refer to the New Zealand Police Financial Intelligence Unit’s website to register for goAML.
39. If I am submitting a SAR but a related transaction also requires a PTR (whether a LCT-PTR or an IFT-PTR), do I need to submit the PTR as well?
Yes. The fact that a SAR has been submitted does not negate the need to also submit a PTR if required to do so. PTRs and SARs complement other types of reports and information held by the FIU and are used in different ways.
40. Can you provide further information in relation to what constitutes suspicious activity and when I need to submit a SAR?
The New Zealand Police Financial Intelligence Unit has provided a useful guideline on money laundering, terrorist financing and the SAR provisions of the AML/CFT Act (Police website PDF, 732KB)
41. My reporting entity filed a suspicious activity report (SAR) about one of our customers and as a result the Police investigated and the person was charged with a crime. Will the person find out that we submitted an SAR about them?
No. SAR confidentiality is treated very seriously by the Police, and the AML/CFT Act prescribes penalties for disclosure of information relating to SARs.
42. Is it a breach of the Privacy Act if I file an SAR in relation to a person and disclose their personal information? Can there be any adverse legal implication for me?
No. The requirements to submit an SAR override any obligations you have under the Privacy Act. Where you have submitted a SAR in good faith and in accordance with your obligations under the AML/CFT Act, no civil, criminal or disciplinary proceedings may be taken against you.
43. Is there a reporting threshold for SARs?
There is no value threshold for reporting suspicious activity. Any activity that you consider to be suspicious (as per the criteria in s39A of the AML/CFT Act) must be reported to the FIU as a SAR.
G. Staff vetting:
44. What staff do I need to vet? How do I go about this?
Section 57 of the AML/CFT Act states that adequate and effective procedures, policies, and controls for vetting staff (as below) must be included in your AML/CFT programme:
ii. the AML/CFT compliance officer; and
iii. any other employee that is engaged in AML/CFT related duties.Guidance on creating procedures, policies and controls, as part of your compliance programme, regarding compliance officer and employee vetting can be found in the Prompts and Notes for DIA reporting entities document on page 15 (PDF, 847KB)
How your business decides to vet its staff is a business decision. You may wish to consider the following:
how vetting is differentiated for senior managers, compliance officers and customer facing roles;
how vetting is applied when people change roles;
adding a reference check from a past employer;
how vetting is applied for temporary staff; and
event triggered vetting (e.g. adverse media about a staff member, a suspicious activity report (SAR) is made in relation to an employee, or an employee fails to submit an SAR where one would have been expected).
H. Independent audits/ auditors:
45. Do you have a list of approved auditors?
No. The Department does not have a list of approved auditors. It is a business decision for you to determine who has the appropriate qualifications to conduct your audit.
46. What does an independent audit involve?
The AML/CFT Act requires that:
An independent audit must be conducted every 2 years (or earlier if required by your supervisor).
The auditor must be independent and appropriately qualified to conduct the audit. This does not necessarily mean the person has to be a chartered accountant or qualified to undertake financial audits.
The auditor must not have been involved in the establishment, implementation or maintenance of the reporting entity’s AML/CFT programme; or the undertaking of the reporting entity’s risk assessment.
An AML/CFT audit does not have to meet auditing and assurance standards set by the External Reporting Board (XRB).
Your independent audit is a systematic check of your risk assessment and programme by an independent and suitably qualified person. It should advise whether:
you meet the minimum requirements for your risk assessment and programme;
your programme was adequate and effective throughout the specified period; and
whether any changes are required.
I. Annual AML/CFT Report:
47. Where can I find the format of the Annual Report for DNFBPs?
The format for the AML/CFT report by designated non-financial businesses and professions can be found in schedule 2A of the Anti-Money Laundering and Countering Financing of Terrorism (Requirements and Compliance) Regulations 2011.
J. For Law Firms and Accountants
These sections apply to law firms and accountants and are not directly applicable to other types of reporting entities:
Designated non-financial business or profession (DNFBP) Activity (a)(ii) - Acting as, or arranging for a person to act as, a nominee director or nominee shareholder or trustee in relation to legal persons or legal arrangements
48. I form trusts. I also act as a trustee for trusts, sometimes using corporate trustee companies and sometimes my partners individually act as a trustee. Who is the reporting entity under the AML/CFT Act?
