Anti-Money Laundering and Countering Financing of Terrorism Bill

It is worth making a few introductory remarks in respect of Part 2. I will not be making any further remarks about Part 2 other than those matters that I am about to share with the Committee.

Effectively, Part 2 sets out the obligations that will be imposed on reporting entities and the new requirements for the cross-border transportation of cash. The intention of the bill is that reporting entities will take a risk-based approach to their anti - money-laundering and countering of terrorism obligations, and this is the part of the bill that enables that to happen. Part 2 is large. It has six subparts, and there have been a number of changes to note in Subpart 1, which requires reporting entities to satisfy themselves that customers are who they say they are and that their financial transactions are legitimate. Simply put, this process is known as customer due diligence, and the bill sets out different levels of customer due diligence depending on the type of customer, the nature or circumstances of the transaction, and, broadly speaking, the level of risk that is involved in that transaction.

The changes to the bill’s customer due diligence requirements recognise some of the operational difficulties and unnecessary costs in conducting customer due diligence on low-risk existing customers. The changes also recognise that it would be difficult for reporting entities to be required to identify a customer as a politically exposed person at the point of first contact. The changes also give reporting entities discretion around verification requirements. Subpart 2 contains the detail on the reporting of suspicious transactions. It is through those reports that financial institutions and casinos will be providing the police with intelligence on possible criminal activities. There are no important changes to note in that subpart.

💬 Hon Trevor Mallard: The Department of Internal Affairs is involved, and Ministerial Services.

I say to Mr Mallard that we should not start talking about individuals who have been or are in Parliament in that regard.

Subpart 3 sets out the requirements for a reporting entity to keep relevant records. There are no important changes to note in that subpart. Subpart 4 concerns reporting entities’ internal policies and procedures. It requires reporting entities to have programmes for detecting and managing the risk of money-laundering and the financing of terrorism, to carry out risk assessments, and to review, audit, and report on risk assessments. There are no important changes to note in that subpart.

Subpart 5 provides for the preparation, approval, and publication of codes of practice. The inclusion of codes of practice is a way to provide regulatory certainty. Again, there are no real important changes in that regard. Subpart 6 replaces the cross-border transportation of cash regime in the Financial Transactions Reporting Act to include unaccompanied cash, as well as bearer negotiable instruments such as traveller’s cheques. Again, there are no important changes.

I will respond to one remark made by Mr Hodgson in respect of Part 1, and I seek the Committee’s indulgence in that regard. Had he heard my preliminary remarks in respect of Part 1, he would have heard me note the contribution that new clause 3A makes to this legislation.

Mr Chairman, I was happy for my colleague Jackie Dean to take the next call on the Anti-Money Laundering and Countering Financing of Terrorism Bill—and I am sure she will.

I will give a serious contribution to Part 2, and it will not take particularly long. Part 2 is the guts of the bill, and, regrettably, the politics are not brilliant, although I sure my colleague the Hon Trevor Mallard will be able to give the lie to that. Part 2 is where the major changes occur, other than to the definition of “politically exposed person”. In essence, in terms of this part, members of the Foreign Affairs, Defence and Trade Committee believe we took out a huge number of costs, got rid of what the chairman called “bureaucracy central”, and returned it to something closer to, we think, a risk-management approach, and this was the part about which most but not all of the discussion between officials and the banking advisers took place.

It is worth putting on the record again that the banking adviser people from the New Zealand Bankers’ Association are not with us, but officials are. I want to place on the record the fact that although we initially got ourselves into quite a sticky position where some of us were pretty frustrated with the legislation as introduced, the process by which it was resolved in the select committee was a tribute to all involved. And that certainly includes—in fact, it is pretty much limited to—the banking association and the officials who served the committee. They got down, got talking, and got negotiating, and they were solution-oriented instead of problem-oriented, and that gave us the majority of the changes in the legislation.

I give members an example. If someone from Zimbabwe—or someone from the North Island, who is therefore a bit on the suss side to a South Islander—walks into a bank, and if there are politically exposed person questions about the person, then the bank does not have to fix that up and satisfy itself then and there. The bank can do that on day two, and that means that the transaction can take place. Of course, the records of the person will have been made available, and the records will be checked in back-office activities the following day, but to have that person—suspected of being but almost certainly not a money-launderer—waiting in a long queue at a bank was a bad idea.

