Anti-money laundering act brings new rules when dealing with lawyers

Published by – Helen Harvey, stuff.co.nz

Photograph above: Lawyers, Fiona Nicholson, left, and Karen Venables, discuss the new anti-money laundering act and how it affects clients.

Imagine this scenario: You’ve known someone since kindergarten and they are now a lawyer, so you decide to get them to help with buying a house. Don’t be offended if they ask you for your passport to prove your identity.

This is one of the situations that could arise as a result of the new Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Under its terms, as of July 1, lawyers have to carry out certain background checks before working with clients – even if they’ve known them for years.

“They are telling us more money gets laundered through law firms than pretty much anywhere else,” Legal Solutions director Karen Venables, from New Plymouth, said.

“Not locally. I don’t think it happens (in New Plymouth).”

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Clients, including those from overseas, need to show their passports, an emailed copy isn’t good enough, as well as proof of where they live – a recent utility bill – and if the work is to do with buying a house, the client would need to show where they got the money from, she said.

“If they say Mum and Dad lent me the money, we have to find out where Mum and Dad got their money from and get their ID and so on. If they say ‘it’s from my business,’ then we ask ‘what is your business?’ ‘I have a chain of supermarkets.’ Well, you’ll have to show us financial accounts for that chain of supermarkets’.”

The changes come into law for accountants in October and real estate agents in January, who will be required to get the same information from their clients.

The issue is lawyers need the information before they start work, so urgent phone calls around putting in an offer by lunchtime won’t work unless the lawyer already has the necessary information.

Legal Solutions compliance officer Fiona Nicholson said a lot of people didn’t have passports and a driver’s licence wasn’t strong enough on its own.

“So, it needs to be included with another form of identification, such as a birth certificate or 18 plus card. Sometime the utility bill is in a partner’s name and often older people don’t have passports and don’t drive anymore. A lot of people will be affected by it. It’s come in under the radar.”

Their role was to report any suspicious activity to the police Financial Investigation Unit, Nicholson said.

“We might report and six months later someone else reports … it creates a chain.”

A police woman from the unit told them she had said she busted a 300 person drug ring because of this kind of reporting.

Venables said her firm has a lot of people from overseas buying houses and shifting to New Plymouth.

“And we don’t know where their money comes from, it just gets transferred into our trust account.”

With money laundering, cash is put into the bank and then transferred multiple times, Venables said.

“Then they might purchase a house in New Zealand so it goes to a New Zealand law firm and once that money is in a law firm trust account everybody in the whole world trusts it. They then send it to their secret account in Switzerland and it’s clean. Or they invest it into the New Zealand economy and it’s clean.”