A person is a reporting entity under the AML/CFT Act if they, in the ordinary course of business, form trusts or other legal arrangements (DNFBP activity (a)(i)). Persons are also reporting entities when, in the ordinary course of business, they act as trustees, and/or arrange for persons to act as a trustee in relation to legal persons or arrangements (DNFBP activity (a)(ii)).
That means a person, whether a natural person or a legal person (such as a corporate trustee), is captured as a reporting entity under the AML/CFT Act each time they perform one of the above mentioned activities in the ordinary course of business for a legal person or legal arrangement.
The Department acknowledges that in some situations, this means that there might be multiple related reporting entities each covered by the AML/CFT Act for the same, or a very similar, set of customers (i.e. the trusts and/or their beneficial owners). We are aware this may result in disproportionate compliance obligations and are currently engaging with the Ministry of Justice to address the issue. We are committed to producing further guidance on this and we will update you as soon as we have a workable solution.
Notwithstanding the above, please also note that if you are a trustee in your personal capacity (as opposed to professional capacity for your law firm or accounting practice) this is not captured by the AML/CFT Act as it is not “in the ordinary course of business”. For example, you will not be a reporting entity solely because you are a trustee in your personal capacity, without remuneration, for a registered charitable trust in your local community or for a friend or relative’s family trust.
49. I form companies and other legal persons. I also act as nominee shareholder or nominee director for companies, sometimes using holding companies and sometimes my partners individually as a director. Who is the reporting entity under the AML/CFT Act?
Under DNFBP activity (a)(ii), a person is captured as a reporting entity under the AML/CFT Act when they, in the ordinary course of business, arrange for a person to act as a nominee director or nominee shareholder for a legal person. A person is also captured as a reporting entity when, in the ordinary course of business, they act as a nominee director or nominee shareholder for a legal person.
The Department acknowledges that in some circumstances, this means that there might be multiple related reporting entities each covered by the AML/CFT Act for the same, or a very similar, set of customers (i.e. the companies and/or their beneficial owners). We are aware this may result in disproportionate compliance obligations and are currently engaging with the Ministry of Justice to address the issue. We are committed to producing further guidance on this and we will update you as soon as we have a workable solution.
DNFPB Activity a(iii) – providing a registered office or a business address, a correspondence address, or an administrative address for a company, or a partnership, or for any other legal person or arrangement, unless the office or address is provided solely as an ancillary service to the provision of other services.
50. When am I providing a registered office or a business, correspondence or administrative address (“registered office/correspondence address”) solely as an ancillary service to other non-captured services?
If you provide a registered office/correspondence address to a client solely in support of other services that not captured by the AML/CFT Act, then this activity is solely ancillary. Therefore, you will not have obligations under the AML/CFT Act in relation to that client.
However, in any circumstances where a registered office/correspondence address is provided as a standalone service, this will be captured by the AML/CFT Act. Similarly, if a registered office/correspondence address is provided alongside other captured services, this will ordinarily be caught by the AML/CFT Act.
The Department has released a fact sheet for the accounting sector in relation to the provision of a registered office/correspondence address service:
Fact sheet: provision of a registered office/correspondence address service (PDF, 980KB)
51. Is the provision of a registered office/correspondence address captured by the AML/CFT Act if I provide the service to a sole trader?
No. Providing registered office/correspondence address is only captured by the AML/CFT Act where the service is provided to a legal person (e.g. a company) or legal arrangement (e.g. a trust).
It does not apply where the registered office/correspondence address service is provided to a natural person (including a person operating a business as a sole trader).
DNFBP Activity (a)(iv) - Managing client funds (other than sums paid as fees for professional services), accounts, securities, or other assets
52. What constitutes ‘managing client funds’?
One of the activities that capture a law firm or accounting practice as a reporting entity under the AML/CFT Act is “managing client funds, accounts, securities, or other assets”. This does not include sums paid as fees for professional services.
The Department’s view is that, with the exception of payments for your professional fees, any instance where you receive or hold client funds and control the payment of those funds will be captured as ‘managing client funds’.
The key determining factor is whether you have control over the flow of funds – if you do have control, your activity is captured. This is likely to include all circumstances where you hold funds for a client in your trust account or where you have authority over a client’s bank account(s). This may also include other circumstances, for example, if you have control and direct the flow or transfer of funds for your client.
