Auditing to many people is a dark and mysterious art. The very presence of an auditor and the fact that you have to pay them to put you under scrutiny you don’t really want to enforce Anti Money Laundering laws you sure as heck didn’t vote for, is enough to raise your anxiety levels and have you reaching for your blood pressure pills. But as with the art of negotiation, the key to a great outcome with your AML audit is first to understand exactly what your auditor knows and is tasked to do and what they are going to be looking to see.

There are two key things that your auditor will focus on.

1. Firstly, they will be looking to determine if your risk assessment document complies with section 58(3) of the act. Specifically, they will be looking to assess the nature and extent of the AML / CFT risk assessment and its application in your business.
2. Secondly, they will be seeking to determine whether your AML / CFT programme that is based on your risk assessments complies with section 57 of the act. Specifically, this includes processes to vet staff, choose between enhanced and simplified CDD, report suspicious transactions, monitor and record findings, be alert to deals that benefit from anonymity and undertaking training to ensure the programme is followed and used.

Now here’s the thing; Many firms contracted out the task of conducting a risk assessment and writing their compliance programme. This has meant they are compliant but vulnerable. Their vulnerability lies in not having truly lived in this process. The boxes might have been ticked but is lip service only being given to the ongoing monitoring and implementation of the program?

If this is you, and all you have really done is collect CDD information, you might need to shake off any remaining apathy and really get your hands into the soil of your compliance program.

Here’s a three-question test of your vulnerability;

Could you, for example, explain how to determine whether enhanced CDD or simplified CDD is required?

Are you actually doing anything to determine if your client might be a “politically exposed person” and do you know what to do if they are?

What have you actually done that you can prove to vet new staff and agents?

Five key tips to assist you to get that positive outcome from your AML audit

So, if you a feeling a bit lacking in all of this, here are five key tips that if implemented, will greatly assist you to get that positive outcome from your auditor and improve your test score.

1. Pull your program out and re-read it before the audit. If you are asked questions on it but are found to have no understanding of it, you are not going to be creating a positive impression with your auditor.
2. Make sure you are following the programme to ensure you have the right level of CDD information. Test your own teams’ compliance ahead of the audit,  testing is something the auditor will definitely do.
3. Check whether you have any suspicious transactions that require reporting. If any have been identified the auditor will check they were reported within three days.
4. Assemble proof that you are vetting new staff properly.
5. Determine how you will demonstrate that new staff have been trained in the use of your program. A system to ensure they are inducted and sign off on their training in the program will find favour.

Finally, remember that the AML legislation is new law creating many obligations on firms that have not existed in the past.

You are not the bad guy. You are simply required to follow the law that is designed to prevent the bad guys from hiding their ill-gotten gains. Your auditor will provide valuable feedback on how well you are going with meeting your obligations. Take feedback in a positive context and use it to your advantage. Knowledge is power and your auditor is going to be able to grow your knowledge of things you can do to keep the enforcement officers at bay.

In that sense, your auditor is offering you the gold here.

On occasion, my auditing career and travel have aligned to offer adventure in far-flung places. I seize these opportunities.

Recently, I threw caution to the wind and accepted an engagement of a Kiribati Trust. The trust’s aim is to protect the remaining pristine environments in Micronesia and promote awareness of ecological conservation. But to achieve this, I must first journey to one of the least environmentally sustainable places on the planet, Tarawa Atoll, Kiribati where the trust keeps offices.

This is what I experienced.

Tarawa Atoll is a tiny strip of Coral sand, lying 3.5 hours flying North of Fiji and sitting just north or the Equator in Micronesia. It is one of the farthest-flung islands in Oceania. Kiribati itself, of which Tarawa is the capital, is comprised of 33 atolls, 21 of which are inhabited. Incredibly, the atolls are home to 103,500 Micronesian souls, baking under the equatorial sun. Fifty per cent of Kiribati’s total population lives on south Tarawa Atoll, making it one of the most populous places in the world with a staggering 135 humans per sq. km. South Tarawa is confronting, it is in a state of total ecological collapse with its pristine lagoon now too polluted to swim, but swim they do, regardless.

This is the place where the rubber meets the road on Global warming and plastic in the ocean. If you are a climate change denier or consider initiatives to reduce plastic to be mere virtue signalling, visit Tarawa for a jaw-dropping reality check. Summiting the highest peak on Tarawa is not difficult, it rises a grand 6.5 feet above mean high water and the top foot of that is, by my reckoning, plastic waste. There is simply nowhere for it to go. The villages each morning, sweep up the leaves that have fallen overnight, leaving the piles of rotting garbage where they lie, why do this, because they have always done this, but the futility of it is heart-breaking. The villages don’t live in Fales in the traditional sense, and there is room enough only for coconut trunked sleeping platforms with a thatched roof, that’s it. Many of these are built in the tidal zone, the elevation of the platforms allows the sea and rain to drain away, but the rubbish is trapped, festering and stinking in the relentless heat.

South Tarawa wrote itself into history on the morning of 20 November 1943 when the United States launched operation Galvanic, its first offensive in the Pacific War with the aim of taking Tarawa from a 4000 strong Japanese force for its strategically critical airstrip at Betio. The dawn broke like every other on Tarawa, hot, sunny and beautiful but the sunrise signalled the unleashing of hellfire from the big guns of the US fleet. The marines watched on, naively gaining confidence as the bombardment of the heavily defended beachfront defences rolled on. Mid-morning the order was given for the marines to board the twenty-man amphibious landing craft for the land assault. They were soon to discover that a terrible mistake had been made. The men were sent ashore at low tide when the surrounding reef was at its most exposed. The landing craft became hopelessly ensnared in the Japanese’s best device, the reef itself. This is when the Japanese hit back, blasting the men in the stationary craft with heavy artillery fire and dropping bombs from a light seaplane they could launch from the lagoon. The men were forced to abandon their craft and wade for the beach over razor-sharp coral, a distance of over 100 metres. Here they were sitting ducks for the Japanese machine guns in pillboxes along the shore.

