SUSPICIOUS TRANSACTION GUIDELINE 2013

Transcription

1 FINANCIAL INTELLIGENCE UNIT NEW ZEALAND POLICE SUSPICIOUS TRANSACTION GUIDELINE 2013 VERSION 1.0

2 TABLE OF CONTENTS 1 INTRODUCTION Background Purpose Scope FIU guidance material Sector supervisors guidance material Disclaimer AML/CFT BASICS What is money laundering? Terrorist financing vs money laundering Diagram 1: suggested process for suspected matches on terrorist list(s) AML/CFT drivers SUSPICIOUS TRANSACTIONS Identifying suspicious transactions Who must report What to report When to report How to report INDICATORS What are indicators Common indicators Industry specific indicators FIU REQUESTS FOR INFORMATION FIU orders under the AML/CFT Act Sharing information under the Privacy Act 1993 Principle OFFENCES & PENALTIES Offences Penalties PROTECTIONS APPENDIX A Typologies ENDNOTES Page 2 of 26

3 FOREWORD This guideline has been issued by the Financial Intelligence Unit (FIU) on behalf of the Commissioner of Police. The New Zealand Anti Money Laundering and Countering Financing of Terrorism (AML/CFT) environment is undergoing changes which affect the way we detect, analyse and report suspected money laundering, terrorist financing and other serious criminal offending. This guideline, together with our goaml reporting instructions, aims to generate knowledge and understanding about these changes to inform internal policies, procedures and controls for the reporting of suspicious transactions by reporting entities. Criminals continually exploit services offered by reporting entities in an attempt to obscure their illicit activities and proceeds. By analysing client behaviour, including the value, volume, and frequency of transactions, reporting entities can detect and report suspicious activity. These reports provide crucial information to assist New Zealand Police and its partner agencies to investigate serious crime through the use of financial intelligence. This guideline provides examples of suspicious behaviour regarded internationally as indicators of money laundering, terrorist financing, and other serious offending. While the presence of one or more indicators may not be evidence of criminal activity, it may however raise suspicion. The presence of multiple indicators should act as a warning sign that additional inquiries may need to be undertaken. In some cases overt signs of criminality may be apparent, whereas in others an inquisitive approach towards client activity may trigger suspicion. If suspicion is raised, a Suspicious Transaction Report must be submitted to the FIU. This guideline draws on material produced by the Financial Action Task Force (FATF), overseas FIU s and domestic partner agencies. The FIU and New Zealand Police acknowledges the significant work already undertaken by reporting entities and the value of co operation across the sector in achieving success. We look forward to continuing success in this new and challenging environment. Peter Marshall MNZM Commissioner of Police Page 3 of 26

4 1 INTRODUCTION This guideline has been issued to clarify the obligation to report suspicious transactions under the Anti Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT Act). It aims to generate knowledge on indicators of suspicious activity and inform reporting entities about the technical requirements to report suspicious transactions. 1.1 BACKGROUND If you are a reporting entity, as defined in section 5 of the AML/CFT Act, you are required to establish, implement, and maintain an AML/CFT compliance programme. Furthermore, section 57 requires that your AML/CFT compliance programme should set out adequate and effective policies, procedures and controls for detecting and reporting suspicious transactions to the Financial Intelligence Unit (FIU). 1.2 PURPOSE This guideline has three main objectives: To explain money laundering and terrorist financing basics (Section 2). To help reporting entities understand and comply with Suspicious Transaction Reporting (STR) obligations by specifying who must report, what details to include, when to report, and how to report (Section 3, 5, 6, & 7). To help reporting entities to identify suspicious transactions by providing both general and industry specific indicators (Section 4). In many cases reporting entities will be unaware what the actual criminal activity is. However, by screening transactions for known indicators and typologies, a suspicion of criminal offending may arise. 1.3 SCOPE In addition to reporting suspicious transactions, reporting entities are required to undertake a number of other obligations as prescribed in the AML/CFT Act. This guideline only relates to the obligation to report suspicious transactions to the FIU under the AML/CFT Act. A number of entities will not be defined as a reporting entity under the AML/CFT Act, however, may still be defined as a financial institution under section 3 of the Financial Transactions Reporting Act 1996 (e.g. lawyers, accountants, and real estate agents). It is envisaged that the second phase of AML/CFT Act will extend the definition of reporting entity to include these entities. Where an entity is obligated to report suspicious transactions under the Financial Transactions Report Act 1996, it is preferred that reports submitted to the FIU are made electronically via the method referenced in section 3.5 below. For these entities, the previous Best Practice Guidelines provide guidance on obligations to report suspicious transactions under the FTRA. Additional guidance material has been produced by the FIU and sector supervisors 1 to clarify other obligations and aspects of the AML/CFT Act. These are referenced below. Note: A list of TYPOLOGIES (APPENDIX A) is attached to this document to provide additional detail. Page 4 of 26

