Lawyers, Accountants, Estate Agents and Suspicious Activity

Lawyers, Accountants, Real Estate Agents and Suspicious Activity Reports

Published by: * Asia Pacific AML

Suspicious activity reports (SAR’s) are a key source of information which the New Zealand Financial Intelligence Unit (FIU) use to enhance the detection of criminal offences through a transaction, a service, or series of transactions and/or services. As a reporting entity in New Zealand under Section 39A of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, businesses are required to report any suspicious activity where:

• a person conducts or seeks to conduct an activity or transaction through a reporting entity; or
• a reporting entity provides or proposes to provide a service to a person; or
• a person requests a reporting entity to provide a service or makes an inquiry to the reporting entity in relation to a service.

Whilst the information provided is critical in preventing and detecting money laundering and terrorism financing, the mechanisms behind the ideology which is ‘suspicious activity reporting’ should be ‘understood’ by those who have an obligation to submit them.

By reporting a suspicious activity, the reporting entity has decided that their business is possibly being utilised or assessed for the purpose of facilitating money laundering or terrorism financing and has fulfilled legislative obligations.

The alternative as a reporting entity, is to not report suspicious activities – thus keeping one’s head below the parapet, hoping the matter is never identified. Not reporting may also be an unintentional omission caused by a lack of awareness as to what is suspicious, not appreciating the process required to report suspicious activities or having concern that in reporting a suspicious activity, the reporting entity will harm the reputation of its business or client base.

The problem in not reporting when something is obviously suspicions, is that the reporting entity takes the risk of being seen to harbour criminals and facilitating financial crime. Should law enforcement either domestically or internationally, receive information from another reporting entity that results in an investigation which identifies the omission of a suspicious report, problems for the entity that chose not to comply with the law are only just beginning. The financial investigators will be concerned the entity has been facilitating other financial crimes and the investigators may carefully examine transactions and activity of all clients.

So, as a business or profession identified as an AML reporting entity, the best position to be in is to have clear policies, procedures, and controls on how you will identify, manage, report, and monitor suspicious activities of clients. This is not likely to be a preferred position for professionals and businesses captured by the legislation where they are required to be a watchdog over their clients for potential criminal activity. The alternative however is a breach of section 92 of failing to report suspicious activity which has a penalty of up to 2 years imprisonment and/or a fine of $300,000.

As the primary objective of the legislative framework is to report suspicious within 3 working days of the suspicion arising, the emphasis on having adequate policies, procedures and controls to detect unusual or suspicious behaviour becomes highly important.

Failing to report a suspicion whether it be through lack of concern or attempting to protect a client, does not mean that the matter will never be identified. It may be that an auditor or AML supervisor during site visits and desk-top examinations may detect the omission.

As mentioned above, the FIU are also working with other sources of information and intelligence nurturing investigations into various criminal activities occurring across the globe. This includes information captured by:

• Suspicious Transaction Reports
• Informants
• Investigations
• Overseas counterparts
• Other Government agencies
• Open source literature and databases

By collaborating with international partners, the data collected further supports overseas agencies to prevent and detect money laundering and terrorism financing. Therefore, reporting entities in New Zealand are equally likely to be implicated in investigations which commence overseas.

In the end, reporting entities in New Zealand will make their own determinations as to reporting suspicious activities. Many reporting entities will continue to document these procedures in their AML programme, whilst some reporting entities will hope its activities never generate any suspicious circumstances that required reporting. What is inevitable, is businesses which choose to not report suspicious activity will also face larger and deeper ingrained AML/CFT compliance challenges that may add to the level of enforcement action taken by one of the three New Zealand Regulators.

* About the Author: Dr Nicholas Gilmour is an Executive Consultant at AML360 – a global AML compliance solution provider that has been operating for over 5 years. Nicholas is a frequent author on diverse topics relating to AML/CFT compliance to promote a healthy and supportive global AML culture. Having worked with businesses around the world, Nicholas is passionate about strengthening AML/CFT controls to increase safety and wellbeing for communities.

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