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A new bill that aims to reduce the compliance burden of anti-money laundering (AML) reporting entities has had its first reading in parliament, where it looks set to pass with cross-party support.
Last week, the Anti-Money Laundering and Countering Financing of Terrorism Amendment Bill completed its first reading and was subsequently referred to the Justice Committee.
Nicole McKee, associate justice minister, who introduced the bill in December last year, will now oversee the committee stage, while continuing to accept public submissions on the bill until March 28.
If passed, the bill will make 26 amendments to the 2009 AML/CFT Act. As noted by McKee, the main aims of the bill are to clarify obligations for AML reporting entities, reduce compliance costs and align with international standards.
“The bill will improve the effectiveness, efficiency and consistency of the AML/CFT regime by relaxing requirements on low-risk activities and entities,” she said.
“The changes address key difficulties for many low-risk businesses, who are currently required to undertake onerous checks even when there is clearly very little risk.”
For example, the bill would remove a requirement for reporting entities to conduct enhanced due diligence on all trusts, regardless of their perceived risk level.
Although trusts can be vulnerable to use in money laundering and terrorist financing schemes, McKee said there are a large number of small family trusts in New Zealand that need not be subject to enhanced due diligence.
“This bill will allow for the application of standard customer due diligence measures for low-risk trusts that are more proportionate to the risks that they represent,” she said.
In addition, the definition of “beneficial owner” will be amended to explicitly include a person with ultimate ownership or control, and to specifically exclude a customer of a customer.
Finally, a key amendment to the country’s wire transfer rules will close a loophole that has allowed sending institutions to execute international wire transfers without obtaining detailed identifying information about the payee.
At present, under the AML/CFT Act, the sending institution is required to obtain this information about the originator, but not the recipient.
Broader AML reforms
The amendments are part of a broader programme of reforms being led by the Ministry of Justice, which aim to create a less prescriptive and more risk-based AML regime.
These reforms include the creation of a single AML supervisor alongside the introduction of a new levy on reporting entities, which will act as a funding mechanism.
As covered by Vixio, the Department of Internal Affairs will become the sole supervisor of New Zealand’s AML regime — a role it currently shares with the central bank and the Financial Markets Authority (FMA).
FATF evaluation beckons
Both the amendments and the reforms come in response to New Zealand’s 2021 mutual evaluation by the Financial Action Task Force (FATF), which found a number of deficiencies in the country’s AML/CFT regime.
Today, New Zealand is rated as “partially compliant” with 11 out of 40 FATF Recommendations, “largely compliant” on 21, and remains under enhanced follow-up.
According to FATF, New Zealand’s areas for improvement include regulations around politically exposed persons (PEPs), transparency and beneficial ownership of legal persons, and regulation and supervision of financial institutions.
All these areas will be clarified if the bill introduced by McKee is passed in its current form, and lawmakers hope the changes will produce stronger results during New Zealand’s next evaluation by FATF, which is set to begin in 2029.
Australia leads, New Zealand follows
As is common for New Zealand, the country’s legislators are following closely in the footsteps of its larger neighbour, Australia.
Last year, as covered by Vixio, Australia enacted significant amendments to its foundational AML/CFT legislation.
As in New Zealand, many of the changes were introduced in response to pressure from FATF, which in 2015 found that Australia’s AML regime is “mature” but carries multiple risks that remain “unaddressed”.
One of FATF’s key concerns was Australia’s exclusion of so-called tranche-two professions, which include lawyers, real estate agents, trust and company service providers, and dealers in precious metals, from its AML regime.
Referred to by FATF as designated non-financial businesses and professions (DNFBPs), these entities will now be subject to AML reporting requirements, in the same way as other financial service businesses in Australia.
FATF also took objection to Australia’s lack of specific regulations on the treatment of PEPs and beneficial owners, both of which were clarified in the country’s latest amendments to its AML framework.
Australia’s next FATF evaluation will take place from 2025 to 2027.
