Spotlight on organised crime and corruption: new law changes

Thursday 5 November 2015

Authors: Mike Colson, Fiona Tregonning and Kerry Beaumont

​​Parliament passed new Organised Crime and Anti-corruption legislation. Amendments have been made to 15 statutes, all aimed at strengthening existing laws to combat organised crime and corruption, and improving New Zealand’s ability to collaborate with international counterparts.

This update focuses on two aspects of the new laws:

  • the changes to the anti-corruption legislative framework; and

  • the amendments to the anti-money laundering and countering financing of terrorism (AML/CFT) laws.

There has not been a wholesale overhaul of the existing legislation. However, there are some significant changes in relation to the bribery of foreign public officials, and the changes to the AML/CFT laws are intended to build on and/or clarify existing requirements under the current regime.

What it means for New Zealand business

The changes are a timely reminder for companies to review the adequacy of systems they have in place for preventing, detecting and responding to corruption issues, and reiterate the importance of continued, active and on-going compliance with New Zealand’s AML/CFT laws.

In the current regulatory environment, it is more important than ever for organisations to have systems in place to ensure that they:

  • are aware of the corruption and money-laundering risks facing their businesses,

  • have policies in place to deter any corrupt payments,

  • actively monitor and ensure compliance with all applicable AML/CFT compliance obligations,

  • have appropriate training for staff,

  • detect, escalate and respond to potential issues,

  • have appropriate leadership and engagement from the top, and

  • keep up-to-date with law changes, regulatory guidance and industry practice in these arenas, each of which are increasingly under the spotlight both from a regulator’s perspective and in the general media.

The current anti-corruption legislative framework

New Zealand’s anti-corruption legislation is primarily contained in sections 99-106 of the Crimes Act 1961, and the Secret Commissions Act 1910. The Crimes Act makes it an offence to corruptly provide a bribe to any person with intent to influence specified public officials in respect of any act or omission by that official in their official capacity. This applies to domestic New Zealand public officials, judges, MPs, Ministers and law enforcement personnel. It is an offence for these specified persons to accept such a bribe.

Similarly, it is an offence to bribe a Foreign Public Official (FPO), where the bribe is paid to obtain or retain business, or obtain an improper advantage in the conduct of business. This applies to bribery acts outside New Zealand by persons who are New Zealand citizens, residents or companies incorporated in New Zealand.1

Anti-corruption key changes to note

The key anti-corruption changes in the new legislation primarily relate to bribery of an FPO, rather than to domestic bribery.

  • Some penalties have increased. Bribery of an FPO under the Crimes Act 1961 can now result in either seven years’ imprisonment, or a fine, or both.2 The fact that both a fine and imprisonment can be imposed is new, as is the value of the fine. The Crimes Act now specifies that the fine can be up to the greater of NZ$5 million or three times the value of the commercial gain.

    The Crimes Act penalties for bribery of New Zealand domestic officials however, have not changed – they remain up to seven years’ prison.3

    The penalty for offences under the Secret Commissions Act 1910 (primarily applicable to domestic private sector kickbacks) has changed dramatically to match that: it is now up to seven years in prison. Previously, the penalty was a NZ$2,000 fine for a company, or NZ$1,000 for an individual.

  • Vicarious liability of companies for acts of employees in bribing Foreign Public Officials has been clarified in the Crimes Act, following criticism by the Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery. The Crimes Act now makes clear that “employees” includes agents, directors and officers, and that companies commit an offence if such an employee bribes an FPO, when the employee is acting within the scope of their authority and with at least partly an intent to benefit the company.4

    Also new is the defence that a company has taken “reasonable steps” to prevent the offence. The onus is on the company to raise and establish this.5 While there is no guidance in the legislation that indicates what will be viewed as “reasonable steps”, the Ministry of Justice has indicated that the approach is similar to that in the UK, Australia, and Canada, and that they intend to develop a resource package for businesses before the legislation comes into effect.

    Notably, there are no equivalent provisions relating to bribery of New Zealand domestic officials.

  • The ‘double criminality’ requirement in the Crimes Act for bribery of a Foreign Public Official has been removed. Previously it was not an offence under New Zealand law to bribe an FPO where the bribery act was done outside New Zealand unless it was also an offence under the laws of the FPO’s own country. That has been repealed.

  • The rules regarding facilitation payments have changedbut not a great deal. Despite ‘facilitation payment’ becoming a buzzword in Parliament for a few weeks, and efforts by opposition parties to have them prohibited, facilitation payments remain legal.  Essentially, it is not an offence under the Crimes Act if:

    • a payment is given to an FPO for the sole or primary purpose of ensuring or expediting the performance by the official of a “routine government action”; and

    • the value of the payment is “small”. 

    This is known as the facilitation payment exception - a typically cited example is a low-value payment to an overseas customs official for the timely release of cargo.

