Yesterday, the Financial Action Task Force (FATF) released its first enhanced follow-up report and technical compliance re-rating (Follow-Up Report) after last year’s Mutual Evaluation of New Zealand’s anti-money laundering and countering financing of terrorism (AML/CFT) regime (of which we have released a detailed discussion).
Further, today the Financial Markets Authority (FMA)’s Director of Supervision, James Greig, released a statement on the Russia Sanctions Act 2022 and its connections with the AML/CFT regime (FMA Statement). We have released a number of discussions of the new sanctions regime that can be found on our website, for example in relation to financial institutions and more generally.
Who needs to read it? Why?
As with the discussion of the Mutual Evaluation itself, the first part of this will be of interest to the AML/CFT Supervisors, other governmental bodies involved in this area of regulation, and reporting entities operating under the AML/CFT regime (especially, in this case, those that deal with trusts).
The second part will be of interest to any reporting entities under the AML/CFT regime whose businesses may touch persons or assets that fall under the Russia Sanctions Act.
What does it cover?
When it came to technical compliance with the 40 FATF Recommendations, one of New Zealand’s partially-compliant ratings in the Mutual Evaluation was for Recommendation 25 (on transparency and beneficial ownership of legal arrangements).
At the time of the Mutual Evaluation’s on-site in early 2020, the Trusts Act 2019 had been passed but was not yet in force. It has since come into effect. While it did not bring an explicit requirement to keep certain information on the identities of the parties to a trust, a combination of other requirements that it did bring has been considered to imply that trustees will have such information.
This, in combination with existing obligations on professional trustees (who are reporting entities) and new reporting obligations on some trusts under the Tax Administration Act 1994, was considered by the FATF to have largely addressed most of New Zealand’s technical compliance deficiencies around Recommendation 25. Accordingly, New Zealand has been re-rated as largely compliant in respect of Recommendation 25.
This shift leaves New Zealand with 8 compliant, 21 largely compliant, and 11 partially compliant ratings. We remain in enhanced follow-up, and will continue to inform the FATF on further progress.
The FMA Statement draws to attention the intersection of the Russia Sanctions Act and the AML/CFT regime, in the form of customer due diligence (CDD). CDD is a core component of AML/CFT compliance, and at the same time goes to the heart of the sanctions regime: the question of who an entity is doing business with.
The FMA Statement goes on to set out some examples of enforcement action that the FMA has taken more generally, along with the FMA’s expectation that reporting entities are fully aware of their AML/CFT obligations and how important those obligations are to the integrity of New Zealand’s financial system.
It then concludes on a reference back to New Zealand’s Mutual Evaluation and the need to improve transparency around companies and trusts, aligning somewhat with the subject of the FATF’s Follow-Up Report above.
Greater technical compliance with the FATF Recommendations is, of course, a step in the right direction, and the Government will no doubt be considering the other findings of the Mutual Evaluation and where further steps could be taken.
(We note that this particular Recommendation 25 is distinct from the Government’s proposed beneficial ownership register, which we have also discussed, where the focus is on companies and limited partnerships rather than trusts.)
The FMA Statement’s comments on leveraging the established AML/CFT toolkit to facilitate compliance with the sanctions regime may assist entities unfamiliar with sanctions in coming to terms with how to meet their new obligations.
More generally, the FMA Statement reinforces what we already knew about the FMA’s expectations of reporting entity understanding and compliance, and the consequences that may follow if the FMA considers those expectations have not been met.
If you have any questions in relation to the FATF’s Follow-Up Report or Mutual Evaluation, the FMA Statement, or the AML/CFT regime more generally, please contact one of our experts.
This article was co-authored by Sam Short, a Solicitor in our Financial Services team.
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