In a simplistic way, I am trying to give the Committee some idea of what a risk management approach looks like. I conclude my remarks by saying again that I think those who were involved in getting down and sorting out the clauses and subclauses into what we have now did a very fine job, and they ought to be thanked.

Part 2 of the Anti-Money Laundering and Countering Financing of Terrorism Bill describes the requirements and compliance with the legislation as proposed. The critical part for the Foreign Affairs, Defence and Trade Committee was around customer due diligence. The concern expressed by a number of submitters was that the bill as introduced was perhaps overly prescriptive, although it would be fair to say that the intention of the bill was well described and very clear. It was the job of the select committee to work through the specific issues, and, together with the input of members of the banking industry, the bill that came out of the select committee better reflects the realities of customer due diligence requirements on behalf of the banking sector.

Part 2 of the bill describes standard customer due diligence. It also describes the circumstances under which banks and financial institutions might be able to utilise simplified customer due diligence. That would be for customers with a relationship with the bank and, again, enhances customer due diligence. A number of other subparts to this part of the bill include Subpart 2, “Suspicious Transaction Reports”, and requirements around that; requirements around record-keeping on behalf of financial institutions; and compliance with anti - money-laundering and countering financing of terrorism requirements. There are also codes of practices and requirements around cross-border transportation of cash. Part 2 of this bill is quite lengthy and goes into detail on the compliance requirements around the intention of this bill.

I am pleased that we have got to Part 2 of the Anti-Money Laundering and Countering Financing of Terrorism Bill, which is the substantive part of the bill. I found it interesting to look through the bill when we dealt with it before the adjournment last month, during the adjournment, and subsequently today. I have a series of questions for the Minister as to how Part 2 applies and where it is appropriate.

I note that one of the entities with responsibility for reporting suspicious transactions is the Department of Internal Affairs. I think all members are aware that the Department of Internal Affairs is the organisation that is responsible for Ministerial Services. I want to know how much of a responsibility the department has, and where within the department the responsibility lies for reporting suspicious transactions that involve Ministerial Services. I would appreciate an answer on that.

I see that under clause 9, “Customer due diligence”, due diligence must be conducted on “any beneficial owner of a customer”. I want to know whether the Endeavour Trust is a customer of the department and of Ministerial Services. I think it is important that we find out whether the Endeavour Trust is in fact a customer, because if it is, the next question would be about beneficial ownership. I think it is interesting that this bill concerns that—and “bill” is the appropriate word in this case; there are a number of bills involved in this: there is the legislative bill, there is Bill English, and there is the unpaid bill for a decade of cash—and I want to know whether the beneficial owner under clause 9(1)(b) is a direct beneficial owner of a customer or is someone with a discretionary beneficial interest in a customer, where that customer is a trust. It would be good to work through that.

Clause 12 talks about reporting entities and their establishment of business relationships with new customers, and particularly, in paragraph (e), about when, in relation to an existing customer, there is a change in the level of risk involved. That is stated under subparagraph (i), for example, as being where “there has been a material change in the nature or purpose of the business relationship;”. I want to know whether, in the particular case where a trust goes from being the owner of a house for which an allowance is paid to being in an arrangement whereby that trust leases a house to the Crown, that is regarded as being a material change in the nature or purpose of the business.

💬 Hon Pete Hodgson: Very good question.

My colleague, Pete Hodgson, says he thinks there is a material change in the nature and the purpose of the business relationship. What I then want to know is how that is caught under this legislation, and whether, in anticipation of this legislation, the Secretary for Internal Affairs has issued the appropriate notices with regard to the Endeavour Trust.

Moving through the bill, I jump—I know that within this part we are allowed to go back and forward, and it is my intention to do that during the debate on the bill—now to clause 20, “Circumstances when enhanced customer due diligence applies”. Subclause (1)(aa) states that due diligence applies “if the reporting entity establishes a business relationship with a customer that is—(i) a trust or another vehicle for holding personal assets:”. I would have thought that not many cases were clearer than that of Bill English, where the Endeavour Trust is an organisation for the holding of personal assets. I want to know what triggers that. Is the trigger the setting up of the trust, is it the development of the relationship between the trust and other organisations, or is it particular commercial transactions?

