DIA issues formal warning to law firm for AML/CFT Act non-compliance

“The legal sector should be aiming to set the standard for AML/CFT compliance,” said Mike Stone, director of DIA’s AML Group. “Our inspection of Kidd Legal highlighted a lack of understanding and apathy towards developing and maintaining policies and procedures. This warranted the issue of a formal warning.”

The formal warning was issued on 27 January 2021 under section 80 of the AML/CFT Act, but the DIA noted that Kidd Legal is “not alleged to be involved in money laundering or the financing of terrorism.”

The firm is required to take immediate action to rectify all areas of non-compliance and will be under close monitoring by DIA officials. The issuance of the warning will also be referred to the New Zealand Law Society.

The AML/CFT Act was implemented to provide a system for detecting and preventing money laundering and terrorism financing. It also aims to maintain New Zealand’s global reputation and raise public confidence in the country’s financial system.

Non-compliance can result in civil penalties of up to $200,000 for an individual and $2 million for a corporation, and criminal penalties of up to two years imprisonment or a fine of up to $300,000 for an individual, and a fine of up to $5 million for a corporation.

A “timely reminder”

In a statement, the New Zealand Law Society said the issuance of the formal warning was a “timely reminder” for legal professionals of the actions they need to take to ensure compliance with the AML/CFT Act. The society also encouraged lawyers to approach the DIA if they have questions or concerns.

“From what I’m seeing most firms are getting it right in their day-to-day practical application of the Act, such as in conducting CDD and staff training,” said Tim Maffey, trust account consultant and independent AML/CFT auditor. “In general, firms could perhaps improve on collecting sufficient evidence of Source of Funds/Source of Wealth and checking for potential PEPs (Politically Exposed Persons).”

“But what’s tripping most firms up is if they are overly reliant on templated specimen forms. While the most commonly used specimen form of Risk Assessment lists the six main criteria they need to consider in a general context, the onus is still on firms to apply this to their own particular practice and customise it accordingly to assess their particular areas and levels of risk.”

Maffey added that the same goes for the form of Compliance Programme, another commonly used template.

“[The] form of Compliance Programme needs to be applied to their firm specifically to include the internal procedures, policies and controls to detect money-laundering and to outline how they manage and mitigate the risks they have identified,” he said.

Last December, the New Zealand Law Society published several recommendations from AML specialists to help law firms comply with the regulations, these include considering if the:

• risk assessment addresses the specific matters in sections 58(2) in the context of the law firm’s business
• the law firm’s compliance programme addresses each of the matters in section 57(1) and whether the PPCs set out in the compliance programme are relevant to the law firm
• the law firm’s compliance programme sets out how the firm will comply day-to-day with each of the matters in section 57(1) and whether there is a process for checking PEPs
• documents reflect what the law firm does in practice

The Law Society also prepared a practice detailed guide to ensure compliance, which can be downloaded here.