Countries all around the globe are putting stronger regulations in place to stop money laundering, financial fraud, terrorism funding, and other illicit activities. New Zealand is certainly no exception. The island nation of 5 million in the southwestern Pacific has some of the most comprehensive and well-developed financial regulations in the world.

In recent years, New Zealand’s leaders have rolled out “Phase 2” of the Anti-Money Laundering and Countering Financing of Terrorism Act (AML-CFT Act). Financial firms with customers or clients from New Zealand should be aware of the law. In this article, you will find an overview of the most important things to know about Phase 2 of New Zealand’s AML/CFT laws.

Money Laundering and Financial Fraud Is a Global Problem

Financial crimes have truly become a global issue. It is easier than ever for money and other financial assets to cross international borders. No country with a well-developed financial system can escape the challenges of modern global banking. Even though New Zealand is a small country, financial crimes remain a serious issue. The government estimates that more than $1.3 billion is laundered through financial institutions and other businesses in New Zealand each year. The AML/CFT laws give authorities tools to identify and stop illicit activities.

An Overview of Phase 2 of AML-CFT Legislation in New Zealand

In 2009, New Zealand lawmakers passed the initial AML-CFT Act. The laws were designed to create new rules and regulations for financial institutions to combat money laundering, terrorism financing, and other problematic matters. The New Zealand Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act 2017 implemented ‘Phase 2’ of the law.  The Phase 2 aspect of these laws officially took effect on January 1st, 2019. As explained by the New Zealand Ministry of Justice, the Phase 2 amendments of the AML/CFT legislation did two key things:

1. Expanding Coverage to More Entities: Phase 1 of the New Zealand AML/CFT law was more narrow in its coverage. It only applies to banks and other financial institutions. However, Phase 2 of the legislation extends the AML/CFT regulations to significantly more businesses and professionals. For example, many real estate agents, attorneys, and law firms are now covered by the law.
2. Enhanced Regulations for Phase Businesses: Beyond expanding coverage for AML/CFT laws in New Zealand, the Phase 2 shift also enhances some of the compliance requirements for banks, financial service providers, and other Phase-1 businesses. All firms covered by Phase 1 of New Zealand’s anti-money laundering and anti-terrorism financing regulations should be aware of the Phase 2 changes.

Know the Basics: What Do AML/CFT Standards Require of Companies in New Zealand?

Any bank, financial institution, or other business covered by Phase 1 or Phase 2 of the New Zealand AML/CFT regulations has a legal obligation to detect and deter money laundering and other similar illicit financial activities. The law is designed to ensure that all covered businesses and organizations put the proper safeguards in place.

Know-your-client/know-your-customer (KYC) is an important aspect of AML/CFT compliance in New Zealand. Covered entities cannot effectively detect and deter money laundering unless they know who they are taking on as clients/customers—both in a literal sense (identification) and in a more comprehensive sense (background evaluation). The law requires a business to do the following:

• Conduct an adequate risk assessment of the money laundering/terrorist financing risks that your company faces given its services and position;
• Create a comprehensive AML/CFT program to detect and deter violations;
• Make sure you have a qualified compliance officer in place;
• Do the proper due diligence on all clients/customers that you take on; and
• Follow up on and report suspicious activity to authorities promptly.

3 Core Elements of an Effective KYC Verification Strategy for New Zealand

All banks, lenders, institutions, and other financial entities that do business in New Zealand—including accepting customers from New Zealand—should be prepared to comply with the country’s AML/CFT laws. One of the good things for American, British, and European-based firms is that New Zealand’s law shares many similarities with the U.S., U.K., and E.U regulations. A comprehensive know-your-client (KYC) verification strategy is a must for all of these regions. Here are three core elements of KYC verification:

1. Identify Who You are Working With: First and foremost, KYC begins with identifying a client or customer. You need to understand who you are working for. Consistent with New Zealand’s AML/CFT legislation, financial institutions should have some form of an effective program for identifying customers. Certain government-backed identifying documents should be provided.
2. Conduct the Proper Due Diligence: Knowing that your prospective client/customer from New Zealand is who they say they are is a good start. From there, it is important to conduct basic due diligence to determine if they are a safe and appropriate customer for your firm. A customer engaged in illicit activity such as money laundering or terrorism financing could pose serious problems under New Zealand’s AML/CFT laws.
3. Additional Monitoring of High-Risk Clients/Customers: True KYC compliance in New Zealand requires some ongoing monitoring of the higher-risk customers. What constitutes a high-risk client or customer varies based on several different factors—it could be anything from a large number of transactions to foreign ties to certain red flags that came up during due diligence.

Integrity Is a Global Leader in KYC Verification

A division of Aristotle, Integrity is a global leader in know-your-client/know-your-customer (KYC) verification. Our team goes above and beyond to provide the most reliable identity and age verification solutions to clients. If you have questions about Phase 2 of New Zealand’s AML/CFT laws, we are here more than ready to help. Call us now or reach out to us directly online to set up a completely confidential, no-obligation initial consultation.