Update on anti-money laundering rules for barristers

Paul Radich QC and Ollie Neas have provided an update on the NZBA’s efforts to seek a class exemption for barristers, to better align the regime with the day-to-day realities of legal practice. 

Recent changes to the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) regime impose significant obligations on a limited number of barristers. This article provides an update on the NZBA’s efforts to seek a class exemption for barristers to better align the regime with the day-to-day realities of legal practice. 

The AML/CFT Amendment Act 2017 extended the AML/CFT regime to cover a range of new entities—including many lawyers. 

The aim of the regime is important, seeking to improve New Zealand’s ability to tackle money laundering and the financing of terrorism. But the changes impose stringent obligations for those affected, requiring significant changes to the day-to-day practice of some barristers. 

To address this issue, the NZBA applied in May 2018 for a class exemption for barristers. In January this year, the Ministry of Justice released a class exemption notice for barristers in draft form. Since then, the NZBA has continued to consult with the Ministry to ensure the exemption meets the objectives of the regime without disproportionately impacting the work of barristers in New Zealand. 

Limited number of barristers affected

In practice, the number of barristers caught by the AML/CFT regime is small: the regime applies only to any involvement that a barrister has, in the ordinary course of their business, in advising on, documenting or effecting a transaction involving real property. Most barristers will rarely be involved in the transactional aspects of conveyancing or receiving or holding money on another’s behalf, as discussed [in a previous article].

But for those who are caught, the regime imposes a range of obligations—from customer due diligence to suspicious activity reporting and record-keeping requirements. Given the limited administrative resources of most barristers, these obligations are onerous. The NZBA also considers many of these obligations to be unnecessary where a barrister is instructed by a solicitor or the Crown, as these parties will themselves be subject to the regime.  

The proposed draft exemption 

The Ministry has accepted the NZBA’s exemption application and has proposed the terms of a draft exemption for the limited number of barristers who are caught by the regime which would operate in circumstances in which they receive instructions from a solicitor or directly from the Crown. 
In these circumstances, the barrister would be exempted from the following requirements:

• certain customer due diligence obligations, such as client identity verification and account monitoring; 
• to have an AML/CFT programme and compliance officer;
• to review and audit their risk management and AML/CFT programme; and
• to produce an annual AML/CFT report.

However, under the Ministry’s current draft, barristers would still be subject to a number of obligations, even when instructed by a solicitor or the Crown, including: 

• simplified customer due diligence obligations in relation to Crown clients;
• enhanced customer due diligence obligations, which apply in certain sensitive circumstances;
• obligations to undertake a risk assessment prior to conducting customer due diligence;
• obligation to take steps in respect of politically exposed persons;
• suspicious activity reporting obligations, including record keeping;
• obligations in relation to transactions involving new or developing products that might favour anonymity; and
• obligations in respect of the cross-border transportation of cash.

Barristers caught by the regime who take instructions from a non-Crown client directly would also remain subject to the whole regime. 

NZBA’s proposed changes to draft exemption

The NZBA supports aspects of the Ministry’s draft but is concerned that it doesn’t go far enough. The proposed exemption for barristers instructed by solicitors or the Crown from most customer due diligence requirements and the need for AML/CFT programmes and reports is a good step in the right direction. But the NZBA remains concerned that there is still unnecessary duplication, where a barrister is instructed by a solicitor, with the solicitor’s obligations under the regime. 

For example, under the draft exemption both a barrister and their instructing solicitor would, unnecessarily, have obligations to conduct enhanced customer due diligence in some cases, take steps in relation to politically exposed persons, take steps over activity involving new or developing technologies, and undertake risk assessments before conducting customer due diligence where required to do so. Similarly, suspicious activity reporting requirements would unnecessarily be duplicated.  

Accordingly, the NZBA has proposed a number of amendments to the draft exemption to reduce the duplication between the obligations imposed on barristers and their instructing solicitors. The NZBA is of the view that a more expansive exemption along these lines is consistent with the objectives of the AML/CFT regime, as the risk of money laundering going undetected and unreported is minimal owing to the nature of the tripartite relationship between the barrister, solicitor and client. 

Final form of exemption still to be determined

The NZBA provided its feedback on the proposed draft exemption in March this year. The Ministry is expected to report back on the final form of the exemption within the next few months. At that stage the NZBA will advise barristers on how this will affect practice at the bar.   

In addition, the NZBA is consulting on regulations that exempt from the regime certain disbursements paid by a client into a solicitor’s trust account. The final wording is still to be confirmed but the regulations will maintain the position that funds held by a solicitor to pay the fees of a barrister, an expert or a mediator/arbitrator will not be covered by the regime.

Who is affected? 

A barrister will be caught by the AML/CFT Act if they are a “designated non-financial business or profession” for the purposes of the Act. That term captures barristers who, in the ordinary course of their business, carry out one or more of the following activities (per s 5 of the Act):

(i)   acting as a formation agent of legal persons or legal arrangements:

(ii)  acting as, or arranging for a person to act as, a nominee director or nominee shareholder or trustee in relation to legal persons or legal arrangements:

(iii) providing a registered office or a business address, a correspondence address, or an administrative address for a company, or a partnership, or for any other legal person or arrangement, unless the office or address is provided solely as an ancillary service to the provision of other services (being services that do not constitute an activity listed in this subparagraph or subparagraphs (i), (ii), and (iv) to (vi)):

(iv)  managing client funds (other than sums paid as fees for professional services), accounts, securities, or other assets:

(v)   providing real estate agency work (within the meaning of section 4(1) of the Real Estate Agents Act 2008) to effect a transaction (within the meaning of section 4(1) of the Real Estate Agents Act 2008):

(vi)  engaging in or giving instructions on behalf of a customer to another person for—

(A)  any conveyancing (within the meaning of section 6 of the Lawyers and Conveyancers Act 2006) to effect a transaction (within the meaning of section 4(1) of the Real Estate Agents Act 2008), namely,—

• the sale, the purchase, or any other disposal or acquisition of a freehold estate or interest in land:
• the grant, sale, or purchase or any other disposal or acquisition of a leasehold estate or interest in land (other than a tenancy to which the Residential Tenancies Act 1986 applies):
• the grant, sale, or purchase or any other disposal or acquisition of a licence that is registrable under the Land Transfer Act 1952:
• the grant, sale, or purchase or any other disposal or acquisition of an occupation right agreement within the meaning of section 5 of the Retirement Villages Act 2003:

(B)  a transaction (within the meaning of section 4(1) of the Real Estate Agents Act 2008); or

(C)  the transfer of a beneficial interest in land or other real property; or

(D)  a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) and any other legal arrangement; or

(E)  a transaction on behalf of a customer in relation to creating, operating, and managing a legal person (for example, a company) and any other legal arrangement;