A “wake up” call has been made today to company directors in New Zealand, alerting them to the personal risks they face from obligations under the country’s anti-money laundering laws.
An Auckland-based hi-tech startup that is offering companies a state-of-the-art solution to enable compliance with the law says it fears that many companies are playing a“wait and see” game that places their directors at substantial personal risk.
In less than a year, about 23,000companies – just about every firm in the country that handles large lumps of money – will be required to detect suspicious financial transactions at the time that they occur. To notice them “later” will not be good enough, since they may involve fraud, illegal drugs, tax evasion and other crimes. Moreover, they will need to identify and investigate suspicious deals and, if necessary, report them to the PoliceFinancial Intelligence Unit.
Executive Director of Dimension GRC, Jenine Colmore-Williams, says that most of the 23,000 companies should now have sophisticated analytical systems in place. The remaining companies will have to comply with the law in 2019. However, reports from within some of the business groups involved suggest that compliance is trailing behind expectations – even extending to doubt that the Department of Internal Affairs will be capable of staging a biennial audit of the scale necessary to uncover non-compliant miscreants.
“Risk-taking can be an admirable attribute for company directors, but just what is their appetite for personal risk?” she asked. Under the law, each and every director of the 23,000 companies required to comply faces personal penalties as high as $300,000, or two years in prison, for repeated failure to comply, providing false or misleading information, or other criminal offences.
“Compounding this risk is the fact that half of the directors of this group of companies sit on more than three boards, all of which have to comply. The collective risk represented by potential individual fines plus company fines, which can be as high as $5 million if these obligations are not taken seriously, can spell total disaster,” she said.
“Increased international awareness of money laundering, financing terrorism and tax avoidance also means that similar laws are in force in other countries, and the level of risk for directors whose companies operate internationally is consequently much higher.”
Catching these crimes as they happen is no simple matter, and systematic complexity breeds expense, which is one of the factors contributing to slow compliance. TheJustice Department estimates that over a period of 10 years, compliance with the Act will cost New Zealand companies between $800 million and $1.1 billion. First, they need to conduct an internal risk assessment, involving either their own staff or outside consultants. Then, they must establish policies, procedures and processes to ensure that the risk is managed, after which they must appoint a compliance officer to administer this management.
Placing these costs in a national perspective is the JusticeMinistry’s claim that as much as $1.35 billion is laundered per year through ordinary New Zealand businesses. Anti-money laundering laws aim to put an end to these practices, and in the process, reduce by $800 million the cost of social harm related to the illegal drug trade.
Just five years ago,New Zealand’s Anti-money-laundering legislation covered only banks, casinos, financial services providers and some trust and company service providers. Last year, lawyers, conveyancers, more trust and company service providers, accountants and accountancy service providers have been included, and from January to August this year, real estate agents, dealers in high value goods and the Racing Board’s management of betting on sports and racing will follow.
Ms Colmore-Williams says that while directors have a duty to ensure that companies comply with anti-money laundering laws, they currently have little or no real-time visibility of their personal risk, or that of the organisations for which they are accountable. Many firms regard compliance with the law as too hard, because anti-money laundering preparedness is too difficult a landscape to navigate and there is a shortage of expertise. A great many organisations are “sticking their heads in the sand” or adopting manual processes that are incapable of capturing risks as they occur.
Dimension GRC offers software-as-a-service that is designed to carry the burden of anti-money laundering surveillance and implement effective compliance systems to manage and resolve risk and fraud. It is designed to be cost effective for small- and medium-sized businesses, but swings the power of global analytics behind the local compliance process. It automates the process, thereby reducing the cost because the need for human capital is reduced. Moreover, the software development company is wholly NewZealand owned and research and development stays at home.
Finding and reporting suspicious anomalies within the cash flows of a business in real time requires a staggering bank of data. Dimension GRC gives an organisation a holistic, real-time view across its entire operations, scrutinising all transactions, business risks and customer and business-partner profiles. The service calls on global data providers such as Dow Jones and Thomson Reuters for customer due diligence, a resource which has hitherto been available only to the big banks.
Dimension GRC will also undertake the training of client staff to give them the skills to establish compliance procedures, processes and policies. Basically, it aims to free organisations from the concerns of anti-money laundering compliance to focus on their core business and make more informed decisions.
“Company directors have the authority and span of control to ensure New Zealand’s reputation as ‘a good place to do business’; to make the country a difficult place in which to launder money,” Ms Colmore-Williams says. “We are extremely well equipped to help them do that.”
And what right does a fledgling startup have to sound an alarm to thousands of New Zealand’s business leaders? “That is our role; our expertise: to warn the country’s businesspeople about unacceptable risks,” she says.