53. Is receiving my professional fees captured as ‘managing client funds’?
No. Receiving sums paid to you for your fees for professional services, including as a retainer in advance, is not ‘managing client funds’. Accordingly, this is not a captured activity under the AML/CFT Act.
54. What obligations do I have in terms of CDD on non-clients using my trust accounts?
DIA holds the view that lawyers and accountants are required to meet the usual CDD requirements and other obligations under the AML/CFT Act in relation to their own clients. They do not however have to conduct CDD on non-clients using their trust accounts. Lawyers and accountants will still be required to meet all broader obligations under the AML/CFT Act, these include:
Account monitoring obligations in relation to funds received into a trust account from parties other than (but ultimately for) their client
Enhanced CDD is required on those funds from the non-client if required – including wire transfers and SAR reporting (e.g. s22(1)(c), (d), (3), or s22A(1) of the Act).
55. Is receiving funds for disbursements considered to be ‘managing client funds’?
Whether receiving funds from clients for disbursements is captured under the AML/CFT Act depends very much on the context.
In summary, where you receive funds in advance to be used for anticipated disbursements (not including fees for your own professional services) this will be ‘managing client funds’. However, if you pay a disbursement on behalf of your client before they have paid you, then you are not managing your client’s funds. Rather, you are paying with your own funds. If you then invoice the client and they reimburse you, this is repaying a debt owed to you.
Tax transfers, payments and credits with IRD
56. I provide tax accounting services. Is managing a customer’s tax transfers, payments and credits with the IRD considered ‘managing client funds’?
As stated in response to question 52 above, the Department’s view is that you may be ‘managing client funds’ in various circumstances where you have control the flow of funds for your client. This may include circumstances where you are involved in transferring funds on behalf of your customer within the IRD system.
Please also note that another captured activity that may apply to tax transfers, payments and refunds is DNFBP activity (a)(vi)(E). Please refer to question 58 below.
The Department has released an explanatory note for the accounting sector relating to tax transfers, payments and refunds:
Explanatory Note:Involvement in tax transfers, payments and refunds: (PDF, 970KB)
57. I provide a bookkeeping service. Sometimes I am involved in authorising or processing payments for expenses on behalf of my customer. Is this considered ‘managing client funds’?
As with involvement in tax transfers, payments or refunds, the Department’s view is that bookkeepers may be ‘managing client funds’ where they are authorising and processing transactions on behalf of their client. The key determining factor will be whether the bookkeeper has control over the flow of funds.
This is likely to include circumstances where bookkeepers:
Have authority over a client’s bank account and make payments from that account on behalf of a client, for example payroll or other business expenses.
Handle and bank cash takings belonging to a client.
Please also note that another captured activity that may apply to bookkeepers involved in authorising or processing financial transactions is DNFBP activity (a)(vi)(E). Please refer to question 58 below.
The Department has released an explanatory note relating to involvement in authorising or processing financial transactions when providing a bookkeeping service here:
AML/CFT Explanatory Note: Involvement of bookkeepers in financial transactions (PDF, 970KB)
DNFBP Activity (a)(vi)(E) - Engaging in or giving instructions on behalf of customer to another person (“engaging in or giving instructions”) for a transaction in relation to creating, operating, and managing a legal person (for example, a company) and any other legal arrangement
58. In what circumstances am I engaging in or giving instructions for a transaction in relation to creating, operating, and managing a legal person or arrangement?
Creating, operating or managing a legal person or arrangement covers a potentially wide range of circumstances.
For AML/CFT Act purposes, a “transaction” is a financial transaction. It is also important to note that this activity is only covered by the AML/CFT Act where the transaction(s) relates to a legal person (for example, a company) or a legal arrangement (for example, a trust). It does not apply if you are engaging in or giving instructions in relation to financial transactions for a person operating as a sole trader (i.e. a natural person).
Transaction is defined in section 5 of the AML/CFT Act and means any deposit, withdrawal, exchange or transfer of funds whether (i) in cash; (ii) by cheque, payment order or other instrument; or (iii) by electronic or other non-physical means. There are some inclusions and exclusions specified in the definition. Please refer to section 5 of the AML/CFT Act here:
Section 5 - Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (Legislation website)
59. Why is engaging in or giving instructions (in addition to managing client funds) only captured for transactions relating to a legal person or arrangement?