5 1.4 FIU GUIDANCE MATERIAL 2 The FIU produces a range of material related to the AML/CFT environment. This material is available on the FIU website at SECTOR SUPERVISORS GUIDANCE MATERIAL Guidance material on additional obligations and other aspects of the Act have been produced by sector supervisors and are available on their websites 3, or via the links below: Identity Verification Code of Practice 2011 available here. Guideline to help reporting entities develop an AML/CFT programme available here. Guideline to clarify the meaning of 'in the ordinary course of business' in the definition of financial institution in the AML/CFT Act available here. Guideline regarding the territorial scope of the AML/CFT Act available here. Guideline to help reporting entities conduct country assessments available here. Guideline to help reporting entities conducting an audit of their AML/CFT risk assessment and AML/CFT compliance programme available here. Guideline to help reporting entities meet the requirement to perform customer due diligence on the customer and beneficial owner of the customer available here. Insurance business coverage guideline available here. Note additional guidance material not described above may become available for download at a later date. 1.6 DISCLAIMER This guideline is provided for information only and cannot be relied on as evidence of complying with the requirements of the AML/CFT Act. It does not constitute legal advice and cannot be relied on as such. Page 5 of 26

6 2 AML/CFT BASICS 2.1 WHAT IS MONEY LAUNDERING? The aim of many criminal acts, particularly those linked to organised crime, is to generate profit. Money laundering is the processing of this profit to disguise its illegal origin. Money laundering offers criminals the ability to openly use the proceeds of crime MONEY LAUNDERING THREE STAGES It is commonly accepted that there are three stages involved in money laundering. These are described below: Placement The introduction of illegal proceeds into the financial system. (E.g. proceeds of selling cannabis deposited into a bank account). Layering The movement of funds via a series of transactions/conversions to disguise the origin of funds and obscure the audit trail. (E.g. Money is transferred into other bank accounts that have been set up and international travel tickets are purchased. International travel tickets are cancelled, which results in a reimbursement cheque being issued to the offender, minus cancellation fees). Integration The introduction of laundered funds into the legitimate economy through ordinary financial activity (E.g. Reimbursed funds are used to buy goods, services, property, or are invested). Opportunities exist to identify money laundering at all three stages DEFINITION OF MONEY LAUNDERING Money laundering is defined in section 243 of the Crimes Act 1961 and section 12(b) of the Misuse of Drugs Act The key elements of a money laundering offence are: Dealing with, or assisting in dealing with, any property for the purpose of concealing it or enabling another person to conceal any property; and Knowing or believing that such property is the proceeds of a serious offence, or being reckless as to whether it is the proceeds of a serious offence. 2.2 TERRORIST FINANCING VS MONEY LAUNDERING Terrorist financing and money laundering both require the movement of funds, preferably, with minimal scrutiny. The controls established to detect money laundering are applicable to detect and prevent terrorist financing. Understanding key differences between the two is important. Unlike money launderers, terrorist organisations can raise funds through legitimate sources as well as criminal activity. Historically, terrorist financiers have utilised specific methods to add complexity or legitimacy to transactions including the use of alternative remittance services, charitable organisations, and cash couriers WHAT IS A TERRORIST ACT A terrorist act is defined in section 5 of the Terrorism Suppression Act 2002 (TSA) and includes the following elements: An intention to cause significant harm (or introduce an economically destructive disease), Carried out to advance a political/ideological/religious cause, An intention to induce terror or 'unduly' compel or force a government or international organisation to do or not do something DEFINITION OF TERRORIST FINANCING Terrorist financing is criminalised in New Zealand under the TSA. Under this legislation it is an offence to: Page 6 of 26

7 Collect funds intended to be used for a terrorist act or intended for an entity known to carry out terrorist acts, Knowingly deal with any property owned or controlled by a designated terrorist entity, Make financial services available to a designated terrorist entity TERRORIST DESIGNATION 4 The TSA establishes a legal framework for the suppression of terrorism. In particular, it is the mechanism by which New Zealand gives effect to the United Nations Security Council (UNSC) mandatory resolutions requiring UN member states to take certain steps to suppress terrorism. An important feature of this framework is the Prime Minister's power under the TSA to designate individuals or groups as terrorist (or associated) entities. Designations can be made on an interim or final basis. There are two broad categories of entities that are affected by the TSA: Entities listed by the United Nations (UN) as terrorist entities under UNSC Resolutions 1267/1989 and The 1988 List; 1 or Non UN listed entities designated under the TSA. The two categories of entities described above reflect two different obligations: First, New Zealand is specifically obliged to take action against those terrorist entities listed by the UNSC 1267/1989 and The 1988 List. UN listed entities are defined as designated terrorist entities in the TSA and so engage the criminal provisions of the TSA. Second, and by contrast, while UNSC Resolution 1373 obliges New Zealand (inter alia) to outlaw the financing of, participation in and recruitment to, terrorist entities, it does not specifically identify those entities. The Resolution effectively leaves it to Member States to identify the entities against which they should act. A designation under New Zealand legislation, as well as freezing assets of terrorist entities, makes it a criminal offence to participate in or support the activities of the designated terrorist entity. This includes in particular dealing with the property of the designated terrorist entity or making property or financial services available to the entity. Other support for terrorist activities such as fundraising, and recruiting or harbouring terrorists is a criminal offence whether the group is designated or not. Further information and lists associated with Resolutions 1267/1989, 1988, and 1373 are available on the New Zealand Police website. terrorists.html REPORTING A SUSPICIOUS PROPERTY REPORT UNDER THE TSA If a reporting entity deals with an individual or organisation and there are reasonable grounds for suspicion in relation to a transaction and the individual or organisation is matched appropriately on New Zealand's terrorist designation list, a Suspicious Property Report (SPR) must be completed, pursuant to section 43 of the TSA. Any SPRs reported to the FIU must contain all the information specified in Schedule 5 to the TSA. If a match is found on New Zealand's terrorist designation list and the reporting entity involved submits a SPR, they will be protected under the TSA from any civil action, particularly in relation to privacy issues. 1 The 1988 List is a list of individuals subject to the measures imposed by Paragraph 1 of UNSC Resolution 1988 (2011). The list is issued by the Security Council Committee established pursuant to Resolution Page 7 of 26

