The AML/CFT Act

In today’s complex financial landscape, ensuring compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act) is crucial for all accounting firms. One of the key components of this compliance is performing Customer Due Diligence (CDD). This article aims to explain why customer due diligence (CDD) is necessary, even for existing clients who are forming a new entity.

What is Customer Due Diligence (CDD) or Know Your Client (KYC)?

Customer Due Diligence involves verifying the identity of clients, understanding the nature of their business, and assessing the risk of money laundering or terrorist financing associated with them. This process is essential for maintaining the integrity of the financial system and ensuring that accounting firms are not inadvertently facilitating illegal activities.

Why Perform CDD for Existing Clients?

New Risk Profiles:

• When an existing client forms a new entity, the risk profile associated with that client can change significantly. The new entity may have different business activities, ownership structures, or geographical connections that introduce new risks.

Regulatory Compliance:

• The AML/CFT Act mandates that accounting firms must perform CDD not only for new clients but also for existing clients when there are significant changes in their circumstances. Forming a new entity is considered a significant change that requires a fresh assessment.

Preventing Money Laundering and Terrorist Financing:

• By performing CDD, accounting firms can identify and mitigate potential risks of money laundering and terrorist financing. This is crucial for protecting the firm’s reputation and ensuring that it does not become a conduit for illegal activities.

Maintaining Accurate Records:

• Accurate and up-to-date records are essential for effective risk management. Performing CDD for new entities ensures that the firm’s records reflect the current status and risk profile of the client.

How Do We Go About Completing Customer Due Diligence (CDD)?

The extent of our background checks depends on our risk assessment or your structure and operations. Our standard CDD involves identification, address verification and politically exposed person checks. Enhanced CDD involves obtaining a statement of wealth and other enquiries.

Identification and Address Verification

The minimum we will ask for is a copy of your passport and a utility document such as a power bill issued within the last three months. We need to sight the original identity document so we can certify the copy.

A drivers licence is considered to be weaker proof than a passport, so we would ask for additional support such as a bank statement or Government document. If we are forming an entity on your behalf we will ask for your place of birth as well as birthdate, and your current occupation.

Politically Exposed Person (PEP) Checks

We’re required to check if an individual is a Politically Exposed Person (PEP) or related to one, as there is a higher risk to the entity’s business. This may involve a simple internet search or more detailed background checks.

Source of Wealth

When we are forming or onboarding a new entity, like a company or trust, we need to ask where the funds originated. If they were lent to the entity by the shareholders or settlors, where did they get the funds from? This may involve us reviewing past annual accounts, tax returns and bank statements.

Suspicious Activities and Transactions

We will ask about the activities you plan to conduct, when we are forming an entity or onboarding an existing entity, so we can understand the types of transactions we will expect under normal operation.

We are required by the AML/CFT Act to report suspicious activities on an ongoing basis to the Department of Internal Affairs, which is our supervising agency. This might be complex or unusually large transactions, or unusual patterns which don’t appear to relate to business. The reporting requirements of AML/CFT Act override the Privacy Act 2020.

AML CDD isn’t just for Accountants

As chartered accountants and trusted advisors, we are often asked to provide source of wealth letters to lawyers, real estate agents and banks. Dealers in high value goods, like jewellery, antiques, vehicles, boats and precious metals or stones also have to comply with the AML/CFT Act. Whenever we chartered accountants act as a trustee or director for our client entities, we must provide our identification and address details when setting up a new bank account or mortgage, or when entering into a property transaction.

Performing Customer Due Diligence is not just a regulatory requirement; it is a vital practice for safeguarding the financial system and maintaining the trust of clients and stakeholders. By conducting CDD for new and existing clients, accounting firms can ensure compliance with the AML/CFT Act and contribute to the global fight against financial crime. Please don’t be upset if we ask you to complete CDD. It helps us to know you better!

-       Serena Irving

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland and carries her passport everywhere because of AML/CFT. JDW is a professional team of qualified accountants, business consultants, tax advisors, trust and business valuation specialists.

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An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.