Hung out to dry: Regulatory concerns about imposing anti-money laundering obligations on legal professions

Abstract

To address the “sophisticated crime” of money laundering there are various regulatory measures a government may enact, all with varying degrees of sophistication. This paper analyses the appropriate sophistication of the Financial Action Taskforce’s (“FATF”) regulatory model in relation to anti-money laundering obligations in New Zealand and their extension to legal professionals. FATF is an international organisation leading the fight against money laundering and has established the global regulatory standard for anti-money laundering measures. As a core member of “FATF”, New Zealand is committed to implementing its regulatory recommendations, including the application of comprehensive anti-money laundering measures to legal professionals.

This paper argues that although legal professionals should not be exempted from comprehensive anti-money laundering obligations, application of FATF’s recommended risk-based-meta-regulatory model is not principled regulatory reform. Within the New Zealand context, many of the strengths and rationales behind FATF’s regulatory model are inapplicable, the compliance cost on the legal profession does not appear proportionate or supported by cost-benefit analysis and issues arise around appropriate supervision as well as consistency with lawyers’ ethical duties. Despite these problems, the government has proposed that legal professionals will have explicit anti-money laundering obligations by 2017.