New Zealand's Anti-Money-Laundering and Countering the Financing of Terrorism Act 2009 (which the Ministry of Justice administers) recently started to apply to trust and company service providers. This publication examines the key points.

New Zealand's Anti-Money-Laundering and Countering the Financing of Terrorism Act 2009 (which the Ministry of Justice administers) recently started to apply to trust and company service providers.

The Companies Office (a service of the Ministry of Business, Innovation and Employment) has formed a specialist corporate risk-profiling team to monitor all new company formations with an eye on financial abuse. The Companies and Limited Partnerships Amendment Bill is intended to bring in limited changes to the registration requirements of companies and give the Registrar of Companies new powers. It was reported back from the New Zealand Parliament's Commerce Select Committee on 11 December 2012 and is currently awaiting its second reading.

Section 22 calls for "enhanced customer due diligence" when a reporting entity (such as a private bank) takes on a customer that is "a trust or another vehicle for holding personal assets" or receives a request for an occasional transaction from such a customer. In relation to a customer or his/its proxy or beneficial owner, s23 says that the bank must find out the source of the customer's wealth or [interestingly, not “and”, as in other jurisdictions such as the UK] the funds that he/it presents to the bank.

Standard "due diligence" information consists, among other things, of name, date of birth, address, company registration number, and relationship to the customer if not the customer him/her/itself. Section 24(c) is more lax than its British counterpart: it calls for the verification of identity "as soon as is practicable once the business relationship has been established."

In the UK, the latest the bank can leave verification is "during" the establishment of the relationship and then only under exceptional circumstances. This conceivably might allow transactions to take place before verification, in which case a one-transaction laundry might be possible. New Zealand's judiciary, however, might close up this apparent loophole as soon as it applies its mind to the section.

In July last year, New Zealand's Ministry of Business, Innovation and Employment wrote that “heightened perceptions of weaknesses in New Zealand's regulatory regime” were having “negative consequences for New Zealand's economy and society, including difficulties for New Zealand companies doing business overseas (in the form of increased costs or missed business opportunities) if New Zealand is down-graded internationally. New Zealand's removal from the European Union `white list’ is an example of this issue.

This is the infamous list that the European Commission persuaded HM Treasury in the UK and other national finance ministries in the EU to issue in 2008 with instructions to financial institutions to conduct “simplified due diligence” on businesses located in the listed countries.

The stated reason was that such countries controlled the threat of financial crime in a way that was “equivalent” to that of the EU. These included the less-than-spotless jurisdictions of Russia, Aruba, Curacao and Mexico. New Zealand's removal from the list is a mystery as, unlike the others, it is hardly a major hotbed of money-laundering. The United Nations Office on Drugs and Crime estimates that $2 trillion is laundered annually, whereas the July paper's estimate for New Zealand was NZ$1.5 billion.

The government also feared that without more stringent rules in place, New Zealand would attract more dirty money through its cheap and speedy incorporation regime. This regime was a cut above others, according to the ministry's 2012 paper, because it had for some years occupied first place on the World Bank's “starting a business” ranking and up until August last year it did not impose a continuing annual licensing fee.

The Act, which was prompted by a stinging report from the Financial Action Task Force after a visit in 2008, has introduced a “risk-based approach” to money-laundering regulation for the first time. There will be a follow-up visit in October.