Be prepared for your lawyer carrying out AML requirements
ON July 1, lawyers will become subject to the requirements of the Anti MoneyLaundering and Countering Financing of Terrorism Act (AML), and it’s fair to say that many lawyers are dreading the extra level of compliance that will be required. Of course, the banks, financial institutions and financial advisers will have little sympathy for us, as they have been subject to these rules since 2013, but members of the public should be ready for this the next time they visit their lawyer.
Basically, the AML Act requires all new clients to have their identity, address and (sometimes) the source of their wealth all verified before any legal work can commence.
However, before all that daytoday activity starts, many law firms are racing to ensure they do what is required in order to be ready to comply with the AML obligations come July 1. That includes appointing a compliance officer and a reporting officer within the firm, performing and writing a risk assessment based on the firm’s clients and usual types of work in order to assess the level of AML risk for the firm, and also developing a compliance programme.
That all takes a considerable amount of time and effort and our firm has made a decision to get on top of the compliance requirements as quickly as possible, as it may well cause considerable disruption if it is left to the last minute. In that vein we have decided that we will be insisting on AML compliance across the firm from June 1 so that it is not such a shock to the system come July 1.
What does this mean for clients? Well, it may not be too unusual if you are already accustomed to complying with the AML requirements of your bank or financial adviser. Essentially, lawyers will be required to carry out customer due diligence on all new clients and those existing clients who have not instructed the firm for some time (the length of time is up to the firm) and that will involve the lawyer or a trusted third party obtaining photo ID such as a New Zealand passport (or a combination of other ID) and a utility bill as proof of the client’s address.
That doesn’t sound too onerous on the face of it, but (for company clients and other entities) that requirement also extends to the ‘‘beneficial owners’’ who own more than 25% — so if there are multiple entities and owners involved, then the compliance requirements can ramp up. Also, for clients that are trusts, there is an extra duediligence requirement that the lawyer obtain information about the source of funds or wealth of that trust client. It’s fair to say that this requirement is causing considerable uncertainty about the extent of information required and how clients will react when asked to supply this information. In addition, all of this duediligence information has to be sighted as an original document before any actual legal work can begin.
Based on research by the Ministry of Justice in 2016, it’s estimated that there will be about 1500 legalservice businesses that fall under the AML rules and there are real concerns about how this new compliance requirement will impact on smaller operators. There are already reports of some sole practitioners winding up their practices because they cannot manage compliance with the new regime, and we consider it is very sad that many older lawyers in business on their own may be forced to make that choice. Unfortunately, that may be the unintended consequence of the AML rules, which have sometimes been described as perhaps being a ‘‘sledgehammer to crack a nut’’.
Regardless of that, the AML rules are upon us and there is no choice but to comply from July 1. No doubt accountants and real estate agents will also be interested in the experiences of the legal profession, as the AML rules will be extended to those sectors from October 1.
So, on behalf of the local legal profession, please be patient with your lawyer when you find yourself confronted with new duediligence requirements the next time you need their services.