I now go to clause 23, which is a completely new clause, on politically exposed persons. It is a rewrite of the legislation. I can accept that the Foreign Affairs, Defence and Trade Committee had a look at this area, and for reasons that I do not think have been very well explained by my colleagues some changes have been made to the bill. I am willing to hear over a period of time their explanations for the changes that have been made. I want to know what the relationship is between this legislation and overseas legislation. I understand that the relationship is going to be sorted out at a conference, and there will be an attempt to pass this bill in time to follow a particular timetable. So I ask whether this legislation has been shared with overseas jurisdictions, and if it has been—for example, if this legislation applied in Australia, and if the Australian legislation was the same as this—whether Bill English would be deemed to be a politically exposed person when he leaves the country.

We have worked it out that there is an attempt in this legislation, and in the changes made in the select committee, to take out people who are currently Ministers from automatically being deemed to be politically exposed people. But that does not apply to people from other jurisdictions, and I want to know whether, if people have been involved in activity that results in enhanced customer due diligence where there are suspicious transactions—as in the case of the Auditor-General versus Bill English at the moment—and if they travel overseas, this legislation is triggered for them in those jurisdictions. If it is triggered in other jurisdictions, I want to know whether there is a reciprocal arrangement whereby it is triggered in this jurisdiction, as well.

I now turn to organisations that have quite an international background, and I will speak in particular about the financing by the New Zealand Government of organisations that appear to be involved in fraudulent activities. These are organisations that have inflated their costs and inflated their overheads, and that have over a period of several years presented false invoices to the New Zealand Government and received payment on the basis of them. I refer, in this, to a television company—one that produces a programme called Asia Downunder. I understand there is one shareholder in that organisation, and that person is a member of Parliament. Is there more than one shareholder?

💬 Hon Member: I don’t know—no, I think you’re probably right.

I think it is one shareholder. We are then left with a question where we have an international organisation, but its ownership is in New Zealand. The organisation has basically accepted that over a period of years it has presented fraudulent invoices to the New Zealand Government and, unfortunately, been paid out on those invoices.

As a former Minister of Broadcasting, I say I am ashamed about that. It now appears that while I was the Minister of Broadcasting, NZ On Air was paying out on fraudulent invoices from Melissa Lee’s company. I think that on occasions I was accused of being a micro-manager, and of looking too carefully—

💬 Hon Parekura Horomia: That’s right. That’s right.

Well, I know that Te Māngai Pāho thought I was a micro-manager. It was not particularly happy with me on a number of occasions when I was the Minister of Broadcasting, for taking too close an interest in the activities of Te Māngai Pāho. I note that Māori Television, when it is let off the leash for at least a period of time, seems to have some more flexibility these days.

I now go back to the question of Melissa Lee and the money that her company has received fraudulently as a result of a series of invoices that her company presented to New Zealand On Air. She now accepts that these invoices were fraudulent, inflated, and bloated, and she accepts that there is a six-figure, I think, sum to be repaid. But I want to know whether that money, while it is in her possession, is regarded as being, in effect, in a laundry.

💬 Hon Pete Hodgson: I think it’s in the soak phase.

It is in the soap phase? No, I do not think it is soap. I think the National Government’s handling of this might be described as a soap, but my view is that there is nothing clean about this at all, and I regard soap as generally—

💬 Hon Pete Hodgson: Soak—s-o-a-k.

Oh, the word is soak. I thought the member was putting soap into the laundry. I see; it is in the soak phase. I thought it was one of those soap holes that all the dirty stuff goes down after it has been through the laundry. I thought that was what the member was referring to.

But I want to know at what stage Melissa Lee is caught in this particular area. Is she caught when she admits there is a problem? Was she caught back on 14 June—

💬 Hon Gerry Brownlee: Where’s the relevance to the bill?

This is very clearly relevant to the bill. If the member would like to get a copy of it, I will point out to him the particular clauses. I would probably start at clause 4A, and if the member Melissa Lee took the money offshore, as I sure she has on occasions, there is clause 5. The conduct of due diligence is in the first part of clause 9(4). There are a lot of areas where there is particular relevance to the activities of Asia Vision and what it is doing with particular large amounts of cash. I want to know, for example, whether a material change such as someone shifting from what was previously the role of a full-time executive director to that of a part-time executive director, and becoming a member of Parliament as well, is a material change that triggers this particular legislation. I am happy to take the word of the Minister in this area, but it is important and it has to be sorted through.

