The Reserve Bank (Te Pūtea Matua) has issued a formal warning to Westpac New Zealand for failing to report prescribed transactions, a requirement by law.
In a statement on Monday morning, the Reserve Bank announced it was formally warning the New Zealand branch of Westpac Banking Corporation (WBC) for failing to comply with the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009.
The AML/CFT Act imposes obligations on businesses that provide certain financial services, such as banks, casinos, and a range of financial service providers. These businesses are known as 'reporting entities'.
Reporting entities are defined in the Act and supervised by three bodies - the Financial Markets Authority, the Reserve Bank of New Zealand, and the Department of Internal Affairs - according to the financial activity.
In 2017, the Government amended the AML/CFT Act to include more businesses such as real estate agents and conveyancers, lawyers and accountants, some businesses that deal in expensive goods, and betting on sports and racing.
Under the Act, reporting entities are required to record prescribed transactions in the form of Large Cash Transaction (LCT) reports and International Fund Transfer (IFT) reports.
According to the New Zealand Police, prescribed transactions are transactions conducted through a reporting entity regarding international funds transfers (IFTs) - an international wire transfer of NZD$1000 or more where at least one of the institutions involved in the transaction is in New Zealand, and at least one is outside of New Zealand; and Large Cash Transactions (LCTs) - a domestic, physical cash transaction of NZD$10,000 or more involving physical currency (i.e. coin and printed money designated as legal tender).
By law, reporting entities are required to pass on their prescribed transactions to the police's Financial Intelligence Unit, says the Reserve Bank's Deputy Governor and general manager of financial stability, Geoff Bascand.
But on Monday, Bascand announced that the WBC had "designed and configured" its prescribed transaction reporting (PTR) systems in a way that "failed to detect and report eligible international wire transfers" - with the corporation failing to report almost 8000 corporate transactions to overseas recipients between July 2018 and February 2019.
"This formal warning reflects the importance of the [PTR] regime in building an intelligence picture across New Zealand's financial system, and reiterates the seriousness with which we view non-compliance with the AML/CFT Act," he said.
In a notice of the formal warning uploaded to its website on Wednesday, the Reserve Bank said it has reasonable grounds to believe that WBC has engaged in conduct that "constitutes a civil liability act" under the AML/CFT Act.
"WBC is required to comply with its obligations under the Act at all times," it said.
However, the Reserve Bank noted that since the Westpac Designated Business Group identified these issues in February 2019, it has worked to rectify the underreporting of prescribed transactions and has retrospectively reported the 7792 outgoing international wire transfers.
Why was this legislation introduced?
According to the Ministry of Justice, the legislation was introduced to help protect local businesses while making it harder for criminals to profit from, and fund, illegal activity.
"They'll also safeguard and help New Zealand live up to our reputation as being one of the least corrupt countries and a good place to do business," it says.
Each year, about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses.
The New Zealand Police notes that prescribed transactions reports (PTRs) help to build an intelligence picture across the entire financial system, providing necessary statistics and useful intelligence on the flow of cash and money in and out of New Zealand.
In addition to Suspicious Activity Reports (SARs), PTRs add further transparency to the financial system by making money laundering and terrorist financing typologies even more difficult to hide, as well as improving the detection and disruption of organised crime, fraud and tax evasion.
What is a prescribed transaction?
Prescribed transactions are transactions conducted through a reporting entity. These transactions are:
- International Funds Transfers (IFTs): an international wire transfer of NZD$1000 or more where at least one of the institutions involved in the transaction (i.e. ordering, intermediary or beneficiary institution) is in New Zealand, and at least one is outside of New Zealand
- Large Cash Transactions (LCTs): a domestic, physical cash transaction of NZD$10,000 or more involving physical currency (i.e. coin and printed money designated as legal tender).