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These obligations include the creation of an internal AML/CFT programme, which has the goal of detecting money laundering and the financing of terrorism within an entity, as well as managing and reducing these risks. The policies and procedures involved within the programme would ordinarily include processes such as customer due diligence, suspicious transaction reporting and more. Internal AML/CFT training is required for staff, plus appointing an AML/CFT officer. The most obvious evidence of the regulations for people is the endless cases of proving of who you are, and where your money came from.
Although reporting entities are growing increasingly aware of their requirements under the Act, issues remain with the practical roll out of the AML/CFT requirements, especially as they impact on small business and individuals. Trusts are a particular nightmare, given the need to not only prove who the trustees and beneficiaries are to external parties, but also trace back through associated entities who cannot even benefit from the trust.
Unfortunately, there is no centralised system, such as RealMe, which materially assists reporting entities in carrying out their obligations under the Act. An example of this can be seen in the forms used to perform customer due diligence - each business utilises their own format. This is largely due to the differences in each reporting entity's customer base, which dictates their AML/CFT needs, and their interpretation of the rules. For example, every bank has a slightly different approach. Accordingly, it does make the process of due diligence potentially a cumbersome one. This is particularly true for customers who are engaged with various reporting entities for a single transaction (e.g. bank, lawyer, accountant, real estate agent), as each of them may need to conduct a separate "due diligence" process.
Conversely, another emerging issue that has been widely discussed is that reporting entities are not considering the specific threats within their business in enough detail and are instead choosing to use templates that may not be appropriate. This may be true for smaller businesses that are under-resourced, who can find it difficult to provide the thorough training and detail that is required under the Act.
The AML/CFT obligations that reporting entities have could also potentially hinder market competition. Generally, customers want an efficient, easy service. After going through frustratingly slow and cumbersome AML/CFT requirements with one supplier/business, customers may not wish to repeat the process. This could spur a lock-in effect, with customers unwilling to shop around as it is not worth the paperwork headache. Complying with due diligence procedures may also be especially onerous on particular groups, such as elderly customers or those who have "unusual" circumstances.
The concentrated effort of business people is a vital component in the fight to combat money laundering. Currently, it seems to be that the practical roll out of the AML/CFT endeavour may be experiencing some teething problems. A centralised system could have assisted with these issues; however, time will tell if this view is shared by Government which has in my view "washed its hands" of the practical pain points being felt by businesses and individuals. Perhaps it would be timely to both reconsider the fragmented processes, and the actual success to date in identifying actual AML/CFT breaches.
Scott Mason is a Managing Partner at Crowe Horwath.