The phase two AML roll out continues, with guidance to the real estate industry published by the Department of Internal Affairs in recent days.
With respect to the DIA, each new guidance released has demonstrated the increased awareness of the supervisor for the need to provide meaningful assistance to reporting entities, and they are progressively more focussed and in depth.
Unfortunately these guidelines do not, and perhaps cannot, traverse what seems to be an immutable gap between the original messaging of the Ministry of Justice, the pure wording of the Act and regulations, accepted practice, previous regulator interpretation and desired outcome.
The guidelines may appear on first read to canvass most of the issues facing the real estate sector as they gear up for 1 January 2019. However, for professional consultants they pose very real difficulty in terms of providing definitive guidance in a number of areas.
One of these, and of critical importance to the industry, is when exactly due diligence is required on purchasers. The guidance reiterates the messaging to the industry that they need only conduct due diligence on their clients, recognised to be the vendor in most instances. But further on, it reminds the reader that anyone conducting an occasional transaction becomes a client which triggers a "customer" relationship (and therefore due diligence obligations). In giving examples of what these transactions may be, the guidelines are frustratingly silent on the payment of deposits by way of wire transfer.
The industry has always been aware that they would be expected to cover off when purchasers paid deposits to them in cash (although beware the definition - it's not just the folding stuff in the regulator's view). However, the regulations extend the definition of occasional transactions well beyond that, including capturing wire transfers over $1000. The difficulty is the definition of customer coupled with the wording of this particular regulation, how it has been applied by the supervisors to date, and the potential to infer from the guidelines that there may be situations where it applies to a purchaser depositing funds by wire transfer.
Whether you agree from a policy perspective or not, if this is the position it doesn't marry with what the industry has been told to date, which makes it all the more frustrating that there is no clearly articulated statement of what is expected. And let's not try and resolve the issue of occasional activities either, which the Department also suggests may trigger obligations of due diligence when holding deposits ("managing funds") despite the new definition of customer* seeming to exempt the industry from such requirements.
The campaign has been launched, but interested parties are likely to have more than a few queries on this one, and a quick settlement looks pretty much out of the question.
* applicable to real estate sector only
Note: I want to acknowledge the willingness of others who work in this space to engage with me and other consultants to the benefit of reporting entities as whole, to ensure we deliver consistent and considered advice. Particular call out to Martin Dilly and Neil Jeans whose collegial approach I greatly appreciate.