Since the publication of the Ministry of Justice’s statutory report on the review of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (Act) released in July 2022, several of the Ministry’s recommendations have been implemented through changes to the regulations made under the Act. The first two rounds of the changes came into effect on 31 July 2023 and 1 June 2024, with the third and final round expected to come into effect on 1 June 2025.

Our insights on these regulatory changes can be viewed here and here.

The additional recommendations require a set of legislative changes

The remaining recommendations require changes to the Act itself. This has prompted the New Zealand Government to release a cabinet paper, which sets out proposals to, among other things, introduce a bill amending the Act (Amendment Bill).

The Amendment Bill contains 25 proposed amendments to the Act. A summary of all the proposed amendments is available in Appendix 4 of the cabinet paper (from page 56 onwards).

Proposed key amendments

The key amendments in the Amendment Bill include:

• Removing mandatory enhanced customer due diligence (‘CDD’) on certain low risk trusts: One of the more significant proposed changes is the removal of the mandatory CDD on certain low risk trusts, such as standard New Zealand family discretionary trusts. Currently, enhanced CDD is mandatory for all customers that are trusts, even where the risk of money laundering or terrorism financing is low. Reporting entities will no longer have to collect source of wealth or source of funds information for low risk trusts if satisfied that this information would not mitigate the risks identified from conducting standard CDD any further. This change will provide welcome relief for reporting entities that regularly onboard trusts, enabling a more risk-based approach to CDD requirements and better reflecting New Zealand’s unique trust environment.
• Explicitly prohibiting international wire transfers lacking required information: This change will plug a loophole in the current regime. Currently the regime only explicitly prohibits wire transfers where the information is missing about the originator of the transfer (i.e. the person for whom the reporting entity is carrying out the funds transfer). It does not explicitly prohibit wire transfers where information is missing about the beneficiary of the transfer (i.e. the person receiving the funds at the other end). The proposed amendment will explicitly ban international wire transfers if they are not accompanied by information on both parties to the transfer.
• Amending the definition of ‘trust and company service provider’: The current definition of ‘trust and company service provider’ technically captures some reporting entities as both a ‘financial institution’ and a ‘designated non-financial business or profession’. The definition will be amended to remove the risk of this dual capture.
• Amending the definition of ‘beneficial owner’: The definition of 'beneficial owner' will be amended to explicitly include a person with ultimate ownership or control and to specifically exclude a customer of a customer. This will make the definition consistent with the recent regulatory change and to bring it in line with Parliament’s original intention.
• Introducing specific record keeping timeframes: The aim of this proposed change is to ease uncertainty for reporting entities by establishing specific timeframes for when records must be produced, given the current requirement to keep records ‘immediately accessible’ is ambiguous. The proposal is for the timeframes to be in keeping with the Financial Action Task Force (FATF) standard to produce records ‘swiftly’.
• Changing risk assessment requirements: Another proposal is to alter the text in the current Act which requires reporting entities to 'have regard' to certain factors when conducting a risk assessment. The perceived weakness is that this language could allow reporting entities to consider, but ultimately reject, government advice about national or sectoral risks and therefore fail to implement appropriate controls. The proposal is to tighten the language to something more appropriate which will require businesses to take government risk assessments into account.
• Explicitly including three compliance breaches as civil liability acts: Pursuant to this proposed change, three compliance breaches will be explicitly included as civil liability acts – failing to submit a suspicious activity report, failing to submit an annual report and failures in respect of a risk assessment. This change is intended to ensure that the AML/CFT supervisors are able to make appropriate action against reporting entities that deliberately do not comply with these obligations.
• Removing the obligation on correspondent banks to assess the ‘effectiveness’ of a respondent bank’s AML/CFT controls: Currently, a correspondent bank must assess a respondent’s AML/CFT controls to ascertain that those controls are both ‘adequate’ and ‘effective’. The proposal is to keep the former but remove the latter requirement because it is not practicable for banks to assess a respondent’s AML/CFT controls for effectiveness.

Implementation and scope

The Amendment Bill is intended to be introduced to Parliament by December 2024. We have previously reported that the Council for Financial Regulators had anticipated that a new AML/CFT Bill would be introduced in the second quarter of 2026, so this is a welcome development.

The proposed amendments do not cover all the remaining recommendations from the statutory report - as noted in our earlier alert, we predict a treadmill of further amendments to the Act over the next few years. This piece-meal approach to legislative amendments spanning over the next few years, following a phased approach to the implementation of the regulatory framework, undermines one of the key reasons to implementing the changes to the AML/CFT regime – to reduce compliance burden of doing business in New Zealand.

While the proposed legislative amendments noted above are welcome or largely non-controversial, reporting entities will have no option but to continue to spend resources on navigating through the expanding and increasingly impenetrable AML/CFT framework. We urge the Government to consider consolidating the recent (and future) amendments to the regime into a single, easy to navigate, piece of AML/CFT legislation.

To navigate these changes effectively and maintain compliance, it is crucial for reporting entities to stay updated on the latest developments and seek advice where necessary.

Updates to Australia’s AML/CFT regime

Across the Tasman, the Australian Government is also making changes to their AML/CFT regime. Further to a media release, it has introduced the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Australian Amendment Bill).

The purpose of the Australian Amendment Bill is to extend the application of their AML/CFT regime to ‘tranche two’ entities that include lawyers, real estate professionals, accountants and dealers in precious stones and metals for the first time.

This move will help to bring Australia into line with international standards set by the FATF. Australia is now one of only five jurisdictions out of more than 200 that do not regulate these ‘gatekeeper’ professions - New Zealand did so in 2018. It is expected that the Australian Amendment Bill will come into effect in stages, in or around 2026.

The status of the Australian Amendment Bill can be tracked here.

This article was written with the assistance of Jackson Tu’inukuafe, a Solicitor in the Private Wealth team.