Sanctions against Russia - new obligations imposed on AML reporting entities
21 March 2022
On 9 March 2022, Parliament passed the Russia Sanctions Act 2022 (the Sanctions Act), which creates a framework that enables New Zealand to impose and enforce unilateral sanctions in response to military actions by Russia (and by countries or persons who may be assisting Russia).
On 18 March 2022, the Government implemented the Russia Sanctions Regulations 2022 (the Sanctions Regulations) which sets out the specific prohibitions and restrictions comprising these sanctions.
The Sanctions Act imposes new obligations on "duty holders" - these are defined as reporting entities under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act) or any other person declared a duty holder by subsequent regulations.
For broader discussion about the impact of sanctions on New Zealand businesses please see our earlier article.
On 18 March 2022, the Financial Intelligence Unit (FIU) of the Police has also published guidance (FIU Guidance) on the Sanctions Act and Sanctions Regulations. This guidance highlights three key obligations of duty holders - freezing obligations, reporting obligations and due diligence/monitoring obligations.
The FIU Guidance notes that "if a duty holder currently has a sanctioned asset under their control or they are currently providing services to a sanctioned person, they must cease all activity by either freezing the assets and/or stopping any transactions or services involving the sanctioned entity".
Under the Sanctions Act, duty holders are now required to report certain suspicions to the Commissioner of Police in relation to "designated" assets, services and persons (or classes of assets, services and persons). The list of designated assets, designated services and designated persons are set out in the Sanctions Regulations.
If duty holders are in possession or immediate control of assets that they suspect on reasonable grounds may be 'designated assets' or assets owned by or controlled by a "designated person", then they must report it to the Commissioner of Police as soon as practicable (but no later than three working days) after forming the suspicion. The Sanctions Act sets out that assets are real or personal property, in tangible or intangible form and can be inside or outside New Zealand, specifying that cryptocurrency is considered an asset.
Similarly, if a duty holders deal (or will deal) with services that they suspect on reasonable grounds may be "designated services" or services in relation to a "designated person", then they must also report it to the Commissioner of Police within three working days. The Sanctions Act sets out that this obligation relates to services of any kind, whether dealt with inside or outside New Zealand, specifying that, amongst other things, advice, assistance and training as well as financial, accounting and insurance services all fall within the definition of "service". The Sanctions Act also specifically mentions "a service relating to cryptocurrency" is considered a service.
The FIU Guidance reminds reporting entities under the AML/CFT Act that their AML/CFT programmes must include provisions to identify any grounds for reporting suspicious activity.
The FIU Guidance notes that reporting entities must submit a suspicious activity report to the FIU with "as much information as possible and context that can be reasonably be provided to inform next steps" and that duty holders that are not reporting entities under the AML/CFT Act can report using the prescribed form on the NZ Police 105 website.
Due diligence and monitoring obligations
The FIU guidance reminds duty holders of their existing obligations to undertake due diligence checks necessary to ensure that no persons/entities or assets or services provided to persons/entities are subject to sanctions.
Breaches of the Sanctions Act may result in a fine up to NZ$1m (for entities) and a fine of up to $100,000 or imprisonment for up to seven years (for individuals).
We have extensive experience on advising clients on sanctions and assisting clients with their regulatory compliance obligations.
If you would like advice on how this legislation may impact you and how we can assist you, please contact a member of our financial services regulation team.