8 2.2.5 REPORTING A SUSPICIOUS TRANSACTION REPORT LINKED TO POSSIBLE TERRORISM FINANCING If a match is found on a list other than New Zealand's terrorist designation list, the financial institution involved must submit a STR, pursuant to the AML/CFT Act. A suggested process for suspected matches on terrorist lists is provided below. 2.3 DIAGRAM 1: SUGGESTED PROCESS FOR SUSPECTED MATCHES ON TERRORIST LIST(S) 2.4 AML/CFT DRIVERS INTERNATIONAL STANDARDS A number of international standards shape the AML/CFT environment in New Zealand. Key standards include: UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances Vienna Convention UN Convention Against Transnational Crime Palermo Convention UN Convention Against Corruption UNCAC Financial Action Task Force (FATF) Recommendations revised February Page 8 of 26

9 2.4.2 FINANCIAL ACTION TASK FORCE The Financial Action Task Force (FATF) is an inter governmental body that sets international standards against which most countries measure their ability to combat money laundering and terrorist financing. Tasked with leading international efforts against money laundering and terrorist financing by the G7 and G20, the FATF assesses countries against a set of recommendations. These recommendations represent best practice standards for AML/CFT systems. These recommendations are available for download on the FATF website 5. New Zealand is a member of both the FATF and the Asia Pacific Group which is a FATF Style Regional Body or FSRB. In general, compliance with the FATF recommendations is increasingly viewed by many countries as indicative of the robustness of a country's AML/CFT measures DOMESTIC LEGISLATION Key legislation: Crimes Act 1961 Section 243(2), Misuse of Drugs Act 1975 Section 12B, Financial Transactions Reporting Act 1996, Terrorism Suppression Act 2002, Anti Money Laundering and Countering the Financing of Terrorism Act Page 9 of 26

10 3 SUSPICIOUS TRANSACTIONS Reporting entities are required to report suspicious transactions when they have formed a suspicion based on reasonable grounds that a transaction is linked to one of the following: money laundering, terrorist financing, the misuse of drugs, criminal proceeds, a serious offence punishable by five years or more [section 243(1) Crimes Act 1961]. SUSPICIOUS TRANSACTION REPORTS (STRs) The FIU relies on reporting entities to fulfil their obligation to report transactions where it is suspected that the transaction is linked to money laundering, terrorist financing, criminal proceeds, drug offending, or other serious criminal offending. STRs are the main source of information available to the FIU to detect suspected offences. A STR can indicate that suspected criminal activity is occurring through a transaction or series of transactions. Reports received by the FIU are analysed for activities and patterns that may indicate criminal offending. Various resources are used including Police, partner agency and open source databases. Often, additional information is required from reporting entities to help establish whether the suspicious activity reported in an STR merits further investigation. This additional information can be vital in determining whether the suspicion of offending translates into actual criminal activity. Where criminal activity appears to be occurring, cases may be referred to investigative agencies involved in law enforcement, asset recovery, taxation, and national security. IMPORTANT: The requirement to report STRs applies to completed or proposed transactions and there are no monetary thresholds for reporting. 3.1 IDENTIFYING SUSPICIOUS TRANSACTIONS As a general rule, a suspicious transaction will often be one which is inconsistent with a client s known activities and profile or with the normal business expected for that type of client. In many cases reporting entities will be unaware what the actual criminal activity is. However, by screening transactions for indicators, typologies, and unusual activity, a suspicion of criminal offending may arise. A transaction may have many factors that, considered individually, do not raise a suspicion, but, considered collectively, suggest criminal activity. A list of common and industry specific indicators is provided in section 4. Typologies and case studies are provided in the Quarterly Typology Report produced by the FIU. This report is available for download on the FIU website 2. A list of typologies is included in Appendix A REASONABLE GROUNDS A suspicious transaction must be reported when a reporting entity has formed a suspicion based on reasonable grounds. If another person in your circumstances would consider the transaction suspicious then an STR should be submitted. All STRs should contain grounds for suspicion explaining why the transaction (or proposed transaction) is considered suspicious. For example, stating that a transaction is suspicious because the transaction is large without any supporting grounds is not sufficient and does not satisfy the reasonable grounds element. Page 10 of 26

