No fast track on money-laundering law in wake of Shewan report – Key

No fast track on money-laundering law in wake of Shewan report - Key
No fast track on money-laundering law in wake of Shewan report - Key

Labour leader Andrew Little is calling for anti-money laundering law (AML) to be passed urgently, but the Government says a move this year is not possible.

A quick move on AMLs by the end of the year, extending the regime to lawyers, accountants and real estate agents, was a key recommendation of tax expert John Shewan in his report into foreign trust rules.

He said under the current timetable the second phase of the AML laws would not be in place until the end of 2017 or later.

Prime Minister John Key on Monday said the Government would implement “most” of Shewan’s recommendations, which would boost disclosure around foreign trusts, but not make a quick move on AML changes.

On Tuesday Key reiterated phase two of the AML law would not be passed in 2016, “but It’s not for want of trying”.

It had been accelerated up Parliament’s order of business but it would have far-reaching impacts on a wide range of professionals not covered by the first law that had already been passed.

Despite Justice Minister Amy Adams earlier saying there had not been much push-back from affected industries, Key said once they saw the details he expected “quite a bit of screaming” from about compliance costs and the amount of information they would have to collect and the cost – and who would pay.

“There is going to be significant compliance costs – tens of millions of dollars of compliance costs.”

The AML changes would be made, and the Government was not shying away from that, but it was not a simple issue and the Government wanted to be sure it got it right.

His aim was to pass it before the 2017 election.

Adams said she had discussed the issue with lawyers, who had not indicated any substantial concern. She was yet to talk to groups representing real estate agents and accountants.

A 2008 study indicated the level of compliance costs mentioned by Key, but that was being updated.

Shewan had assumed a definition from the first phase of the law, which exempted lawyers, could be taken out but that would not work.

She was expecting a bill in the House later this year and for phase two of the AML to be in law by mid 2017.

“This is as fast as we can do it and still have confidence that the regime is robust, it is clear, is workable and it imposes costs only to the extent necessary.”

But Little said the issue should be dealt with urgently.

“They could get that legislation into place and passed by the end of the year. If I was them that’s what I would be doing,” he said.

“We’ve been exposed, our laws have been found to be inadequate … and we should be working hard to fix it up.”

He said the Shewan report directly contradicted what Key had said about the existing regime providing “full disclosure”.

But Key again defended his earlier comments saying Shewan had recommended moving the information flow up to a level it was held by IRD and searchable so the information was far more likely to go to countries that wanted it.

However, under the current regime, where trusts must hold information but provide little to IRD up-front, Key said the IRD had always met requests for information.

In his report Shewan said the current rules were inadequate and “not fit for purpose” to preserve New Zealand’s reputation as a country that co-operates with others to counter “money laundering and aggressive tax practices”.

In theory the current rules should be sufficient, but in practice the risk of detection by authorities was low.

“Strengthened disclosure requirements should act as a deterrent to offshore parties looking to use New Zealand foreign trusts for illicit purposes.”

Although there was no direct evidence of illicit funds being hidden in foreign trusts here “it is reasonable to conclude that there are cases where foreign trusts are being used in this way” and the current regime allowed that to occur.

He recommended foreign trusts reveal to IRD their beneficiaries, settlors, trustees and country of tax residence, as well as other details, and that a register be established, though it would be searchable by regulatory agencies, not the public or the media.

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