Tax Agents – Captured Activities AML CFT

The NZ govt last month rejected the AML exemption application for Tax Agents (brought forward by CA ANZ). 

Reasons provided for declining 

• Granting an exemption would run counter to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009’s intention and purpose;
• There is a medium risk of money; laundering/terrorism financing (ML/TF) associated with tax transfers;
• Granting an exemption in respect of entities that are not proven to be low risk and whose customers can be structured in complex ways could be detrimental to New Zealand’s international reputation;
• An absence of customer due diligence leads to a heightened risk of ML/TF, which would negatively impact the prevention, detection and prosecution of ML/TF offences; and
• The level of regulatory burden on accounting and professional services practices in respect of tax transfers is proportionate to the level of risk identified.

Photo by Kelly Sikkema

Background (provided from CA NZ)

In October 2018 CA ANZ applied to the Ministry of Justice (MoJ) for a Ministerial Exemption from the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009 in relation to tax transfers performed by tax agents. 

This was in response to the Explanatory Note (Involvement in Tax Transfers, Payments and Refunds) issued by the Department of Internal Affairs (DIA) on the working day before the AML/CFT Act became effective for accounting practices. It deemed tax transfers “may” be captured activities as either ‘managing client funds’ or ‘engaging in/giving instructions for a transaction in relation to creating, operating or managing a legal person/arrangement’. 

The starting point for the exemption application was predicated on tax transfers not being captured and that the exemption was being sought to clarify the uncertainty created by the DIA’s statement. 

Outcome 

This has wide sweeping implications for the Accounting industry as a lot of firms have been taking a ‘wait and see’ approach to tax transfers and if they were captured activities or not.

At First AML we have observed several Accounting clients captured activities increase from 5-10% to as high as 90% due to the rejection of the application. 

The implications are two-fold for the accounting industry now that the exemption has been rejected by the NZ Govt; 

1. Historical clients which previously were not AML verified will most likely have to be remediated and brought up to compliance, with corresponding Risk Assessments, Customer Due Diligence and ongoing monitoring set up for existing clients.
2. Additional resources will have to be allocated to increase AML/CFT compliance as this has significantly increased the number of captured activities that Accountants have to deal with on a day-to-day basis.

Photo by Adeolu Eletu

The power of compliance 

While this is a significant increase in compliance that accounting firms have to handle, there are a number of ways this can be handled. 

Obviously spending additional money on non-revenue generating functions is a pain for any business but the beauty of compliance is it’s industry wide. If you have to do it, so do your competitors. Which means if you can provide your clients with a smooth, world-class onboarding experience, you’ll win more business.

First AML & how we can help 

Using an end-to-end AML software platform like First AML allows you to scale your AML/CFT compliance requirements without adding significant additional cost to the business.

By levering our remote verification system, clients can be onboarded anywhere in the world on their mobile phone. Information is captured and stored in our platform for ease of reporting and audits. 

Once clients are onboarded with us, they enter the First AML ecosystem. This allows reporting entities to leverage other First AML clients’ completed CDD (with end-user consent). This allows for the transfer of records and AML compliance almost immediately, significantly reducing the duplication of information on the end client.