Making sense of DIA's AML/CFT requirements for accounting firms

The AML/CFT Act itself

Accountants play an important role in the fight against money laundering (AML) and terrorist financing (CFT). As financial intermediaries, accounting firms are well-placed to identify and report suspicious activity that could signal criminal activity, that being said, anyone working in the financial sector can help to combat money laundering.

Money laundering and terrorism financing pose a significant threat to global security and stability. Money laundering is an illegal process and typically involves concealing or disguising the source of illegally obtained money, while terrorism financing is the provision of funds for terrorist activities. Both activities have a serious impact on economies, societies, and individuals around the world.

There are government-sanctioned laws to follow of course, but robust risk-based approaches at your firm, coupled with ongoing training are just a few ways you can remain vigilant to the risk of money laundering and terrorism financing.

In New Zealand, the government has implemented the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act), which requires certain businesses, including accounting firms, to comply with a set of obligations aimed at preventing these activities.

The Department of Internal Affairs (DIA) is responsible for enforcing the AML/CFT Act and providing guidance to businesses on how to comply with their obligations. Accounting firms, in particular, have unique roles in detecting and reporting suspicious activities, as they are often involved in the financial transactions of their clients.

To ensure compliance with the AML/CFT Act, accounting firms must implement a risk-based approach that assesses the likelihood and impact of money laundering or terrorism financing in their business activities. This involves identifying and verifying their clients' identities, understanding their client's business activities, and monitoring their clients' transactions for suspicious activity.

Guidance for accountants

The DIA has provided guidance for accounting firms regarding their obligations under the AML/CFT Act, including recommendations for compliance, and in this article, we've tried to consolidate that guidance into some smaller chunks to help ensure you're on the right track. When thinking about your policy at your firm, here are some key points to think about (p.s. for all the ins and outs of the nuances, we definitely recommend checking the guide linked above👆🏼).

🔍 Customer due diligence (CDD) 

CDD is a necessary part of the AML/CFT Act, in which accounting firms are required to confirm the identities of their customers, comprehend the nature of their business activities, and evaluate the possibility of money laundering or terrorism financing in their transactions. This process includes gathering information such as name, address, date of birth, and source of wealth.

🚨 Enhanced due diligence (EDD)

EDD is required for high-risk clients or activities. This involves conducting additional checks to verify the client's identity and assess their level of risk. These checks may entail gathering more detailed information about the client's business activities or the source of their funds.

📂 Reporting to authorities 

Accounting firms are required to monitor financial transactions for those that are Prescribed Transactions (PTR) and report to the Financial Intelligence Unit (FIU) of the New Zealand Police within a specified timeframe. Additionally, customer activity that is suspicious must also be reported as a Suspicious Activity Report (SAR) in a similar way – you’ll find more info on reporting these sorts of transactions on the New Zealand Police website.

➰ Ongoing monitoring 

To ensure compliance, accounting firms must maintain ongoing monitoring of their clients and transactions. This includes conducting regular risk assessments, reviewing client information, and monitoring transactions for any signs of unusual or suspicious behaviour.

🎒 Training and resources 

It is necessary for accounting firms to offer training and resources to their staff regarding the AML/CFT Act and the proper ways to fulfil their obligations. This involves educating them on the potential risks of money laundering and terrorism financing, as well as providing guidance on identifying and reporting suspicious behaviour. You may choose to educate staff internally on your process and keep them up to date on what to do, and it's also a good idea to annually refresh yourself on the AML/CFT Act – training providers such as Strategi offer regular courses that count towards CPD hours.

In addition to these key points, you also need to be aware of the AML/CFT Act's record-keeping requirements, which involve maintaining detailed records of client information, transactions, and risk assessments. These records must be kept for a minimum of five years and made available to the authorities upon request.

Failing to comply with these obligations creates a significant risk for your firm, not only are you at risk of reputational damage there are also hefty penalties and fines – there haven't been any high-profile failings in New Zealand yet, just some warnings, Sharesies were warned last year over their AML measure. However, in the UK, we've noticed an increasing amount of fines being handed out due to non-compliance with AML requirements. This ranges from small law firms being fined twenty thousand pounds to the largest financial scandal from December last year where Santander Bank was fined ￡108 million (roughly $215 million New Zealand Dollars) for AML failings. Failure to comply with these obligations can result in penalties and reputational damage, so it is crucial for accounting firms to take their obligations seriously and ensure that they are taking all necessary steps to prevent these activities.

How Connectworks can help

As we’ve mentioned above there are a number of key things to consider, and so you might be wondering how Connectworks can help. Our cloud-based risk and entity management system provides you with a solution to manage your CDD, alongside your other work such as filing annual returns, and any other changes you might need to make as a registered office for a client.

Through our system, you are able to:

• document your CDD process, 
• upload key documents, including running verification checks,
• send biometric checks to a client's mobile device – great for when you need to identify your client remotely,
• set future review dates (the current DIA requirement is every 3 years),
• collaborate on, and review the CDD status of new clients you’re onboarding,
• and, get a complete picture of all the actions taken and decisions made for when you need the ‘paper’ trail for audit requirements.

Our workflow-based system means that you’ll get peace of mind that you’re doing things rigorously, and whilst you’ll have the flexibility to accept or reject clients based on the information you collect, you’ll always have some guardrails and a documented trail of everything that happened. 

Get a taste of how to carry out CDD in Connectworks with our interactive demo by clicking the button below (it'll pop out an clickable tour) ⬇️

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If you like what you see – we’d be more than happy to show you a personalised tour of our product, and help make your firm feel confident in meeting your AML/CFT obligations – complete the form on this page to schedule a 30-minute discovery call and to talk to us about a free trial.