If you think about how criminals might conduct money laundering, or the financing of terrorism, the first associations that come to mind are cash transactions with banks and casinos. But this devious behaviour can, in fact, be layered throughout the whole financial services sector.
The broad scope of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFTA) reflects this. For example, are you:
- accepting deposits or other repayable funds from the public?
- lending, providing financial guarantees, or financing (including lease-to-own, trade credit, and financing commercial transactions)?
- debt collecting or factoring?
- transferring money or value for customers, including carrying out payroll remittance?
- issuing or managing the means of payment?
- trading in financial instruments (for yourself or on behalf of others), including commodity derivatives and money instruments and transferable securities?
- participating in security issues and related financial services? (more on this below)
- managing or investing or administering funds or portfolios on behalf of others?
- safe-keeping cash or liquid securities for others?
- a life insurer?
- carrying out money changing?
- an Authorised Financial Adviser?
- providing financial adviser services on "category 1" financial products?
- a company formation agent?
- arranging nominee director or other nominee appointments?
- providing a business address service?
These types of activities, many of which are beyond the obvious association with banks and casinos, can give rise to obligations under the AML/CFTA. This is not to be taken lightly, as extensive and onerous requirements for "reporting entities" are coming into force on 30 June 2013.
It is not always easy to work out whether activities are caught by the broadly worded provisions of the AML/CFTA. This is where official guidelines can provide some assistance.
Securities issuers and participants in issues
The Financial Markets Authority (FMA), one of the sector supervisors for the AML/CFTA, has recently released its "Guideline: Issuers of securities and participants in issues" (see guideline here).
FMA's views expressed in the Guideline are good news for many equity issuers. Those who solely issue securities, and do not provide financial services related to the issue or undertake any other activities caught under the AML/CFTA, will not be reporting entities under the AML/CFTA.
The Guideline contains a helpful table indicating who is likely to be captured under the AML/CFTA, by reference to security type. We reproduce it here:
Click here to view the table.
The table does not cover futures contracts, which can sometimes be securities. While trading in many types of futures contracts is already covered in the "trading in derivatives" category of reporting entity, those participating in futures trading will need to consider whether they are also caught in the "securities issue" category.
Other reporting entities
If any of the above rings alarm bells for you, it is critical to carry out some analysis to determine whether you have obligations under the AML/CFTA.
In the Guideline, FMA indicates that its first port of call in determining whether an entity has obligations under the AML/CFTA is to look at the Financial Service Providers Register (FSPR). FMA has produced an indicative list of reporting entities it supervises from this register – see them here.The Department of Internal Affairs (DIA), another of the AML/CFTA sector supervisors, has also produced a list of reporting entities it supervises - see them here.
It is important to note that, if you are not on the FMA or DIA list, this is not conclusive evidence of your status under the AML/CFTA.
For completeness, we note that banks, life insurers and non-bank deposit takers are supervised by the Reserve Bank. However we expect that, due to existing registration regimes, those in this category already know who they are.
The deadline for compliance with the AML/CFTA is fast approaching. The compliance obligations are complex and onerous. Many suggest a two-year lead time is required for an organisation to implement them.