11 A large transaction may be considered suspicious where it does not fit with the client's financial profile. Comparing the transaction to previous account records may prove helpful and demonstrate reasonable grounds. Furthermore, attaching this information to the STR will assist the FIU to understand your reasonable grounds for suspicion. This information can demonstrate how the suspicious transaction in question is unusual and whether any patterns indicating criminal activity exist. Suspicion may be raised by staff or by account monitoring processes. Where frontline staff have formed a suspicion, it is important that the basis for this suspicion is recorded and supplied in any subsequent STR. Liaison between frontline staff and your AML/CFT compliance officer may assist in verifying the basis of suspicion. It is expected that before STRs are submitted to the FIU they will go through internal screening to ensure the matter satisfies the reasonable grounds element. 3.2 WHO MUST REPORT If you are a reporting entity, as defined in section 5 of the AML/CFT Act, any transactions conducted (or attempted) using your services that are considered suspicious must be reported to the FIU. If a decision is made to complete a STR, the person directly involved in the transaction need not necessarily submit the report to the FIU. Reports can be made by supervisors, managers, compliance officers or others tasked with submitting STRs to the FIU. It is the responsibility of that person to submit the report to the FIU. 3.3 WHAT TO REPORT An STR submitted to the FIU must contain: a statement of the grounds on which the reporting entity holds a suspicion mandatory details (as required in regulations) other 'if held' details (additional information that will support FIU analysis) 3.4 WHEN TO REPORT Once a suspicion is formed, a reporting entity must as soon as practicable, but no later than three working days after forming a suspicion, report the transaction to the FIU. In practice, where account monitoring processes identify a transaction, the three day requirement does not commence until a suspicion based on reasonable grounds is formed. Reasonable grounds may not exist until a member of your staff has had time to consider the transaction in light of the surrounding circumstances. Once the requisite suspicion is formed, the three day requirement commences. After an initial STR has been submitted a reporting entity may continue to conduct business with the client. However, they must comply with all relevant provisions of the AML/CFT Act, including the requirement to submit additional STRs where appropriate. 3.5 HOW TO REPORT goaml is the system specified by the Commissioner for secure electronic transmission of STRs between reporting entities and the FIU. Reporting entities must transmit reports utilising this interface. Instructions on how to use goaml are available on our website under the goaml section via the link below: ORAL REPORTS An exception to the requirement to report electronically exists where the urgency of the situation requires a STR to be made orally. Page 11 of 26

12 Circumstances in which suspicions transactions can be reported orally include: Where a reporting entity thinks that a situation requires urgent action. When a reporting entity has more than a reasonable suspicion, rather, knowledge or belief that the transaction is related to serious criminal offending. Where a suspicious transaction has been reported orally, the reporting entity must, as soon as practicable, but no later than 3 working days after making the oral report, forward an electronic version of the report to the FIU. To make an oral report, please contact the FIU on Page 12 of 26

13 4 INDICATORS 4.1 WHAT ARE INDICATORS A transaction may have certain red flag features that give rise to a suspicion that it is linked to criminal offending. These red flag features are described as indicators. It is important that reporting entity staff can recognise indicators, especially indicators relevant to your business as this will help determine if a transaction is suspicious. The presence of one or more indicators may not be evidence of criminal activity; it may however raise a suspicion. The presence of multiple indicators should act as a warning sign that additional inquiries may need to be undertaken. Additional inquiries made by your AML/CFT compliance officer may help to dismiss or support the suspicion. A list of internationally established indicators is provided in this section. This list is divided into (1) common and (2) industry specific indicators. The indicators are based on literature from the FATF, overseas FIU s 6, and domestic partner agencies. Note: Specific indicators are provided only for major industry groups covered by the AML/CFT Act. If no specific indicators are provided for your particular industry or business, reference should be made to the common indicators provided. Indicators provided for other industry groups may also be applicable to your business. Although accountants, lawyers, and real estate agents are currently exempt as reporting entities under the AML/CFT Act, proposals have been made to include them in upcoming regulations. Furthermore, this group of entities is still covered under the FTR Act and must continue to report STRs to the FIU. Specific indicators relevant for this group have therefore been included. The following list of indicators is offered as a guide and it is not an exhaustive list of every possible indicator. Staff should be aware that criminals and organised crime groups regularly adapt their behaviour to exploit weaknesses within different industries to launder funds. 4.2 COMMON INDICATORS The following common indicators may give rise to reasonable grounds for suspicion GENERAL Admission of criminal activity. You are aware that a client is the subject of a criminal investigation. Admission of an attempt to conceal funds. Significant and/or frequent transactions in contrast to known or expected business activity. Significant and/or frequent transactions in contrast to known employment status. Ambiguous or inconsistent explanations as to the source and/or purpose of funds. Where relevant, money presented in unusual condition, for example damp, odorous or coated with substance. Where relevant, nervous or uncooperative behaviour exhibited by employees and/or clients. Avoidance of face to face contact when conducting transactions. Reluctance to provide documents usually required and/or the use of counterfeit documentation. Transactions involving jurisdictions 7 with poor AML/CFT regimes, particularly, where there is no apparent connection between the jurisdiction and the client. Attempts are made to disguise beneficial owners and/or real parties to the transaction. Client does not want correspondence sent to home address. Client conducts transactions at different physical locations in an apparent attempt to avoid detection. Client is accompanied or watched. Page 13 of 26