Legal persons and arrangements may be misused by criminals to conceal beneficial ownership and the natural persons on whose behalf a financial transaction is conducted. Capturing ‘engaging in or giving instructions’ only for legal persons or legal arrangements (but not natural persons) reflects this ML/FT risk.
60. Is advising Inland Revenue of a change of bank account number considered ‘engaging in or giving instructions’?
No. This would be classified as an administrative activity rather than engaging in or giving instructions for a “transaction” relating to operating or managing a legal person or legal arrangement.
61: How does the Department define ‘related’ for the formation of Designated Business Groups (DBGs) in relation to Designated Non-Financial Businesses (DNFBPs)?
Section 32 of the AML/CFT Act, allows a reporting entity to rely on another member of a designated business group (DBG) to fulfil some of its obligations under the AML/CFT Act.
One way in which reporting entities which are DNFBPs can form a DBG is if they are ‘related’ (as per paragraphs (vi) – (x) of the definition of a DBG in section 5 of the AML/CFT Act.
The Department considers that ‘related’ in this context should be interpreted to mean “connected” or “associated”. We note that DNFBPs may only be considered ‘related’ if they operate in the same sector, i.e. the entities are law firms.
That means a franchise, for example a group of real estate agent franchisees, may be related. In some circumstances, a group of real estate agent franchisees that operate as part of one brand are likely to meet the criteria of ‘related’. Relevant considerations are likely to include the type of franchise model, the type of franchise agreement and the extent of the connection or association between franchisees. In particular, consideration of the extent of the connection or association between franchisees may include whether they are in the same geographical region as opposed to a wider spread (where there may be less of a connection/association).
Please note that eligibility to form a DBG is determined on a case by case basis. Any notification to the Department should include supporting documentation that establishes why the members consider themselves ‘related’, for example copies of franchise agreements and other explanatory commentary.
To help you with this, you can also refer to the Department’s other guidance on DBGs, including what obligations may be shared by members of a DBG and the process for notifying us as your supervisor about the formation of a DBG. Those guidelines can be found below.
62: Can Lawyers use simplified customer due diligence (CDD) when dealing with registered banks?
DIA holds the view that the “existing customer” provisions as defined in the Act are sufficient for this purpose. This is despite a registered bank ordinarily being a type of customer that may be eligible for simplified CDD (section 18 (2)(n) of the Act).
An existing customer means a person who was in a business relationship with the law firm immediately before 1 July 2018. A law firm is not required to conduct CDD on an existing customer unless there has been a material change in the nature or purpose of the business relationship and it holds insufficient information about that customer (section 14(1)(c) of the Act). This means in relation to a registered bank that is an existing customer, in most cases, a law firm does not need to conduct any further CDD on the registered bank or on a person acting on its behalf.
Example: On 1 July 2018, a lawyer acts for New Zealand registered ‘Bank A’ on registration of a mortgage on a property that is being purchased. If the lawyer has not acted for Bank A in this capacity previously, the law firm may conduct simplified CDD on Bank A. However, if the law firm has an existing relationship with Bank A prior to 1 July 2018, Bank A is an existing customer. Unless there is a material change in the nature or purpose of the services provided and insufficient information about Bank A, the law firm is unlikely to need to conduct any additional CDD.
Please note that for any new business relationship with a registered bank, a law firm may conduct simplified CDD in accordance with section 18-20 of the Act. This means in relation to a registered bank, the law firm may conduct simplified CDD on the bank and the person acting on its behalf. As with most aspects of the AML/CFT Act, a law firms’ compliance measures should apply a risk-based approach.
63: I’ve received funds through the banking system for my customer. The bank would have monitored these funds for AML/CFT purposes. Can I therefore be confident that the funds are legitimate?
No. You must apply your AML/CFT obligations independently to those that the bank applies. Your visibility and understanding of your customer’s transactions and activities is different to that of a bank. Often, you have a more detailed knowledge of the specific reasons that a particular transaction or activity is being undertaken. The visibility that you have over your customer’s activities and transactions is an important opportunity to detect money laundering or terrorism financing.
64: I am only providing advice to a client in relation to a transaction or activity that would be captured by the AML/CFT Act; will I need to conduct CDD?
There will be circumstances where you give advice in relation to a captured activity (without necessarily then carrying out the activity).
In most circumstances, this will not be caught by the AML/CFT Act. As a result, you are not required to conduct CDD prior to giving the advice.
