Anti-Money Laundering Implications

17-Dec-2018 11:35:51

New Zealand is a target for money launderers. It is estimated that well over $1 billion a year from drug dealing and fraud is laundered through New Zealand businesses. New Zealand introduced its Anti-Money Laundering and Countering Financing Terrorism (AML/CFT) legislation in 2009. Banks, financial institutions and many other sectors have been operating under the legislation since June 2013 and Real Estate agents have been captured under the legislation from 1 January 2019.

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Since 1 January 2019 Real Estate agents are, among other things, required to verify the identity of their clients (vendors) in accordance with AML/CFT legislation. This is called Customer Due Diligence (CDD).

This means they are required to identify who their clients are (i.e. who they are acting for). This could be individuals, companies, trusts, or other client types like societies and government departments etc. They will need to ask for information to verify a client’s full name, date of birth, and residential address. This can be done in several ways, like the banks, they will ask to see identity documents like a Passport, Driver’s Licence or utility bill etc. In some cases, they have obligations to establish source of funds and wealth.

If your real estate agent cannot verify your identity in line with the legislation, they may not be able to act for you. More information about CDD is outlined below.

This change primarily impacts vendors. If you are purchasing property you are not deemed a client of the real estate company (unless you have engaged a real estate sales consultant as a buyer’s agent) however, your lawyer also has AML/CFT obligations and may need to complete CDD.  We encourage all purchasers to engage early with lawyers in any sale or purchase process. See ‘Documentation that may be requested’ below for an outline of the things that may be requested.

Who do real estate agents need to complete CDD on?

They must identify and verify:

  • the client;
  • each beneficial owner of the client; and
  • each person acting on behalf of the client including the authority to act on behalf of the client e.g. a lawyer or representative giving instructions on someone’s behalf.

What is a beneficial owner?

A beneficial owner is any individual (natural person) who satisfies one or more of following:

  • the individual has effective control of the client; or
  • the individual is a person on whose behalf a transaction is conducted;
  • the individual owns more than 25% of the client or person on whose behalf a transaction is conducted (e.g. direct/indirect shareholders).

What is effective control?

Effective control is the ability to exercise control or influence over a company or entity. Typically, this will be the directors of a company or entity or those who hold senior positions. It could also be those who are funding the company, so this is something else that real estate agents will need to consider, and where relevant, enquire about.

What information will real estate sales consultants need to get?

As a starting point, the following identity information must be obtained:

  • the person’s full name;
  • the person’s date of birth;
  • if the person is not the client, the person’s relationship to the client;
  • any additional information prescribed by regulations.

The nature and purpose of the business relationship

Your real estate agent is also required to get information on the nature and purpose of the proposed business relationship with all beneficial owners. This includes understanding what the client is trying to achieve, how much business is expected, and how regular the interactions will be.

Source of funds/wealth

In some cases, the real estate agent will need to establish the source of the funds for the transaction (i.e. where the funds have actually come from) and source of wealth (i.e. how those funds got there in the first place and how was that money obtained).

Documentation that may be requested

The information that a real estate agent requests will vary depending on whether business is being carried out for an individual or as part of a partnership, company, public body, estate or trust.

The following gives an indication of some of the documents a real estate agent may request in person or as certified documents as part of the due diligence process:

Individuals:

Passport, NZ Firearms Licence or NZ Driver's Licence with another document such as a bank statement or statement issued by a Government agency. Clients may also need to provide a document with a residential address (for example, a utility bill).

Trusts:

The Trust Deed and, for trustees, and settlors, the information required for individuals as noted above, together with information regarding the Trust’s source of funds or wealth. Additional information may also be required for beneficiaries. Information regarding source of funds or wealth may also be required.

Companies:

Details of the company, together with the information for individuals noted above for every individual with more than a 25% shareholding, all individuals with effective control of the company and all individuals acting on behalf of the company. Information regarding source of funds or wealth may also be required.

The above list is not exhaustive and is indicative only. Real estate agents will assist clients with specific requirements in relation to individual situations.

Real estate sales consultants are doing this to help protect everyone and because they are required to under the law.

Ministry of Justice have also provided some information, please see the below link – www.keepourmoneyclean.govt.nz/ 

Copy supplied by AML Solutions.

Topics: Industry Update, due diligence, legislation