14 Client shows uncommon curiosity about internal systems, controls and policies and/or demonstrates high level of awareness around customer identification and anti money laundering standards. Client has only vague knowledge of the amount of a deposit. Client appears to informally record large volume transactions, using unconventional bookkeeping methods or off the record books. Normal attempts to verify the background of a new or prospective client are difficult. Client appears to be acting on behalf of a third party, but does not tell you. Client uses aliases and a variety of similar but different addresses. Client provides false information or information that you believe is unreliable. Transaction involves a suspected shell entity (that is, a corporation that has no assets, operations or other reason to exist). Use of companies to move funds under the guise of legitimate transactions. Client seeks short cuts or variations from standard procedure and requires unusually quick transactions. Client holds a public position and is conducting an unusual transaction. Client has ties to an individual in a public position and is conducting unusual transactions IDENTITY Client who uses misleading identification, or makes it difficult to verify information. Client only presents copies rather than originals. Client uses foreign, unverifiable identity documents. Unusual discrepancies in identification, such as name, address, or data of birth. Client alters transaction after being asked for identity documents CLIENT CHARACTERISTICS Customer is a Politically Exposed Person (PEP). Client is based overseas, especially in a high risk jurisdiction. Individuals involved in cash transactions who share addresses, particularly when the addresses are also business locations. Clients seemingly acting together simultaneously using separate tellers to conduct large cash transactions or foreign exchange transactions. Client has been the subject of previous suspicious transaction reporting CASH TRANSACTIONS Client frequently exchanges small bill for large ones. Client presents notes that are packed or wrapped in a way that is uncommon for the client. Client makes cash transactions of consistently rounded off large amounts. Cash deposits or withdrawals that fall consistently just below occasional transaction thresholds. Client asks you to hold or transmit large sums of money or other assets when this type of activity is unusual for the client. Large cash deposits using automatic teller machines or drop boxes to avoid direct contact with staff. Frequent exchanges of cash into other currencies, where there appears to be no logical explanation for such activity. Transfers of large sums of money to or from overseas locations with instructions for payment in cash. Several transactions conducted on the same day and at the same branch of a reporting entity with a deliberate attempt to use different tellers. High value cash deposits to pay for international funds transfers. Page 14 of 26

15 4.2.5 NO ECONOMIC PURPOSE Transaction appears to be out of the ordinary or normal industry practice or does not appear to be economically viable for the client. Transaction is unnecessarily complex. Activity is inconsistent with what would be expected from declared business. Transaction involves non profit or charitable organisation for which there appears to be no logical economic purpose or where there appears to be no link between the stated activity of the organisation and the other parties in the transaction. Funds invested in a dormant company USE OF ACCOUNT(S) Use of third parties to deposit funds into account(s). Account receives a large number of small cash deposits and a small number of large cash withdrawals. Frequent or elaborate movement of funds between related accounts. Funds received from or remitted to high risk jurisdictions. Cash deposited domestically, with the funds subsequently withdrawn from ATMs offshore. Funds are transferred from several accounts and consolidated into one account prior to an international transfer, particularly, to a high risk jurisdiction. Multiple transactions are carried out on the same day at the same branch but with an apparent attempt to use different tellers. Activity far exceeds activity projected at the time of opening of the account. Sudden increase in activity on a dormant account. Use of multiple bank accounts or foreign currency accounts without legitimate reason. Reluctance to use favourable facilities, for example, avoiding high interest rate facilities for large balances. Substantial increases in deposits of cash or negotiable instruments by a professional firm or company, using client accounts or in house company or trust accounts, especially if the deposits are promptly transferred between other client company and trust accounts. Frequent and/or unscheduled cash deposits to loan accounts. Frequent deposits of winning gambling cheques followed by immediate withdrawal or transfer of funds. Use of internet banking to frequently access New Zealand based accounts internationally. Children's accounts being used for the benefit of parents/guardians USE OF JURISDICTIONS WITH WEAK AML/CFT FRAMEWORK The FATF provides updates on jurisdictions with weak AML/CFT frameworks. 7 Transactions going to/from accounts Investment funds transferred to/from based in locations with weak AML/CFT high risk jurisdictions. regimes. Page 15 of 26

