Formal warning to Equity Trust International Ltd

5 September 2017

The Department of Internal Affairs has issued a formal warning to an Auckland-based reporting entity under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act).

Equity Trust International Limited (Equity), company number 2136248, provides trust and company services to overseas-based customers. The warning was issued on 27 June 2017 under section 80 of the AML/CFT Act

Internal Affairs is the supervisory agency that monitors trust and company service providers for compliance with their obligations under the AML/CFT Act.

The Department conducted an on-site inspection of Equity on 12 April 2017. The on-site inspection identified that Equity had failed to establish, implement and maintain an adequate AML/CFT programme. In particular Equity had failed to conduct customer due diligence as required, failed to adequately monitor accounts and transactions, and failed to keep adequate records in accordance with the AML/CFT Act.

The Department required Equity to take immediate action to rectify all areas where it was non-compliant with its AML/CFT obligations. It will continue to monitor Equity and consider further enforcement action if it engages in conduct that does not comply with the Act.

This is the second formal warning to be published as a summary. Since the AML/CFT Act came into force on 30 June 2013, the Department has issued 21 non-public formal warnings, either for failure to meet particular risk assessment or AML/CFT programme obligations or for failing to submit an annual AML/CFT report.

Media contact:
Trevor Henry, senior communications adviser, Department of Internal Affairs
Ph 04 495 7211 or email trevor.henry@dia.govt.nz

Questions + Answers

Q. What is the Anti-Money Laundering and Countering Financing of Terrorism Act (the Act)?

A. The Act seeks to detect and deter money laundering and terrorism financing, contribute to public confidence in New Zealand’s financial system, and bring New Zealand into line with international anti-money laundering and countering financing of terrorism (AML/CFT) standards. The Act places obligations on New Zealand’s financial institutions and casinos, known as reporting entities, to detect and deter money laundering and financing of terrorism (ML/FT).

Q. What is a reporting entity required to do to comply with the Act?

A. A reporting entity is first required to undertake an assessment of the risk of ML/FT that it may reasonably expect to face in the course of its business. A reporting entity is then required to establish, implement and maintain an AML/CFT programme which includes adequate and effective procedures, policies and controls for managing and mitigating the ML/FT risk. The requirements of an AML/CFT programme include staff training and vetting, customer due diligence, account monitoring and suspicious transaction reporting, as well as obligations relating to record keeping, review, audit and submission of an annual report.

Q. Who monitors reporting entities for compliance with their obligations under the Act?

A. The Act has three supervisory agencies in New Zealand, the Reserve Bank, the Financial Markets Authority (FMA) and the Department of Internal Affairs (DIA).

The Reserve Bank supervises registered banks, life insurers and non-bank deposit takers. The FMA supervises issuers of securities, licensed supervisors, fund managers, brokers and custodians, financial advisers, derivatives issuers, DIMS providers and peer to peer lending and equity crowd funding service providers. The DIA supervises casinos, non-deposit taking lenders, money changers, money remitters, payroll remitters, debt collectors, factors, financial leasors, safe deposit box vaults, non-bank credit card providers, stored value card providers and cash transporters, and any other reporting entities not supervised by the Reserve Bank or the FMA.

Q. What is customer due diligence?

A. Customer due diligence (CDD) is a cornerstone of an AML/CFT programme. CDD is the process through which a reporting entity develops an understanding about its customers and the ML/FT risks they pose to their business. CDD involves gathering and verifying information about a customer’s identity, beneficial owners or representatives, as well as other information depending on the nature of the business relationship and the level of risk involved.

Q. What is account monitoring?

A. Account monitoring involves reviewing a customer’s account activity and transaction behaviour. This requires a risk based approach and consideration of the reporting entity’s knowledge about a customer, their business, transaction history and the type of CDD undertaken when the relationship was established. Account monitoring must allow a reporting entity to identify grounds for suspicious transaction reporting (to the New Zealand Police Financial Intelligence Unit).

Q. What is a formal warning issued under section 80 of the Act?

A. Formal warnings can be issued when a supervisory agency has reasonable grounds to believe that a reporting entity has engaged in conduct that constitutes a civil liability act. These civil liability acts are specified in section 78 of the Act.

Q. Why has a formal warning been issued to Equity Trust International Limited?

A. The formal warning has been issued on the basis that the Department has reasonable grounds to believe that Equity Trust International Limited has:

• Failed to conduct customer due diligence as required by subpart 1 of Part 2 of the Act (section 78(a) of the Act).
• Failed to adequately monitor accounts and transactions (section 78(b) of the Act).
• Failed to keep records in accordance with the requirements of subpart 3 of Part 2 of the Act (section 78(e) of the Act).
• Failed to establish, implement, or maintain an AML/CFT programme (section 78(f) of the Act).

Q. How many formal warnings has DIA issued under section 80 of the Act?

A. Since the Act came into force on 30 June 2013, DIA has issued 21 non-public formal warnings. These have been issued either for failure to meet particular risk assessment or AML/CFT programme obligations or for failing to submit an annual AML/CFT report.

The formal warning is the second for which DIA has published a summary.

Q. Why has DIA published a summary of the formal warning to Equity Trust International Limited?

A. The civil liability acts in which Equity Trust International Limited has engaged are serious and have been ongoing and extensive. The Department uses a graduated and proportional range of measures to help reporting entities meet their compliance obligations. We base decisions on an assessment of how to best minimise harm and maximise benefit, while promoting sustained compliance. The decision to publish the formal warning, naming the entity, was taken because it was proportionate to the seriousness of the compliance issues and it sends a strong message to this sector and others about how the Department responds to serious non-compliance.

Q. What other action can be taken if a reporting entity does not comply with the requirements of the Act?

A. Where reporting entities engage in conduct that does not comply with the requirements of the Act, supervisory agencies have various enforcement actions available to them. This includes civil or criminal action, which could result in (but is not limited to) the imposition of:

• Civil penalties of up to $200,000 in the case of an individual, and $2 million, in the case of a body corporate; and
• Criminal penalties of imprisonment for up to two years or a fine of up to $300,000, in the case of an individual, and $5 million in the case of a body corporate.