However, in some situations, and if that advice to a client is in preparation for an activity or transaction, you may be required to conduct CDD. This is particularly relevant in circumstances when your advice relates to an activity or transaction that you are likely to be engaged to conduct urgently.
Law firms will also need to be aware of their obligations to report suspicious activities, which can include requests for or enquiries about particular services that law firms offer (regardless of whether they ultimately provide those services).
65. I undertake activities that are captured by the AML/CFT Act but the risk of ML/FT seems very low. Why are these activities caught by the AML/CFT Act?
Capture under the AML/CFT Act is based on activity (rather than the level of ML/TF risk). This is because, increasingly, legitimate businesses in industries perceived as low risk are used as intermediaries in the various phases of money laundering. Low risk businesses may be seen as attractive for illicit activity due to the perception of lesser AML/CFT awareness and fewer controls in place. It is important that you assess the ML/TF risk your business faces, and then apply suitable and proportionate measures to mitigate the risks identified.
However, there are provisions in the AML/CFT Act that allow you to apply for a ministerial exemption from some or all of your AML/CFT obligations, under certain circumstances. The exemptions process is administered by the Ministry of Justice. The criteria that the Minister of Justice must have regard to when making their decision is outlined under section 157 of the AML/CFT Act. This includes, but is not limited to the risk of money laundering and financing of terrorism associated with the reporting entity. Please note that the exemptions process is thorough and you will need to consider all the factors outlined under section 157 of the AML/CFT Act. The Ministry of Justice may also require additional information from you to inform its analysis on your application. Further information on ministerial exemptions can be found on the Ministry of Justice’s website here:
AML/CFT information for businesses - ministerial exemptions (Ministry of Justice website)
66. My business is involved in liquidations, who is my customer?
This is a key question when carrying out captured activities associated with liquidations. It is likely to depend on the particular liquidation proceedings; and specifically who has engaged you and what you have been engaged to do.
In many circumstances, your customer may not be the company that is in liquidation.
Your CDD obligations under the AML/CFT Act relate to your customer (as defined in the AML/CFT Act).
67. What are my CDD obligations if an involuntarily liquidated company is my customer and persons associated with it refuse to engage with me?
If your customer is a company that it is in involuntary liquidation and associated persons are reluctant to engage with you, hostile, or even absent, we appreciate that this may pose some CDD challenges.
Some of the information you will need to undertake CDD is likely to be available on the Companies Register (please refer to question 5 above). You may also find that a third party instructing you in relation to the liquidation proceedings is able to assist you.
The Department acknowledges that reporting entities may encounter difficulties in being unable to complete CDD on particular customers in involuntary liquidation, and is considering options to address this issue. If you encounter difficulties completing CDD on a customer that is in involuntary liquidation, we encourage you to contact the Department to discuss the matter further.
68. Can a law firm or accounting firm continue acting for a client after submitting a SAR in respect of them or should they cease the business relationship?
This is a business decision for you to make depending on the circumstances. For law firms, the New Zealand Law Society’s website also contains information on this issue.
69. I thought the EDD wire transfer (and International Funds Transfer/Prescribed Transactions Reporting provisions) were just for banks. Is this correct?
No. When the AML/CFT Act was expanded to include law firms and accountants, the parties to a wire transfer (in the definition of wire transfer) was amended from ‘financial institution’ to ‘reporting entity’.
70. For a domestic wire transfer, the only information I have to transmit as an Ordering Institution is an ‘account number’. What does this mean?
The Department’s view is that the ‘account number’ refers to a unique identifier that the law firm or accounting practice (when an Ordering Institution) has allocated to its client. This could be a client matter number, or some other internal client reference number.
This ‘account number’ must enable the Ordering Institution to provide the rest of the originator information (usually the client’s CDD information) within 3 working days of a request from the Beneficiary Institution.
71. How do I know whether I am an Ordering, Intermediary or Beneficiary Institution of a wire transfer?
Whether a law firm or accounting practice is an Ordering, Intermediary or Beneficiary Institution of any particular wire transfer will depend on the particular circumstances of that transaction.