16 4.3 INDUSTRY SPECIFIC INDICATORS The following industry specific indicators may give rise to reasonable grounds for suspicion REGISTERED BANKS AND NON BANK DEPOSIT TAKERS PERSONAL TRANSACTIONS 8 The traditional financial sector continues to be a primary avenue for money laundering. Client makes frequent or large payments to online payment services. Client requests movement of funds that are uneconomical. Client runs large positive credit card balances. High volume of wire transfers are made or received through the account. Client visits the safety deposit box area immediately before making cash deposits. Immediately after transferred funds have cleared, the client moves the funds to Client requests to have credit/debit cards sent to locations other than his or her another account or to another individual or entity. address. International funds transfers from an Client frequently transfers funds to client's account to several offshore unknown third parties. accounts held in the same name. Unknown third parties frequently transfer Large foreign exchange transactions. funds into client's account. Use of counterfeit currency. Client frequently exchanges currencies. Client has frequent deposits identified as proceeds of asset sales but assets cannot be substantiated REGISTERED BANKS, NON BANK DEPOSIT TAKERS BUSINESS TRANSACTIONS 9 Accounts are used to receive or disburse large sums but show virtually no normal with that type of business or not in keeping with normal industry practices. business related activities, such as the payment of payrolls, invoices, etc. Client operates a retail business providing cheque cashing services but does not Accounts have a large volume of deposits in bank drafts, cashier's cheques, money make large draws of cash against cheques deposited. orders or electronic funds transfers, which are inconsistent with the client's business. Client pays in cash or deposits cash to cover bank drafts, money transfer or other negotiable instruments. Accounts have deposits in combinations of cash and monetary instruments not normally associated with the business activity. Business does not want to provide complete information regarding its activities. Financial statements of the business differ noticeably from those of similar businesses. Representatives of the business avoid contact with the branch as much as possible, even when it would be more convenient for them. Deposits to or withdrawals from a corporate account are primarily in cash rather than in the form of debit and credit normally associated with commercial operations. Client maintains a number of trustee or client accounts that are not consistent Client purchases cashier's cheques and money orders with large amounts of cash. Client makes a large volume of seemingly unrelated deposits to several accounts and frequently transfers a major portion of the balances to a single account at the same bank or elsewhere. Client makes large volume of cash deposits from a business that is not normally cash intensive. Client makes large cash withdrawals from a business account not normally associated with cash transactions. Client consistently makes immediate large withdrawals from an account that has just received a large and unexpected credit from abroad. Client makes a single and substantial cash deposit composed of many large bills. There is a substantial increase in deposits of cash or negotiable instruments by a Page 16 of 26

17 company offering professional advisory services, especially if the deposits are promptly transferred. There is a sudden change in cash transactions or patterns. There is a marked increase in transaction volume on an account with significant changes in an account balance that is inconsistent with or not in keeping with normal business practices of the client's account. Unexplained transactions are repeated between personal and commercial accounts. Activity is inconsistent with stated business. Account has close connections with other business accounts without any apparent reason for the connection. A large number of incoming and outgoing wire transfers take place for which there appears to be no logical business or other economic purpose REGISTERED BANKS AND NON BANK DEPOSIT TAKERS NON PROFIT SECTOR TRANSACTIONS 10 Known or suspected criminal entities establishing trust or bank accounts under charity names. Large number of non profit organizations with unexplained links. The non profit organization appears to Inconsistencies between the pattern or have little or no staff, no suitable offices size of financial transactions and the or no telephone number, which is stated purpose and activity of the incompatible with their stated purpose organization. and financial flows. Sudden increase in the frequency and amounts of financial transactions for the organization, or the inverse, that is, the organization seems to hold funds in its account for a very long period. Large and unexplained cash transactions by the organization. Absence of contributions from donors located in New Zealand. The non profit organization has operations in, or transactions to or from, high risk jurisdictions MONEY SERVICE BUSINESSES (INCLUDING CURRENCY EXCHANGE AND MONEY REMITTANCE) AND OTHER BUSINESS INVOLVED IN ELECTRONIC FUNDS TRANSFER 11 The use of numerous agent locations for no apparent reason to conduct transactions. Multiple customers conducting international funds transfers to the same overseas beneficiary. Multiple low value international funds transfers, possibly indicating a large amount of funds broken down into smaller amounts. Several clients request transfers either on the same day or over a period of two to three days to the same recipient. Client does not appear to know the recipient to whom he or she is sending the transfer. Client conducts large transactions to/from countries known as narcotic source countries or as trans shipment points for narcotics, or that are known for highly secretive banking and corporate law practices. Client sends frequent wire transfers to foreign countries, but does not seem to have connection to such countries. Client exchanges currency and requests the largest possible denomination bills in a foreign currency. Client knows little about address and contact details for payee, is reluctant to disclose this information, or requests a bearer instrument. Client instructs that funds are to be picked up by a third party on behalf of the payee. Client makes large purchases of traveller's cheques not consistent with known travel plans. Client requests that a large amount of foreign currency be exchanged to another foreign currency. Large amounts of currency exchanged for traveller's cheques. Page 17 of 26

