AML/CFT October Newsletter
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In this update:
– $5.3m High Court Judgment
– AMLS appointed as AoG provider
– New tailored online training modules for Lawyers and Accountants
– Recent articles of interest
– AML/CFT Training Schedule 2017
$5.3m High Court Judgment against Ping An Finance –
AML Solutions analyses this judgment
The judgment against Ping An Finance (Group) New Zealand Company Limited includes the first civil penalties awarded against a reporting entity in New Zealand under the AML/CFT Act 2009. The judgment should be required reading for all AML/CFT compliance officers. A number of news outlets have already covered off aspects of this judgment so instead we will just focus on one particular area which concerns when a transaction is considered suspicious for reporting purposes.
When is a transaction/activity suspicious?
The conclusion reached by Justice Kit Toogood is that the test for suspicion giving rise to a report is an objective test, rather than a subjective one – at paragraph [67]:
“It follows that the obligation to report must be held to arise when the reporting entity either becomes aware of the facts constituting the reasonable grounds for suspicion, or by reasonable diligence would have been aware of them.” As acknowledged in the judgment, this deviates from the guidance issued by the NZ Police FIU which describes the reporting obligation as subjective (see the Suspicious Transaction Guideline at page 11).
In our May newsletter, we highlighted concerns with delays in reporting of suspicious transactions. When auditing, we often see cases where we would consider the transactions/activity would objectively be suspicious but either:
- a report has not been filed as the entity itself did not consider it suspicious (i.e. on a subjective test, the reporting entity did not determine it to be suspicious); or
- a report has been filed but in certain cases it was months after initial detection due to delays in reviewing alerts or escalating for final determination.
We consider that an objective approach puts additional pressure on entities to initially review transaction alerts and escalate to those tasked with making the final determination to report in a timely manner. There will also be further scrutiny on decision making.
Practical Implications
How can entities ensure they are meeting this objective test? Based on FIU guidance, entities have traditionally focussed on defining in their AML/CFT Compliance Programmes who can form a suspicion on behalf of the reporting entity (e.g. the AML/CFT Compliance Officer). Some entities have used this to buy time in reviewing alerts and making final decisions on the basis that the suspicion was not formed until the AML/CFT Compliance Officer made the determination for example.
Applying an objective approach, reporting entities should ensure account/transaction monitoring processes assess what reasonable grounds for suspicion might exist and when. One consideration of this will be when transactions/activity shows known indicators of money laundering – the judgment states – “The present case demonstrates also that reasonable grounds for suspicion may be proved to exist inferentially, by reference to external indicia”. Indicators are available in FIU guidance including the Suspicious Transaction Guideline and quarterly typology reports. Reporting entities will need to have incorporated relevant indicators into their compliance programme including training for staff who are in a position to detect these indicators.
What does this mean for reporting entities who have automated transaction monitoring systems (TMS) or exception reporting for detecting transactions based on such indicators (e.g. high value cash deposits, several transactions conducted on the same day)? Does the 3-working day time frame for reporting start when the system/report detects and triggers an alert?
We do not consider this will necessarily be the case – the judgment acknowledges it may be correct that reasonable grounds do not exist until an entity has had time to consider the transaction in light of the surrounding circumstances but stresses that the obligation to report is to be judged by an objective test. This will make sense as many alerts that trigger in such a system may be shown to not be suspicious based on further investigation.
Arguably, there will be some alerts (whether raised through a TMS or escalated from front-line staff) which appear to be so obvious that by themselves they highlight reasonable grounds for reporting based on the indicators. A delay in reviewing those alerts may mean that the 3-working day time frame for reporting is breached.
In all cases, reporting entities should ensure all investigation of alerts are clearly documented, with evidence to support the judgment as to whether to report and a clear timeline of the investigation and decision process. This will be a particular area of focus for audits moving forward. Entities may want to review alert escalation processes including who can make a decision to file a report to ensure there are no unnecessary delays.
Please contact us if you would like assistance with your account or transaction monitoring processes.
AMLS appointed as AoG provider
AML Solutions is proud to announce our appointment as a provider of services for the All of Government (AoG) Consultancy contract for Operations Management and Risk. Operations Management includes services relating to business process and quality improvement plans through reviews of operating models and their design. Risk advisory services relate to risk identification, risk assessment, and risk management.
New online training modules for Lawyers and Accountants
In addition to updating our current modules available for Phase 1 reporting entities, we have just released two online training courses tailored specifically for Lawyers and Accountants.
The modules cover capture of Lawyers and Accountants, sector specific suspicious behavior indicators and foundation material on the legislation dissecting the various areas of a compliance that form a robust compliance regime.
Visit our eLearning page to learn more and to sign up as an individual, or if you would like to enroll a team please contact us with a request and we can facilitate registrations.
Competency certificates with CPD hours applied are issued in the learners name and company upon passing each module, and automatic reporting to track progress and results is available.
Each module is $45 plus GST per person.