However, the following may assist law firms or accounting practices to make this determination:
Ordering Institution:
The Department’s view is that a law firm or accounting practice is likely to meet the definition of Ordering Institution of a wire transfer where it:
1) receives or holds funds in its trust account; and
2) transfers those funds (on instruction of an originator/payer, usually its client) by electronic means; and
3) those funds are to be made available to a beneficiary/payee at another reporting entity. Note that the beneficiary/payee at the other reporting entity could be the same person as the originator, or it could be another person. (Please refer to the definitions of ‘wire transfer’, ‘international wire transfer’ and ‘ordering institution’ in section 5 of the AML/CFT Act).
The Department’s view is that a law firm or accounting practice is likely to meet the definition of Beneficiary Institution of a wire transfer where it:
1) receives funds into its trust account, and
2) these funds are to be credited to an account held by a beneficiary/payee (often the client of the law firm or accounting practice); or
3) those funds are to be paid to a beneficiary/payee.(Please also refer to the definition of ‘beneficiary institution’ in section 5 of the AML/CFT Act).
The Department’s view is that a law firm or accounting practice will only be an Intermediary Institution of a wire transfer in a limited set of circumstances. This is because even when a law firm or accounting practice only holds funds in its trust account for a brief period of time, the onward payment is likely to be the result of a separate instruction. Accordingly, the onward payment would be a separate wire transfer, in which the law firm or accounting practice then becomes an Ordering Institution.
Wire transfers between banks and non-bank reporting entities:
The Department acknowledges that in some circumstances (where funds transfer through banks and non-bank reporting entities), the application of the wire transfer provisions may not be straightforward.
Ultimately, each reporting entity should, based on its role, understanding and visibility of any particular transaction, determine whether it is an Ordering, Intermediary or Beneficiary Institution of a wire transfer and apply the relevant positions. When an Ordering or Beneficiary Institution of an international wire transfers, this includes the requirement to submit an IFT-PTR.
International wire transfer - Prescribed Transaction Reports:
For international wire transfers, the Department also acknowledges that there may be some circumstances in which more than one reporting entity submits a PTR in relation to the same transfer of funds. This will be dependent on the different role that each reporting entity plays and its visibility of that transfer.
This is not “duplicate reporting” as the two PTRs will never be identical. Rather, this is “complementary reporting” in which each reporting entity provides a different “snapshot” of the transaction, each adding value to the wider financial intelligence picture. In particular, law firms and accounting practices have important visibility of underlying parties (i.e. their clients) to wire transfers in New Zealand that the banks will not have.
72. Do the EDD wire transfer and IFT-PTR provisions apply if I have authority over a customer’s bank account and transfer funds?
No. Despite controlling (and managing) the flow of funds from your customer’s bank account, any wire transfers from this bank account are not being made through you as a reporting entity (i.e. it is not via your trust account), using funds received or held by you for the originator/payer.
Please note however that such transactions processed on behalf of your customer using their own bank account are still subject to your wider AML/CFT programme as you are ‘managing client funds’. Please refer to question 52 above.
73. If a real estate sale falls through, do I have CDD obligations relating to the refund of the deposit?
Refunding a deposit to a person (that is not your client) is not considered an occasional transaction under the AML/CFT Act. However, in this situation the person who is instructing the refund may be the originator of a wire transfer being conducted through your real estate agent (as an ordering institution). An ordering institution of a wire transfer is required to obtain and verify identity information on the originator of the wire transfer in accordance with sections 27 and 28 of the Act.
74. My real estate agency does not have a trust account. Instead, we rely on a third party to provide trust account services to us. Do I have to comply with the wire transfer and international funds transfer - PTR provisions?
The Department confirms that the wire transfer (and in turn, PTR obligations) only apply when a reporting entity receives, holds and/or transfers funds on behalf/instruction of a client by electronic means (and in accordance with the relevant definitions relating to wire transfers in the AML/CFT Act).
In practice, for a real estate agent, this means that the wire transfer/PTR obligations only apply in relation to funds that are received, held, or transferred by a real estate agent using its trust account.
Accordingly, we confirm that a real estate agent will not have obligations under the wire transfer/PTR provisions of the AML/CFT Act where it utilises an independent third party trust account, such as NZ Real Estate Trust, rather than its own trust account. Notwithstanding this, please note that all the other requirements of the AML/CFT Act (CDD, record keeping, account monitoring, SAR reporting etc) will still apply in relation to these customers/real estate transactions.
75. Do salespersons operating under a licensed real estate agent need to have their own risk assessments and AML/CFT compliance programmes?
