Accountants now need to have ML risks ‘front of mind’

Published by: Tom Pullar-Strecker –

If the accountant you’ve known for years suddenly asks you to show them your passport and power bill this month to prove who you are, don’t be offended.

They are just abiding by more red tape – specifically new rules to combat money-laundering.

Up to now it has mostly been up to the likes of banks and casinos to spot and report dodgy financial dealings.

But accountants were brought under the ambit of a piece of legislation called the Anti-Money Laundering and Counter Terrorism Financing Act at the start of this month.

Other small business owners themselves shouldn’t notice too many changes, other perhaps than having to prove their identity to their accountant. But the sting may come in a larger accounting bill.

The requirements of the act mean more compliance-related tasks for accountants, that the Justice Ministry estimates could cost them between $25 million and $101m this year, and a little less in future years as the changes bed down.

If the upper estimate proves correct, that would add about $64 to each small business’ annual accountant’s fee.

Zowie Pateman, who is the New Zealand expert in money-laundering compliance at Chartered Accountants Australia and New Zealand (CAANZ), believes its members should now be ready to carry out their duties under the act.

These include reporting all international wire transfers of more than $1000 that they are involved in facilitating for their clients, and any cash transactions worth more than $10,000.

Accountants also now have a range of other obligations such as appointing an Anti-Money Laundering compliance officer, producing written risk assessments, doing various due diligence on clients and reporting suspicious activity, and filing an annual report with Internal Affairs.

The “risk-based” approach enshrined in the legislation means some of the steps accountants will need to take may be somewhat subjective, with more expected of larger firms handling more complex matters.

Working out what should be in risk assessments and compliance plans appears a bit of an art, rather than an exact science.

“There is no ‘one-size fits all’ template to be used, and for that reason it is not easy to say how much work will be involved for accountants,” Pateman said.

“With any additional compliance there is a cost and it will be a business decision whether that cost is passed on to clients by accountants,” she said.

“The thing the public will see is a request from their accountant to provide ID verification documents and proof of address even if they have been a client for many years.”

People were used to the likes of banks making more such demands over the past five years, so she didn’t expect that would get too many clients’ backs up.

The law change puts the potential for money-laundering “front of mind” for accountants, she said. “They are going to be on the lookout for ‘red flags’ all of the time.”

The law change was just one of several impacting financial services providers and the signs were that “compliance” was increasing all the time, Pateman said.

Accountants were already highly-regulated and recognised that was “just the cost of doing business nowadays”, she said. But the Anti-Money Laundering Act had led to a few of CAANZ’ smaller members questioning whether it was time to call it a day.

Others had curtailed their services so they didn’t get caught up in the regime. “Smaller firms do have less resources but at the same time the regime is risk-based so they haven’t got to do the same things a multinational business has got to do.”

Yi Ping Ge, a partner at Auckland accounting firm Gilligan Sheppard, blogged that the law change was transforming New Zealand “from the world’s easiest place to conduct business to a sea of forms”.

“It is a big interruption to our business at the moment” and the changes had required lots of training and preparation, she said.

But she has become the firm’s designated “compliance officer” and now says there are upsides.

When Gilligan Sheppard took on customers for the likes of auditing work it would have to ask “what kind of people are these new clients?” and put them into a big picture, which meant it could serve them better later on, she said.

“The forms and so on are a cost to our clients at the end of the day, but overall it is a positive thing for the business community for us to know our clients better.”

Some of her clients were based in mainland China and employed thousands of people. Yi Ping Ge said she tried to visit them in their homeland to understand their sources of wealth and how they treated their staff.

That could provide more insight than the information imparted in forms, she said. “I feel confident.”