Here are answers to some questions commonly asked, as well as questions we’ve posed to the DIA and their response. Please note, just like the IRD, the general advice from the DIA will not protect you.
EXISTING CLIENTS
If we have an existing client who has been with us for 5 years, and we have formed a couple of companies for him in the past. Come 1 October, if he asks us to form a company for him, it is my understanding that we do not need to conduct CDD on him as he is an existing client and there has been no material change in the nature and purpose of our relationship (i.e. we have formed companies for him in the past). Is this correct?
You must conduct CDD on existing customers if there has been a material change in the nature or purpose of the business relationship with that customer, and/or you have insufficient information about that customer. When considering what information would be sufficient, you will need to assess the level of risk involved, and whether you hold the necessary identity information, verified to the appropriate level. You should not conduct any captured activity until these requirements are met.
COMPANY MAINTENANCE
Is filing a company annual return a captured activity?
Simply filing an Annual Return with the NZ Companies Office would not be a ‘captured activity’ for AML/CFT purposes.
Is a voluntary de-registration with the NZ Companies Office a captured activity?
The mere act of de-registering a company at the NZ Companies Office would also not be a ‘captured activity’ for AML/CFT purposes. Please note however, distribution of assets / funds in the course of liquidating a company IS a captured activity.
FINANCIAL TRANSFERS WITH IRD
A client pays income tax to IRD. Subsequent to making this payment, they instruct us to move that payment from one tax period to another within the IRD system (not changing the tax payer this payment is for). The funds don’t leave IRD, we never ‘touch’ the payment - we're merely the intermediary between the individual and the IRD. Is this a captured activity?
The DIA’s response to this question is NO, this isn’t a captured activity – however it seems that if the funds were being transferred to another tax payer, then it is a captured activity (refer to question below).
A client pays income tax to IRD. Subsequent to making this payment, the client instructs us to move the payment to another IRD number within the IRD system. The funds don’t leave IRD but are allocated to another IRD number who now has control over this credit.
The DIA’s response to this question is YES, this is considered a captured activity as we would have control of the flow of funds.
What about a tax refund between two different people/entities within a tax return or over the phone with the IRD, would this be considered a captured activity?
The advice we’ve gotten from the DIA have been unclear about this, in our view any transfers of tax payments of any nature between entities should be treated as a captured activity as you are giving instructions on behalf of your client to move the funds.
IN-HOUSE ACCOUNTANTS
An in-house accountant for a media company is working as a contractor (not employee), and who doesn’t actively seek other companies to do accounting work for, manages the company’s funds paying bills and wages via internet banking. Is she captured as a reporting entity?
If the contracted in-house accountant is authorising wage and salary payments from the media company’s account directly into their staff’s personal accounts, then they are performing a captured activity; therefore, the accountant would be considered a reporting entity.
MAKING TAX PAYMENTS ON BEHALF OF CLIENTS
A client provides us access to a bank account held by them for the sole purpose of satisfying tax payments to IRD. We only access the account to make regular tax payments. Is this a captured activity?
DIA responded that they did consider this a captured activity, as we would have control of the flow of funds.
We operate a trust account to make tax payments only. Funds are deposited into the trust account by clients and payment is then made to IRD. No other parties ever receive a distribution from the trust account. Any tax refunds are paid directly from IRD to the client. We are aware for this point, there is an example on page 16 of the Accountants Guideline from March 2018, we are seeking to clarify if we have no discretion and must make the payments solely to IRD (in line with our terms of engagement) is it still a captured activity?
MANAGING A COMPANY’S SHAREHOLDING / DIRECTORSHIP
We have been asked to add a shareholder and director to a company, is this a captured activity?
Yes this is a captured activity as it is engaging in the managing of a legal entity.
ONGOING MONITORING
If we form a company for a new client and do all the required customer due diligence, but the following financial year we are no longer providing any captured services, do we still need to monitor their accounts?
Part of our suggested policy is that you regularly review your client (at least annually). If your review identifies that you are no longer providing a captured service then you won’t need to monitor them. However, if you are not monitoring a particular client and you happen across a suspicious transaction, you should still consider filing a Suspicious Activity Report (SAR). This is the communication we’ve had from the DIA regarding this – “if the facts objectively justify a suspicion of ML/FT, filing an SAR may provide invaluable intel to the Police even if the services that you provide your client are not covered by the AML/CFT Act”
PAYROLL
A client instructs us to prepare payments to suppliers/staff/etc. We prepare a banking batch file to make payments out of a client’s bank account, then upload that batch file into the client’s bank account (either directly or via accounting/payroll software). The client then has to authorise that payment. Is this a captured activity?
It is noted in the Accountants Guideline that managing payments to or from your clients’ accounts is captured; and, with the exception of payments for professional fees, any instance where you receive or hold client funds and control the payment of those funds will also be captured.
The key determining factor is whether you have control over the flow of funds—if you do have control, your activity is captured. Taking a payroll situation, for example, if you are loading payments that are then actioned by your client, you are not controlling the funds, your client is. However, if you are authorising wage and salary payments from your client’s account directly into their staff’s personal accounts, then this is a captured activity.
A client instructs us to prepare payments to suppliers/staff/etc. We prepare a banking batch file to make payments out of a client’s bank account, then upload that batch file into the client’s bank account via accounting/payroll software – we never have direct access to the clients online banking, but the client doesn’t have to authorise these payments, they are made as soon as the batch file is received from the accounting/payroll software. Is this a captured activity?
PRESCRIBED TRANSACTION REPORTS (PTR)
Do I need to file a PTR when I see an international funds transfer of $1000 or more in my client's records (say Xero, MYOB or when they give me the data at the end of the year)?
No. Simply seeing the transaction doesn’t require you to file a PTR. It is only when the transaction is conducted through the Reporting Entity that a PTR would be required. However, if the transaction is suspicious then a Suspicious Activity Report should be filed.
I frequently make international funds transfers which are over $1000 for many of my clients, by operating their bank account - does this mean I have to file a PTR every time I make these transactions?
We make or receive an international funds transfer (international wire transfer) via our trust account (of $1,000 or more) on behalf of our client, do we need to file PTR?
A client pays us $10,000 cash for our professional services, do we have to file a PTR?
STAFF TRAINING
How do you do the staff training?
Refer to the “AML-CFT Training Programme” document in our package (only available with the Live X and Supported package). This sets out the pre-reading each of your staff members should do, followed by a quick test they can take to highlight any areas they may need clarification on. Not all employees need to do this training, only relevant staff members.
We have done the test, now what do I do with the results?
SUSPICIOUS ACTIVITY REPORTS
If we have a client whose services we are providing are not captured by the act – so no customer due diligence or account monitoring is needed, however we form a suspicion that that client may be involved in ML/TF – are we obligated under the AML/CFT Act to file an SAR?
Reporting entities are only required to file SARs for activities as covered under the AML/CFT Act. You will need to be aware of your obligations to report suspicious activities, which can include requests or enquiries about particular services you offer from potential or current clients (regardless of whether you ultimately provide those services captured under the AML/CFT Act). However, if the facts objectively justify a suspicion of ML/FT, filing an SAR may provide invaluable intel to the Police even if the services that you provide your client are not covered by the AML/CFT Act.
TAX COMPLIANCE AND ANNUAL ACCOUNTS
Are the preparation of annual financial accounts, income tax returns and GST returns captured activities?
In the DIA’s view, the preparation of annual financial accounts, income tax returns and GST returns are not captured activities under the AML/CFT Act. However, if in preparing such material you develop a suspicion that there is money laundering or other criminal activity involved, you should take appropriate action in line with your professional obligations.
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