No. Holders of a salesperson’s license are only allowed to carry out real estate agency work on behalf of an agent. It is the agent is that is the AML/CFT reporting entity and required to have a risk assessment and AML/CFT programme. A salesperson must comply with the policies, procedures and controls that are in the real estate agent’s AML/CFT programme.
76. Can we audit within our own industry as real estate agents?
There is nothing that explicitly prevents one real estate agent from providing an independent audit service to another real estate agent. However, all requirements of an independent audit as set out in section 59(2) and 59(B) of the AML/CFT Act must be met.
Importantly, the independent auditor must not have been involved in establishing, implementing or maintaining the real estate agent’s risk assessment or AML/CFT programme. The auditor must also be appropriately qualified to conduct the audit.
77. Are property management activities captured by the AML/CFT Act?
Property management activities (as defined in the new Regulation 21B of the AML/CFT (Definitions) Regulations) are excluded from capture under the AML/CFT Act (except for some commercial property management activities*). This means that a real estate agent or other person conducting property management activities will not have obligations under the AML/CFT Act in relation to those activities, even though they may involve managing client funds. Real estate agents who carry out property management activities alongside real estate agency work will be subject to the AML/CFT Act only in relation to their real estate agency work.
* The exclusion does not cover “acting, or offering to act, for reward in respect of the negotiation, grant approval, or assignment of a tenancy agreement for commercial premises (whether described as a lease, tenancy agreement, right to occupy, or otherwise)”. Anyone engaging in these activities has full obligations under the AML/CFT Act in relation to these activities.
78. Is commercial leasing captured by the AML/CFT Act?
Yes. Commercial leasing is recognised as an area of ML/TF risk, and is therefore captured. Persons engaged in "the grant, sale, purchase or acquisition of a leasehold estate or interest in land (other than a tenancy to which the Residential Tenancies Act 1986 applies)" are providing real estate agency work. These persons are subject to the full range of AML/CFT obligations as a reporting entity under the AML/CFT Act.
79. For existing vendors on the books at 1 January 2019, do we have to go back and perform CDD on them?
The AML/CFT Act requires you to conduct CDD on an existing customer 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.
The renewing of an agency agreement for an unsold property would not generally be considered a "material change". However, any new listing for a sale of a property for a customer that you have previously acted for is likely to be a "material change". Please refer to question 24 above.
The Department considers that “insufficient information” means that CDD has not been conducted to the level required by the AML/CFT Act.
You must also conduct on-going CDD on an existing customer. Please refer to question 23 above.
80. If we have an agency agreement with a vendor and are holding an auction of their property, do we have to conduct CDD on the bidders?
No. The vendor is your client and your CDD obligations relates to them. The exception to this is if the successful bidder pays you by cash or cheque (or some other bearer negotiable instrument) of $10,000 or more. You then have an obligation to conduct CDD on this person.
If the payment is made in physical cash (i.e. coins or notes) there is also a requirement to submit a Large Cash Transaction PTR. For further information relation to Large Cash Transaction PTRs, please refer to questions 36 and 37 above.
81. In a scenario when you receive a deposit from a person from their overseas bank account paying a deposit into your trust account for a real estate purchase, does a PTR need to be submitted?
Yes. In this situation you are likely to be the beneficiary institution of an international wire transfer. As it is an international wire transfer (of $1000 or over), there is a corresponding obligation to submit an International Funds Transfer PTR to the FIU.
82. Can a real estate agent rely on a third party to complete CDD on its behalf?
a) A member of the same Designated Business Group (DBG)
b) Another reporting entity in New Zealand (e.g. a law firm that provides relevant services covered in the AML/CFT Act) or a person in another country that has sufficient AML/CFT systems and measures in place and who is regulated for AML/CFT purposes
Please note for (b) above, if you are relying on another reporting entity in New Zealand or equivalent in an overseas jurisdiction, they must:
Have a business relationship with the customer concerned; and
Have conducted CDD to at least the standard required by the AML/CFT Act and regulations:
provided you with the relevant identity information before you have established a business relationship or conducted an occasional transaction or activity; and
Can provide relevant verification information on request as soon as practicable but within five working days; and
Have consented to conducting the CDD and providing all relevant CDD information to you.