Despite utter carnage, the marines eventually established a small beachhead before nightfall but were pinned down. Under the cover of darkness, the Japanese swam to the marooned landing craft and stationed snipers who picked off the second wave of US landings on day two. The sheer weight of numbers from the 18,000 marines available eventually enabled the US forces to land tanks that were finally able to destroy the Japanese pillboxes at point-blank range. Now the pendulum swung with the marines pushed inland and destroying everything in their path with grenades and flame throwers.

At the end of day two, the Japanese mounted a final Bansi suicide charge and were slaughtered. Of the 4000 Japanese fighters, only 17 dazed men survived. Marine losses were 2800. The battle of Tarawa was won but at enormous cost. The US lost more men on Betio beach and in the lagoon over those two days than they lost in six months in the Guadalcanal campaign and the battle of Betio goes down as one of the bloodiest in WW11 history. Today, the war relics on Betio remain a legitimate tourist attraction, marking the sacrifice that young Americans made to roll the Japanese back out of the Pacific. Lest we forget.

Auditing in a place like Kiribati has its own unique challenges.

Charm, patience and resilience are all qualities that the budding intrepid auditor must deploy to impose 1st world financial standards on people that are not naturally accustomed to such precision and accountability. Audit trails often seem little more than mythical oral traditions, the island way of passing on information. However, the trust’s work makes possible protection and awareness initiatives about the remaining pristine reefs and uninhabited atolls of the Phoenix Islands. Its work is laudable, and I am pleased to play a professional part in ensuring its success. Professionally, Kiribati is challenging. Such is the culture in Oceania.

Kiribati itself is attempting now to create a tourist trade. But nobody is excited enough to print I love Kiribati Tee shirts yet!

The outer islands are undeniably beautiful and pristine, but the island of Tarawa is nothing short of a human catastrophe in action. In a state of total ecological collapse and floating on a sea of rubbish as what little island remains is piece by piece, consumed by the sea. The people’s existence makes one weep, eking out an existence amongst the rubbish and the rising tide, groaning under a sea of humanity, car wrecks, plastic and waste is everywhere you look, and still, the population grows. Alarmingly, on Tarawa, nine people are born every day, two die and one lucky soul escapes by migration for a net gain of six people per day.

Where will these people go?

How can this continue?

On Tarawa, there is an inescapable sense that reckoning day is looming. At the airport, eager to depart, I am approached by a smart young local boy with a sense of purpose. I rare thing here. He asks me to complete a survey on my experience on Tarawa.

I agree.

I choke back a tear as he asks me, what is Tarawa’s biggest barrier to tourism?

Where do I start and stop? I opt for The Rubbish?

The last question is, “would you recommend Tarawa as a tourist destination to friends and family?”

Can I lie? I am an auditor; after all, such indiscretions do not sit comfortably with me.

I must not lie.

I tick “No”.  Holidays are so precious, yes, it is interesting, but would I spend my limited vacation time and money there?  No!

Then again, it does depend on what you are looking for in a holiday. Maybe the more intrepid traveller wanting to see the real issues facing the planet may be intrigued.

We have recently summarised some basic information for doing business in New Zealand.

This guide is to help overseas interested parties gain a general understanding of the business and taxation environment in New Zealand.

You can read the full guide here: https://kreston.com/wp-content/uploads/2016/10/New-Zealand.pdf

Setting up your Business in New Zealand

Issues to consider

New Zealand (NZ) has a relatively deregulated and open economy and is consistently ranked as one of the easiest countries in which to do business.   The World Bank Doing Business 2018 Report ranks NZ first in the world for ease of doing business.

As well as simplicity the tax system has the major attractions of predictability and fairness.

Of course one of the major attractions of NZ is the more relaxed living philosophy and lifestyle which seems to be more obtainable than in many other countries.

However local knowledge of the legal, accounting and taxation framework is essential when looking to set up or do business in NZ.   This document provides a brief summary of the practical issues you will need to consider.

What type of Business structure should we use?

Foreign investors can operate in NZ through whatever entity they choose and the most common ones used are locally incorporated companies or a branch of a foreign entity.

Read more

Proposed changes to the thin capitalisation for loans: Draft Legislation has been introduced to limit the use of debt financing as a means to shift profits out of New Zealand as part of the Government’s wider BEPS tax reform package

The new legislation will apply New Zealand entities who have overseas loans (existing and new).  The new rules once enacted will be effective for income years beginning on or after the 1 July 2018.  Majority of these changes will affect loans over NZ$10 million.  However, some changes to thin capitalisation calculations for loans less than NZ$10 million are also proposed in this legislation.

The proposed changes to the thin capitalisation for loans look at interest-bearing debt over total assets less non-debt liabilities currently it is interest-bearing debt over total assets.  So current loans which previously did not need to look at thin capitalisation may need to look at these rules to see if thin capitalisation adjustment is required.

What should be done before these new laws come into effect:

• Look at your current loans and how will these changes affect these loans.
• Should loans be refinanced and new documentation done.
• Are loan documentation up to date and are they relevant and compliant with transfer pricing rules.
• If any new loans to be taken out after the 1 July 2018 can the documentation be done to make a favourable outcome of these rules and still comply with transfer pricing rules.

If you have any overseas loans and want to discuss these further, please feel free to contact Cynthia Forbes at cynthia@forbesca.co.nz