AML Costs

A reader sends me the following email he received from someone selling Anti-Money Laundering compliance services.

I hope that the country is getting just a ton of benefits out of this thing, because it sure doesn't look cheap.

Email copied below, company's name stripped out.

Please see the below information as to your upcoming requirements and our service offering to assist your compliance with the new regulations regarding AML/CFT:

• Phase II of the AML/CFT Act is due to come into effect by August 2018 for Lawyers, and October 2018 for Accountants.
• Those changes will mean Lawyers, Accountants and Real Estate Agents will have to comply with the AML/CFT regulatory environment in their day to day business.
• October 2018 is not far away. This sounds like a long time, but once you understand the requirements for compliance, it is not long at all.
• Compliance with the Act will be expensive should you choose to comply “in-house”. The essential requirements needed to comply are:
• You must undertake a risk-assessment of your business and record your business risk profile. This must be reviewed quarterly.
• You must have in place a full AML/CFT programme that all members of your staff are familiar with, have access to and understand the procedures required for take-on business or new transactions with existing clients.
• You must appoint a Compliance Officer/Manager. This person is responsible for managing and overseeing the AML/CFT programme in the office. If you do not have staff, you must hire an employee for this role. (This is a requirement of the Act). This person must keep informed of all updates and changes in the law.
• You must file annual reports with the governing body (Dept. of Internal Affairs).
• You must submit your programme to independent audit biennially.
• As you take on each new client or undertake new business for your clients, you must screen/identify your clients and their source of funds to be used in the proposed transactions. That means independently checking photo I.D through a verified service such as “World-Check” (the only service providing passport verification), proof of address, internet checks and reviewing information as to source of funds depending on the risk level of the transaction. This must be carried out prior to undertaking the work anticipated. 
• Any transaction that appears to be “suspicious” must be investigated in-house and if the suspicion is not allayed, a suspicious transaction report must be filed with the Dept. of Internal Affairs/Police. Records of the suspicious transaction investigation or report must be maintained.
• This is a significant increase in workload that does not (at least visibly) increase your bottom line.

XXXXX offers to provide you with a solution to the new compliance environment.

WHO ARE WE?

We are a corporate services and trustee company that has been operating in the new AML/CFT environment since the application of Phase I, and prior to that HWL worked under the European rules which at the time were more stringent than the NZ rules. The shareholders are lawyers based in Christchurch, two compliance specialists (ex-NZ Police, APRA and CBA Bank, ex-NZ Navy, qualified educator and certified by the GRC Institute (Australia)) and compliance managers/administrators.

We have extensive experience in drafting risk assessments, programmes and application of those on a day to day basis including conducting “know your client” checks, suspicious transactions and identifying source of funds of potential and existing clients. Our systems have passed Dept. of Internal Affairs audits and are robust – including extensive use of services such as “World-Check” and KYC360. We have liaised with banks and enforcement agencies on suspicious transactions and know the environment well.

WHAT DO WE OFFER?

We can provide the following services on your behalf:

• Preparation and drafting of your business risk assessment and the provision of on-going monitoring to ensure changes to your business are covered by your risk assessment;
• Preparation and drafting of your AML/CFT in-house programme, along with training for you and your staff as to your obligations under the programme and Act;
• Provision of a compliance officer (contractor basis) where you are unable or unwilling to nominate an existing member of staff as such;
• Prepare and file annual reports to the governing body on your behalf;
• Arrange and provide the biennial independent audit on your behalf;
• Undertake individual client risk assessments on your behalf as and when required, using “World-Check” for identity verification, and make recommendations on the outcome of the verification in line with your risk assessment for you to act on or over-ride;
• Supervise or provide guidance on suspicious transactions and the reporting of said should the need arise.

HOW MUCH WILL THIS SERVICE COST?

Our service is comprehensive, and the fees charged will cover all the services as outlined above.

Our service is on a yearly basis, and is NZD15,000 per annum (plus GST) broken down as follows:

• Initial mobilization fee of $4,000.00 (plus GST). On receipt of this payment we undertake the preparation of drafting the risk assessment and your AML/CFT programme. We will meet with you on site and provide in-house training on responsibilities under the programme for you and your staff. 
• Thereafter 11 monthly payments of $1,000 (plus GST). 
• During the 12-month contract we will carry out the above services on your behalf, as and when required by you and as due dates for obligations arise.

COST COMPARISON OF SERVICES

Employment of compliance officer (average salary) $50,000.00 per annum

Subscription to World-Check for identification verification (the only service offering passport verification) $10,000.00 plus GST per annum

Consultancy services for preparation of AML/CFT programme and risk assessment – usually $400 per hour (plus GST) and expectation of 20 hours for the programme and assessment - $8,000.00 plus GST

Consultancy services for quarterly review of assessment and programme – usually $400 per hour – expectation of 4 hours per quarter - $1600.00 plus GST

Consultancy services for provision of in-house training on the programme, STR’s and any updates or changes – usually $800 per presentation(plus GST) – expectation of 16 hours training per annum - $1,600.00 plus GST.

Independent audit – $90.00 per hour plus GST (biennial cost). Estimated time for audit – 20 hours.

XXX  COST

XXX annual fee $15,000.00 plus GST

Biennial independent audit $2,500.00 plus GST

Total in first year: $15,000.00 plus GST
Total in second year: $17,500.00 plus GST.

Total in first year: $71,200 (plus GST)
Total in second year: $73,000.00 (plus GST)

Government. It's what we do together. Like impose $73,000 per year in compliance costs on small accountancies for no well-stated reason.