If you do rely on a member of your DBG, another reporting entity in New Zealand or equivalent overseas, or agent, you will be responsible for ensuring the CDD is conducted in accordance with the requirements of AML/CFT Act and applicable regulations
83: I am a real estate agent that has signed an agency agreement to act for a landlord to list and sign up a tenant for a commercial property. Do I have to conduct CDD on the landlord, the tenant, or both?
In a situation where a real estate agent’s client (as defined in section 4(1) of the Real Estate Agents Act 2008) is the landlord, the real estate agent must conduct CDD on the landlord.
There is no requirement to also conduct CDD on the tenant unless receipt of funds from the tenant constitutes an occasional transaction (being a cash transaction equal to or over $10,000). Please note that cash is defined to mean physical cash or bearer-negotiable instruments (such as cheques, bill of exchange, promissory note, bearer bond, traveller’s cheque, money order, postal order or similar).
Once the commercial tenancy has been entered, rent otherwise collected from a tenant as part of property management activities does not trigger AML/CFT obligations. (Regulation 21B of the AML/CFT (Definitions) Regulations). Please refer to questions 77 and 78 above for further information.
In a situation where the real estate agent’s client (as defined in s4(1) of the REAA) is the tenant (not the landlord), the above applies in reverse. In this situation, the real estate agent must conduct CDD on the tenant.
Arranging residential tenancies (to which the Residential Tenancies Act 1986 applies) is not real estate agency work and is not a captured activity under the AML/CFT Act.
84: I have a conjunctional arrangement with another real estate agency. Do I have any CDD obligations under the AML/CFT Act in relation to the vendor?
A conjunctional arrangement is when one agency has a sole agency agreement on a property and another real estate agency finds a willing buyer for the property. By mutual agreement, the two agencies agree to share the commission payable on the property at no additional cost to the vendor.
The Department’s view is that in these circumstances, the conjunction agent (the agent without the sole agency agreement) does not have any direct CDD obligations in relation to the vendor. The responsibility to conduct CDD on the vendor rests with the real estate agent that signs the agency agreement.
Despite this, there remain some situations where the conjunction agent would need to complete CDD on the customer – the conjunction agent remains a reporting entity and is required to comply with other AML/CFT obligations, such as SAR reporting.
85. I am a real estate agent that acts for the vendor of a property. I find a buyer who wants to pay their deposit to me by a bank cheque. Do I have to conduct CDD on the purchaser?
Yes, you are required to conduct CDD on the purchaser in this scenario. This is because a cheque (which includes a bank cheque) is included in the definition of ‘bearer-negotiable instrument’ (BNI) in the AML/CFT Act.
A transaction involving a BNI or physical cash (of $10,000 or more) that is conducted with a person who is not your client (as defined in s4(1) of the Real Estate Agents Act 2008), is considered an ‘occasional transaction’ (as defined in s5 of the AML/CFT Act). As a reporting entity, you must conduct CDD on any person with whom you conduct an occasional transaction.
86. There are different types of cheques, such as personal, travellers or bank cheques. Does the definition of ‘bearer-negotiable instrument’ include all types of cheque?
Yes. The Department’s view is that the definition of a bearer-negotiable instrument (BNI) includes all types of cheques. It also includes other types of monetary instrument that may be transferred from one person to another, for example a promissory note, a bill of exchange, a bearer bond, money order or postal order.
Please note that the occasional transaction thresholds of some types of BNI are lower than $10,000 – please refer to the AML/CFT (Definitions) Regulations 2011 for further information.
87. The definition of ‘occasional transaction’ in the AML/CFT Act excludes ‘cheque deposits’. What does this mean?
For a real estate agency, the Department’s view is that this applies where a person pays a cheque at a bank directly into a real estate agency’s bank account (i.e. the real estate agency itself does not receive and deposit the cheque at its bank).
Taking the scenario in question 85 above, you could decide to direct the purchaser to go to the bank and pay the cheque directly into your bank account. Where you do not receive or accept the cheque yourself, you are not conducting an occasional transaction with the purchaser. Accordingly, you do not have CDD obligations in relation to the purchaser.
This guideline is provided for information purposes only and cannot be relied on as evidence of complying with the requirements of the AML/CFT Act. It does not constitute legal advice and cannot be relied on as such. If after reading this guideline you do not fully understand your obligations, you should seek suitable professional or legal advice or contact your supervisor, the Department of Internal Affairs (DIA) at Amlcft@dia.govt.nz.