18 Client exchange small denomination of bills for larger denominations LIFE INSURANCE Large single payments and payouts Client changes the beneficiary of policies INVESTMENT Securities accounts opened to trade in shares of only one listed company. Transaction patterns resemble a form of market manipulation, for example, insider trading. Unusual settlements, for examples, cheques requested for no apparent reason to third parties CASH TRANSPORTERS/COURIERS Transactions involving locations with poor AML/CFT regimes or high exposure to corruption. Significant and/or frequent cash deposits made over a short period of time. Funds deposited into stockbroker's account followed immediately by request for repayment. Limited or no securities transactions recorded before settlement requested. Significant and/or frequent currency exchanges made over a short period of time CASINOS 12 Where a clients gaming behaviour is unusual for their financial status. Purchasing and cashing out casino chips with no or little gaming activity. Regular or multiple purchasing and cashing of gaming chips just below the occasional transaction reporting threshold. Structuring chip purchases/cash outs. Third parties involved in depositing and withdrawing funds at casino. Transfers from company accounts to private betting accounts. Use of third parties to purchase gaming chips. Use of third parties to gamble proceeds through a casino. Exchange of low denomination for high denomination currency. Buying chips for cash or on account then redeeming value by way of casino cheque or money transfer TRUST AND COMPANY SERVICE PROVIDES Creation of complicated structures where there is no legitimate economic reason. Use of an intermediary without a legitimate reason. Funds received from high risk jurisdictions. Clients use nominee directors /shareholders. Clients address is a virtual office. Page 18 of 26

19 ACCOUNTANTS, LAWYERS & REAL ESTATE AGENTS (GATEKEEPER SERVICES) Use of an agent or intermediary without obvious reason. Client has a fast growing real estate portfolio Client uses professional business or trust account, particularly, where large cash Purchaser is a company with complicated beneficial ownership. deposits are made. Purchase amount is unusual compared to Funds are received from a foreign the appraised value or the previous jurisdiction, particularly, where there is purchase amount. no connection between the jurisdiction and the client. Client appears to have access to cash substantially above their means. Overseas instruction from a client for no economic reason. Client uses a virtual office. Client is not concerned about the level of fees. Page 19 of 26

20 5 FIU REQUESTS FOR INFORMATION Often, additional information is required from reporting entities to help establish whether the suspicious activity reported in a STR merits further investigation. This additional information can be vital in determining whether the suspicion of offending translates into actual criminal activity and whether further resources are deployed. 5.1 FIU ORDERS UNDER THE AML/CFT ACT The FIU, under the delegated authority of the Commissioner, will take a considered approach to ensure that all orders made under the AML/CFT Act are made are in good faith and are relevant to analysing an STR. The relevant section for reporting entities is outlined in the box below: AML/CFT ACT 2009 SECTION 143 POWERS RELATING TO FINANCIAL INTELLIGENCE FUNCTIONS OF COMMISSIONER The Commissioner may (a) order production of or access to all records, documents, or information from any reporting entity that is relevant to analysing a suspicious transaction report received by the Commissioner, with or without a court order; SHARING INFORMATION UNDER THE PRIVACY ACT 1993 PRINCIPLE 11 Principle 11 can foster partnership between the FIU and reporting entities to share information to prevent, detect, investigate, and prosecute offences and offenders and make New Zealand a safer place to live and do business. Principle 11 permits agencies, including reporting entities, to assist the FIU by allowing the sharing of personal information under specific circumstances. Principle 11 explicitly sets out the circumstances where disclosure of personal information is permitted. The relevant section for reporting entities is outlined in the box below: PRIVACY ACT 1993 SECTION 6 INFORMATION PRIVACY PRINCIPLES PRINCIPLE 11 LIMITS ON DISCLOSURE OF PERSONAL INFORMATION An agency that holds personal information shall not disclose the information to a person or body or agency unless the agency believes, on reasonable grounds,... (e) that non compliance is necessary (i) to avoid prejudice to the maintenance of law by any public sector agency, including the prevention, detection, investigation, prosecution, and punishment of offences; or (ii) for the enforcement of law imposing a pecuniary penalty; or (iii) for the protection of the public revenue; or (iv) for the conduct of proceedings before any court or tribunal (being proceedings that have been commenced or are reasonably in contemplation)or (f) that the disclosure of the information is necessary to prevent or lessen a serious threat to (i) public health or public safety; or (ii) the life or health of the individual concerned or another individual; or... After receiving an STR from a reporting entity, the FIU will only ask the agency to provide further information if the FIU considers the information is needed to further its investigations and that criminal activity may not be able to be investigated effectively if the information is not provided. Page 20 of 26

21 Reporting entities who receive such a request should therefore have reasonable grounds to believe that disclosure of further information in response to such a request is necessary to avoid prejudice to the maintenance of law, and therefore that it can be provided under exception (e) to principle 11. If a reporting entity is unsure whether specific information falling within the scope of an FIU request meets the tests of principle 11(e), for instance, if the information appears to be unrelated to the reported activity, it is entitled to seek further information from the FIU as to how the information is relevant to the original report before responding to that aspect of the request. Page 21 of 26

