Phase 2 of New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act 2017 placed new compliance obligations on lawyers and conveyancers, accountants, real estate agents, the NZ Racing Board, and high value dealers.
Phased in over two years, these new laws required these businesses and professions to put measures in place to ensure they don’t unwittingly support criminal activity. The goal of the legislation is to close down the avenues that criminals use to ‘clean’ the proceeds gained through their activities like drugs, fraud, and tax evasion.
They do this by buying, selling, and channelling funds through ostensibly legitimate sources like property, high-value goods, and financial services. This helps cover their tracks so they can use the money to fund their criminal enterprises. Those who finance terrorism use the same methods to divert funds to violent causes.
AML/CFT compliance adds cost and effort to businesses
Although the law came into effect in stages for different sectors to give them time to prepare for the changes, the reality is that it placed a significant burden on businesses in the form of compliance costs and red tape. The total cost, according to the Ministry of Justice, is estimated to be between $800 million to $1.1 billion over 10 years.
The new legislation came into effect for the real estate industry on 1 January 2019 and applies to anybody who represents a client who’s buying and selling real estate or who accepts a deposit in cash of $10,000 or more from someone who’s buying real estate.
The Department of Internal Affairs (DIA) supervises the application of the AML/CFT laws for real estate agents, as well as other ‘Phase 2’ businesses.
According to Andrew Tyler, CFO for Property Brokers, the AML/CFT laws added an additional layer of compliance to selling real estate not seen before in New Zealand. “It was an additional feature that wasn’t there before. We had to get our heads around it and implement it across the company,” he says.
The cost of compliance isn’t cheap, Andrew explains. “I’ve been involved in panel discussions with other real estate agencies and their cost estimates are similar to ours. AML responsibilities easily add $1.5 million each year to the cost of operating our business,” he says. “This means we must decide whether these costs are absorbed or passed on to the customer.”
But AML compliance doesn’t just add a financial cost to the real estate sector. Andrew says it also adds complexity and time to the process of selling property.
“You can’t list a property without completing AML now. The process could add as little as 24 hours for a simple sale of residential property through to several days for complex structures, like a trust. It all depends on the level of cooperation we get from the vendors, and their solicitors and accountants – which can be quite challenging,” he adds.
Although Property Brokers have had situations where they’ve had to decline clients who refused to comply with AML requirements, their AML Compliance Officer, Ashleigh Henderson, says that over time there has been a greater acceptance that the additional information required is now part of the process.
Training creates a positive AML culture and attitude
“We do a lot of training and reinforcement among our staff to create a positive attitude towards AML,” she says. “We have 70 branch managers and we regularly get in front of them and encourage them to be positive about AML and pass this on to the agents and support staff in their teams.”
As one of the country’s largest real estate companies, Property Brokers employs around 900 staff members, with about two thirds of them having responsibility for AML compliance. The balance operate in the company’s property management business or are part of the business’s support services.
Training is a critical component for ensuring that staff are aware of their AML responsibilities and execute them. “Making sure our agents maintain AML compliant listings is a substantial and difficult task,” Andrew explains. “Property Brokers invests massively in our support centre to make sure our people know their responsibilities and have the skills to do the required tasks properly.”
Ashleigh adds: “We have rolled out a comprehensive online training programme that all our staff must complete. They have to watch videos and provide answers that are checked and verified.”
‘Naïve’ initial engagement with DIA
Despite their industry-leading AML compliance training programme, there was a time that Property Brokers fell foul of the industry regulators – the DIA. Andrew explains: “Our engagement with DIA started with a notice that they were coming to do an onsite visit in August 2020 – effectively, an audit of our AML compliance.
“At the time AML responsibilities were shared by three people, including our AML Compliance Officer, who all left our organisation within a three-month period. The responsibilities were handed over to two new people, including myself as CFO.”
Andrew acknowledges that he and the new AML Compliance Officer didn’t take their responsibilities as seriously as they should have, partly because they had very little training in AML and because they had very little handover from the experienced staff who were leaving.
“As a result, we had inexperienced people fronting the audit. We naively thought the audit would focus on the day-to-day aspects of our AML compliance, when in fact it honed in on our compliance programme and risk assessment document,” he says.
The result of the audit was that the company was found to be non-compliant on some points, partially compliant in others, and fully compliant on the balance.
Andrew explains that they then took a misstep by taking the audit report at face value and simply accepting the outcomes, instead of starting a dialogue with the DIA. “The DIA read that we weren’t taking their report seriously, so there was no engagement between us and them.
“After a period, DIA then informed us they were going to issue a formal warning and would publish this information in a media release. Despite intervention by our CEO, we were issued with a formal warning early in 2021.”
AML specialist engaged
At this point, Property Brokers realised they had to act swiftly and decisively to bring their AML programme up to the required standard. Andrew and the acting Compliance Officer spent a lot of time and effort lifting their AML programme to a satisfactory level. “We read all the documentation carefully and made sure we understood the policies,” he says.
They also engaged an AML specialist, Cleo Shortland. “She was a fantastic resource, who helped get us on track,” says Andrew. “She was exactly the right person; easy to talk to and with a full commitment to help us. She rewrote our compliance and risk assessment, so it was specific to our business – rather than a generic template that most businesses use.”
One of Cleo’s recommendations was that a company of Property Brokers’ size needed to have a full-time AML Compliance Officer, which was when Ashleigh was hired.
“She is exactly what we needed,” says Andrew. “You need someone in this role who’s passionate about AML and the associated responsibilities. Her background in banking and her practical and personable approach has made her perfect for our AML compliance programme.”
Key learnings from DIA engagement
Andrew and Ashleigh outline several key learnings from the Property Brokers engagement with DIA:
- If you lose experienced AML people in your business, make sure you do a comprehensive handover. “This is one of our biggest errors,” explains Andrew.
- Engage with the regulator (DIA) if they communicate with you. “It’s better to over-communicate,” says Ashleigh. “Take their onsite visits seriously and understand your responsibilities. They are helpful and are happy to answer any questions.”
- Take your AML responsibilities seriously. “In the early days you might think you can get away with cutting corners, but the regulator will catch up with you,” says Andrew. “Also, take guidance and prompts from the regulator seriously.”
- An AML compliance programme can’t be run by one or two people. “You need to build a positive AML culture throughout your organisation,” says Ashleigh, “or your programme won’t work properly.”
The proof of the efficacy of this approach was seen during the DIA’s return visit to Property Brokers in August 2021, where Property Brokers did exceptionally well. “So much so that the DIA issued a media release on how we turned our compliance around in a short period of time – they were very happy with the progress we made,” Andrew concludes.
For more personal stories on dealing with AML compliance take a look at Marion Garlick’s experience of creating an AML compliance programme for her accountancy.
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