Again the question of whether this is a reciprocal arrangement is something that is subject to further interrogation over a period of time. I still do not understand, and my colleagues have still not explained to me, why, if Melissa Lee travels to Hong Kong or Seoul she is caught by this legislation, but if she stays at home she is not. We seem to have a higher standard of behaviour for overseas politicians who come to New Zealand than for New Zealand politicians who stay here, and to me that is illogical. Why is it that Melissa Lee can stay at home, not go overseas, and not be caught by the money-laundering legislation, but that a Korean politician who does in Korea exactly what Melissa Lee is doing here in New Zealand will get caught by it if he or she then comes to New Zealand? I generally have a lot of faith in my colleagues and in the work that they do in select committees, but I cannot see why they have provided this escape path.

We have three investigations going now. We have the Melissa Lee investigation, the Bill English investigation, and the ongoing jobs-for-cash investigation involving Bakshi. We have three people who appear to be benefiting in this particular area and who, if they left the country, would be in trouble. But because they are staying tight here, they are not. I am sure there is a good explanation for that, and that Simon Power will be very keen to defend his colleagues and to go on there—

The CHAIRPERSON (Hon Rick Barker): This is your final call. I am listening very carefully to the member, and at times I am struggling to catch where he is actually engaging in debate on Part 2 of the bill.

If you like, I will keep on referring to some of those provisions of the bill.

Clause 25 in Part 2 is about wire transfers. I want to know whether, if the Endeavour Trust, Melissa Lee, or Bakshi took some of their ill-gotten gains and attempted to transfer them from New Zealand by way of wire transfer, they would be caught under this legislation. That is a pretty simple question. I want to ask the Minister whether this legislation is good enough to catch the money that has been flushed through a company, in Melissa Lee’s case, or through the Endeavour Trust, in Bill English’s case. I do not know how Bakshi handled his jobs-for-cash arrangement: whether there is a trust, personal money, cash in a jar, or how it worked. But I want to know whether, if that money was sent offshore by way of wire transfer or, more important, if it went—

💬 John Hayes: You could ask Taito.

The member is saying something about Bill “Taito” English. Why did he say that? Why did he want to bring up Bill English in that way and associate him with Mr Field? I think John Hayes is trying to get into Cabinet. That is why he wants Bill English to be associated with Taito Phillip Field. I thank the member for the interjection. He is laughing; he is happy. He knows that when Bill English goes down, there will be a Cabinet vacancy. But I want to tell him that I think it is pretty unlikely that he will become the Deputy Prime Minister and Minister of Finance. I do not really like his chances very much, at all.

The next point I would like to make is around new or developing technologies or products that might favour anonymity. Again, this goes right to the case of the Endeavour Trust. What happens when someone takes his or her name off a trust as a trustee, and goes from clearly being a beneficiary of the trust to being a discretionary beneficiary of the trust? If there is a new product—a new trust—from which anonymity is gained, as is absolutely the case with the Endeavour Trust, which Bill English is a discretionary beneficiary of, then I want to know why the Government is doing that. Why is it bringing that up now, and why are we not hearing from Bill English on this?

I want to know from the Government whips whether there has been a declaration of interest in this from any National member, or whether any of them are at all concerned. I will give the whips an assurance that Labour will vote for this legislation, but the question is whether all the National members will. I am pretty tempted to ask my whips for the right to vote against the bill so as to force the vote to be taken, in order to see the numbers for National on it. If the legislation goes through on the voices, of course, we will not be able to tell whether Mr Bakshi, Ms Lee, and Mr English are all voting for this legislation, when there can at least be an argument put that they have an interest in it—and I know they have an absolute interest in this legislation, in terms of the differences between the bill that was introduced and the version we now have. So the legislation, not generally but in its details, affects them differently in different ways.

The next question relates to reliance on other reporting entities or persons in another country. Again, the issue is a very similar one, because at least in the case of Asia Downunder and in the case of Mr Bakshi Singh, there is reliance on people overseas in order to give information back to the New Zealand prosecutorial systems in order to work out whether Melissa Lee and those two individuals should be prosecuted. It is a question of whether other countries are those reporting entities.

I will leave it at clause 35, which relates to a prohibition on the use of false customer names and customer anonymity. I think if any of the three, but in particular Melissa Lee or Bill English, were in this area, they would be caught by this measure.

Part 2 agreed to.

Part 3 Enforcement