The Financial Action Task Force (FATF), in conjunction with the Asia-Pacific Group on Money Laundering (APG), has released its fourth-round Mutual Evaluation Report of New Zealand’s anti-money laundering and countering financing of terrorism (AML/CFT) system (Mutual Evaluation). This follows the previous Mutual Evaluation in 2009 and a 2013 follow-up report, and is based on the FATF and APG February/March 2020 New Zealand on-site evaluation.
The Mutual Evaluation, as well as previous releases on New Zealand, can be found on the FATF’s website. We provide our initial views below, and have since followed up with further commentary.
Who needs to read it? Why?
While the Mutual Evaluation will be of particular interest to the AML/CFT Supervisors and other governmental bodies involved in that area of regulation (particularly in respect of the upcoming statutory review of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act)), it will also be relevant to reporting entities regulated under that regime.
By setting out the strengths and weaknesses of the New Zealand system, this may assist those entities in assessing where risk in their business models may lie, and where more care may need to be taken.
What does it cover?
The key findings on the New Zealand AML/CFT regime from the Mutual Evaluation are substantially positive, reflecting the existing strengths in its system, while identifying a handful of areas in which it could be strengthened. This is reflected in the overall conclusion on the system’s effectiveness and compliance, being effective in many respects and having made significant progress in terms of technical compliance but still needing improvement around certain matters.
The Mutual Evaluation assessed New Zealand’s effectiveness against the FATF’s 11 immediate outcomes, and concluded that the New Zealand system’s effectiveness was:
- high in respect of 2 outcomes;
- substantial in respect of 4 outcomes; and
- moderate in respect of 5 outcomes.
In terms of technical compliance with the 40 FATF Recommendations, New Zealand was said to be:
- compliant with 8 recommendations;
- largely compliant with 20 recommendations; and
- partially compliant with 12 recommendations.
The priority actions given for New Zealand to take were to:
- improve the availability of accurate and up-to-date beneficial ownership information on legal persons and domestic trusts, and take steps to mitigate nominee shareholder and director risks;
- ensure that the AML/CFT Supervisors have a sufficient range of proportionate and dissuasive sanctions available, and (in particular) that the Reserve Bank of New Zealand has adequate resources to appropriately supervise banks;
- give clear powers and mandates to the appropriate agencies to supervise and enforce targeted financial sanctions obligations, with surrounding support for reporting entities;
- consolidate the implementation of Phase 2 of the AML/CFT Act and progress towards a mature supervision regime for those sectors;
- improve the Financial Intelligence Unit’s (FIU’s) tools for prioritisation, database integration and analysis of financial intelligence to enhance its ability to directly identify new targets and trends, and conduct outreach to encourage more use of FIU proactive financial intelligence products;
- update laws and regulations to address current gaps and vulnerabilities; and
- take steps to sustain the recent increase in money laundering prosecutions.
Our view
Given the scope of the Mutual Evaluation, we will provide more substantive commentary separately, but our initial view is that it has landed about where was expected, acknowledging the strengths of the regime (particularly given the fact that the last Mutual Evaluation took place before the AML/CFT Act) while recognising that some improvements are still needed to bring other elements up to the high FATF standards.
The significant detail provided in the Mutual Evaluation will no doubt assist in making those improvements and continuing the ongoing refinement of the New Zealand AML/CFT regime.
What next?
The release of the Mutual Evaluation neatly sets the stage for the upcoming statutory review of the AML/CFT Act, and in fact has long been considered a precondition for that review.
If you have any questions about the Mutual Evaluation, the FATF Recommendations or the AML/CFT sphere more generally, please contact one of our experts.