22 6 OFFENCES & PENALTIES Reporting entities should ensure they have adequate internal policies, procedures and controls for detecting, reporting and handling information related to suspicious transactions. A number of offences and penalties are specified in sections 91 to 115 of the AML/CFT Act. Note: the following section provides a summary of offences and penalties related to reporting suspicious transactions only. For full details on these and other offences and penalties, reference should be made to the Act. 6.1 OFFENCES FAILING TO REPORT A SUSPICIOUS TRANSACTION (SECTION 92) A reporting entity commits an offence if: A transaction is conducted (or proposed); and The reporting entity forms a suspicion based on reasonable grounds; and The reporting entity fails to report the transaction within 3 days of forming the suspicion PROVIDING FALSE OR MISLEADING INFORMATION (SECTION 93) A person commits an offence who, in making a STR or supplying additional information: Makes a statement that the person knows is false or misleading in a material particular; or Omits from any statement any matter or thing without which the person knows that the statement is false or misleading in a material particular UNLAWFUL DISCLOSURE OF A STR (SECTION 94) It is an offence to provide an STR or information related to an STR to an unauthorised person. This is commonly referred to as tipping off. Under section 46, STRs or information relating to STRs must only be disclosed to: A Police employee authorised by the Commissioner to receive the information; or The reporting entity s AML/CFT supervisor; or An officer or employee of the reporting entity, for any purpose connected with the performance of that person's duties; or A barrister or solicitor, for the purposes of obtaining legal advice or representation; or Another member of a designated business group of which the reporting entity is a member to the extent necessary to decide whether to make a STR. Under section 94 a person commits an offence who (contravenes section 46) and discloses an STR or information related to an STR: For obtaining an advantage or pecuniary gain; or With intent to prejudice a money laundering or terrorist financing investigation. The offence extends to a person who: Knows they are not authorised to disclose that information; and Discloses that information to any other person for obtaining an advantage, pecuniary gain, or with an intent to prejudice a money laundering or terrorist financing investigation FAILING TO KEEP SUSPICIOUS TRANSACTION RECORDS (SECTION 95) Reporting entities must keep adequate records relating to a suspicious transaction for 5 years. Under section 49(3)(b) the Commissioner has the power to compel a particular reporting entity to retain records for longer than the five year requirement described in section 95. Page 22 of 26

23 6.1.5 OBSTRUCTION OF INVESTIGATION RELATING TO A STR (SECTION 96) A person commits an offence if they obstruct an investigation related to an STR, without lawful excuse DISCLOSURE OF INFORMATION IN JUDICIAL PROCEEDINGS (SECTION 97) A person commits an offence if they disclose information protected under section 47 without lawful excuse. Section 47 protects STRs, any information that would identify a person who prepared, handled, or reported an STR, and any other information that would infer the existence of an STR STRUCTURING TRANSACTION TO AVOID AML/CFT REQUIREMENTS (SECTION 101) A person commits an offence if the person structures a transaction to avoid the application of any AML/CFT requirement. 6.2 PENALTIES A reporting entity or person who commits an offence under any of sections 91 to 97 is liable, on conviction to: In the case of an individual, either or both of the following: A term of imprisonment of not more than 2 years, A fine of up to $300,000. In the case of a body corporate: A fine of up to $5,000,000. Page 23 of 26

24 7 PROTECTIONS Under the AML/CFT Act a number of protections exist for persons reporting suspicious transactions. Note: the following section provides a summary of the protections related to reporting suspicious transactions only. For full details on these and other offences and penalties, reference should be made to the Act PROTECTION OF PERSON REPORTING A SUSPICIOUS TRANSACTION (SECTION 44) Where a person reports a suspicious transaction or supplies any information in connection with a STR, they will not be held liable where the disclosure has been made in good faith. This protection is offered to any person, whether they are required to report suspicious transactions or not. The Act explicitly extends this protection to auditors who although not obligated to, may report suspicious transactions. This protection does not apply if the person reports or supplies the information in bad faith IMMUNITY FROM LIABILITY FOR DISCLOSURE OF INFORMATION (SECTION 45) This immunity applies where: A person does any act that constitutes an offence against section 243 of the Crimes Act 1961; and In respect of doing that act, that person would have a defence to a charge under that section by virtue of section s244(a) of the Crimes Act 1961; and That person discloses, to any Police employee, any information relating to the money laundering transaction or suspected money laundering transaction; and That information is disclosed in good faith for the enforcement of criminal law; and That person is otherwise under an obligation to maintain secrecy in relation to, or not to disclose, that information. If the above immunity applies, then, notwithstanding that the disclosure would otherwise constitute a breach of that obligation of secrecy or non disclosure, the disclosure by that person, to that member of the Police, of that information is not a breach of that obligation of secrecy or non disclosure or (where applicable) of any enactment by which that obligation is imposed DISCLOSURE OF INFORMATION IN JUDICIAL PROCEEDINGS (SECTION 47) This section provides a protection against disclosure in judicial proceedings of: STRs, Any information that would identify a person who prepared, handled, or reported an STR, Other information that would infer the existence of an STR. This information can only be disclosed in judicial proceedings where a Judge (or person presiding) is satisfied that the disclosure is necessary in the interests of justice ACTING IN COMPLIANCE WITH THE AML/CFT ACT (SECTION 77) This section offers a broad protection for actions undertaken by reporting entities and their staff. No reporting entity is criminally or civilly liable for any action taken in order to comply with the AML/CFT Act if the action was taken in good faith and was reasonable in the circumstances. Page 24 of 26