    The amendments to the Crimes Act further restrict the scope of what falls within “routine government action”, and therefore constitutes a permissible payment. It already does not include any payment that involves a decision about awarding new or continuing existing business, or which involves action outside the scope of the ordinary duties of the official. The facilitation payment exception now will also not include any action that provides:

    1. an undue material benefit to the person making the payment; or

    2. an undue material disadvantage to any other person.6

    The Companies Act 1993 has also been clarified to reflect the obligation on companies to keep a record of their facilitation payments.7

    The legality of facilitation payments remains a contentious issue: they are illegal under the UK Bribery Act 2010 and in Canada, but not illegal under the United States Foreign Corrupt Practices Act. The New Zealand Serious Fraud Office’s (SFO) website lists facilitation payments as one of the possible forms of bribes,8 and advice given in anti-corruption training developed with the SFO is not to make facilitation payments. (And, of course, it is not legal to make a ‘facilitation payment’ to New Zealand domestic officials).

AML/CFT overview

New Zealand’s AML/CFT laws are contained in a number of enactments, including the Crimes Act and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act). The Crimes Act criminalises money laundering. The AML/CFT Act came into full force in 2013 and imposes compliance obligations on reporting entities for the detection and deterrence of money laundering and the financing of terrorism.

AML/CFT regime key changes to note

The key changes to the AML/CFT regime are as follows:

  • Changes to the money laundering offence – removal of hurdles for prosecution.
    Two changes have been made to the money laundering offence under the Crimes Act. First, the requirement that proceeds of the money-laundering are generated from serious offending (punishable by five years’ imprisonment) has been removed. The second change clarifies that the intent to conceal property is not required to prove the money laundering offence.

  • New “prescribed transaction” reporting regime for international wire transactions and cash transactions.
    Reporting entities will be required to report to the Financial Intelligence Unit within the Police (the FIU) all international wire transfers over a certain threshold value (expected to be NZ$1,000) and all domestic physical cash transactions over a certain threshold value (expected to be NZ$10,000) in the form of “prescribed transaction reports”. Each prescribed transaction report must be made “as soon as practicable, but not later than 10 working days after the transaction” and will need to be in a form to be set out in new regulations (which are yet to be drafted). The prescribed transaction reporting regime once in force will be in addition to the current transaction reporting obligations under the Act (for cross border movements of cash and suspicious transactions).

New Zealand legislation moving in line with international developments

These changes do not reflect a radical shift in New Zealand’s anti-corruption and AML/CFT legislation landscape. Rather, in the case of the anti-corruption changes they are tweaks to our existing laws to meet criticisms of the OECD Working Group on Bribery regarding perceived gaps in New Zealand’s legislation, and to try to bring New Zealand more in line with some overseas developments.

The AML/CFT changes to the Crimes Act serve to remove what were considered to be unnecessary hurdles to the successful prosecution of money laundering offences under that Act. The introduction of the prescribed transaction reporting regime under the AML/CFT Act is not surprising. International wire transactions and cash transactions have been identified in New Zealand’s National Risk Assessment9 and in Financial Action Task Force (FATF) recommendations as posing high risks of money laundering and terrorism financing.

While some of the changes have been a long time in coming for New Zealand, they reflect growing international and domestic attention on corruption issues and AML/CFT generally.

No one could have missed the various FIFA corruption-related charges this year. Receiving less attention, but also worthy of note, is the fact that New Zealand had at least four domestic corruption cases in as many months earlier this year, including the conviction (now under appeal) of former New Zealand Wine Company CEO Peter Scutts under the Secret Commissions Act.

In the AML/CFT space, it is clear that the three supervisors are actively monitoring compliance, and enforcing instances of non-compliance, by reporting entities. For example, in the last week, the Reserve Bank of New Zealand issued a published formal warning to a registered bank, while the Department of Internal Affairs stated that it has so far issued one published and 13 non-published formal warnings to reporting entities.10

The prescribed transaction reporting regime under the AML/CFT Act will not impose additional obligations on reporting entities to collect further customer due diligence information. However, this new regime will necessitate the development and implementation of substantial new IT systems and processes to enable affected parties (in particular, banks and the FIU) to comply with the inevitable marked increase in transaction reporting under the AML/CFT Act.

The fact that certain key details of the reporting obligations under this new regime necessary for the design and build of the new systems are to be put in place at a later date (under regulations), resulted in recognition that there needed to be a longer lead in time for the commencement of this new reporting regime than that initially contemplated. Accordingly, the legislation passed yesterday provides that the prescribed transaction reporting regime will come into force on 1 July 2017.

All of these developments should bring home that, while New Zealand has a very good and ‘clean’ reputation, we are not immune to corruption or money laundering/terrorism financing risks – or from regulation and prosecution - either at home or abroad. Nor can businesses be complacent about the actions of their agents, staff or directors. Compliance in this area requires active oversight and leadership from the top.


1 Sections 105C(2) and 105D Crimes Act. See also section 7A.

2 New section 105C(2D) and 105C(2E) Crimes Act.

3 However, a fine is possible as an alternative under the usual provisions of the Sentencing Act.

4 New section 105C(2A) Crimes Act.

5 New section 105C(2B) and 105C(2C) Crimes Act.

6 New paragraph (c) to definition of “routine government action” in section 105C(1) Crimes Act.

7 New section 194(1A) Companies Act 1993.

8 www.sfo.govt.nz/legislation.

9 New Zealand Police Financial Intelligence Unit, National Risk Assessment 2010 – Anti-Money Laundering/Countering Financing of Terrorism, pages 16 and 18.

10 Formal warnings can be issued by the AML/CFT supervisors under section 80 of the AML/CFT Act.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

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  • Ian Gault

    Partner and Deputy Chair Auckland
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