First formal warning under the AML/CFT Act in the legal industry

Te Tari Taiwhenua Department of Internal Affairs (DIA) has issued a formal warning to law firm Kidd Legal under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act). This is the first formal warning issued to the legal sector under this legislation.

The warning was issued to the Auckland-based law firm after it failed to meet several of its AML/CFT obligations relating to the establishment, implementation, and maintenance of its AML/CFT programme and was unable to demonstrate how it would ensure compliance from staff. The DIA have said that the firm also failed to adequately understand or assess the risk of money laundering and terrorism financing within the business.

Mike Stone, the Director of DIA’s AML Group, commented that “[t]he legal sector should be aiming to set the standard for AML/CFT compliance.”

The warning requires Kidd Legal to take immediate action to rectify all areas of non-compliance. The firm will continue to be closely monitored by DIA officials and the warning will be referred to the New Zealand Law Society.

Non-compliance can result in civil penalties of up to $200,000 for an individual and $2 million for a corporation, and criminal penalties of up to two years imprisonment or a fine of up to $300,000 for an individual, and a fine of up to $5 million for a corporation.

The Law Society website offers a practice briefing to guide law firms with compliance under the AML/CFT Act. This can be accessed via the link here.

Comment (Matt Atkinson)

The DIA’s warning to Kidd Legal indicates that the DIA is stepping up its regulatory response to firms that fall behind in their obligations under AML/CFT Act. This is in keeping with our expectations when the regime was expanded to include lawyers and accountants in 2018. There have been a few years of grace in which the DIA has encouraged compliance through education and informal guidance. However, this decision signals an intention by the DIA to move from encouraging compliance to punishing non-compliance. The next firm who falls within the DIA’s sights may not be so lucky as to receive a warning.

Matt Atkinson is a Partner at Fee Langstone