Latest DIA Enforcement Action
Between April and May 2024, the Department of Internal Affairs (DIA) issued press releases for a public formal warning, an enforceable undertaking, and a proceeding settlement. Let’s see each of them.
Formal Warning
Your AML/CFT Supervisor may issue one or more formal warnings to a reporting entity if the AML/CFT Supervisor has reasonable grounds to believe that that reporting entity has engaged in conduct that constitutes a civil liability act. A civil liability act occurs when a reporting entity fails to comply with any of the AML/CFT requirements, for example, failure to:
conduct customer due diligence;
monitor accounts and transactions adequately;
report prescribed transactions;
keep records; and
establish, implement, or maintain an AML/CFT compliance programme.
Formal warnings can be private or public. Public formal warnings can have detrimental consequences for the reputation of a reporting entity.
On 8th May 2024, the DIA issued a public formal warning to lawyer Peter S Brinsley (PSB). PSB failed to meet AML/CFT obligations relating to (i) the establishment, implementation, and maintenance of an AML/CFT compliance programme, (ii) conducting ongoing customer due diligence and (iii) reporting certain transactions.
“This warning serves as a timely reminder to lawyers, but also to all businesses captured by the AML/CFT Act to ensure that your risk assessment and compliance programmes are up to date and working in practice. […] The reporting entities we supervise range in size from large organisations to sole traders, such as this case. Regardless of size, all business [sic] with obligations under the AML/CFT Act need to comply.”
You can read the DIA press release here.
Enforceable Undertaking
Your AML/CFT Supervisor may also accept a written undertaking given by a reporting entity in relation to AML/CFT compliance. The reporting entity may withdraw or vary the undertaking at any time, but only with the consent of the relevant AML/CFT Supervisor. In practice, an enforceable undertaking is a voluntary agreement between the AML/CFT Supervisor and the reporting entity, which once accepted becomes legally binding. If the agreement is breached, it could result in legal action in the High Court.
On 18th April 2024, the DIA accepted an enforceable undertaking agreement from ABC Accounting Services Limited (ABC). The agreement details that ABC will not carry out certain specified business activities, following its continued non-compliance with the AML/CFT Act and, in particular, its failure to establish an effective AML/CFT compliance programme.
You can read the DIA press release here.
Proceeding Settlement
When a civil liability act (see definition above) occurs, the relevant AML/CFT Supervisor may also apply to the High Court for a pecuniary penalty. On 21 May 2024, a settlement was reached between the DIA, and SkyCity Casino Management Limited (SkyCity) regarding DIA’s civil proceedings against SkyCity for breaching its AML/CFT obligations, between February 2018 and March 2023.
As part of the settlement agreed to by both parties, SkyCity has admitted to all five causes of action in DIA’s statement of claim, according to which SkyCity did not meet its obligations relating to:
developing and maintaining a risk assessment,
establishing, implementing and maintaining an AML/CFT compliance programme,
monitoring accounts and transactions,
conducting enhanced customer due diligence, and
terminating existing business relationships.
SkyCity and the DIA have agreed to jointly submit a penalty of $4.16m to the High Court, though the final determination is for the High Court at the penalty hearing.
You can read the DIA press release here.
Internal Detection
The DIA does not claim, and there is no evidence suggesting that, PSB, ABC and SkyCity were involved in money laundering or terrorism financing. However, due to their non-compliance with the AML/CFT Act, these reporting entities must now undertake expensive remediation efforts, face potential reputational damages and pay large fines.
Ideally, you would want to detect any non-compliance issues internally, so that they can be addressed before a supervisory visit or investigation. Ways to detect potential aspects of AML/CFT non-compliance include:
Independent AML/CFT audit;
Internal assurance exercise, conducted by your AML/CFT compliance team; or
Assurance review conducted by an external provider.
Get in touch if you have any questions on how we can help you detect any potential non-compliance within your AML/CFT regime. We can help you with your statutory audit, guide you through an internal assurance exercise, or we can conduct the assurance review for you and issue you with a report.
