Home | Databases | WorldLII | Search | Feedback New Zealand Bill of Rights Act Reports

Anti-Money Laundering and Countering Financing of Terrorism Bill (Consistent) (Sections 19, 21) [2009] NZBORARp 35 (8 June 2009)

Last Updated: 28 April 2020

Anti-Money Laundering and Countering Financing of

Terrorism Bill

8 June 2009

Attorney-General

LEGAL ADVICE

CONSISTENCY WITH THE NEW ZEALAND BILL OF RIGHTS ACT 1990: Anti-Money Laundering and Countering Financing of Terrorism Bill

1. I have reviewed the Anti-Money Laundering and Countering-Financing of Terrorism Bill

(PCO12951/9.0) for consistency with the New Zealand Bill of Rights Act 1990.

2. According to the explanatory note the purpose of the Bill is to enhance New Zealand's framework for anti-money laundering measures and countering the financing of terrorism (AML/CFT) so as to progress compliance with the Financial Action Task Forces (FATF) recommendations. The Bill aims to improve the detection and deterrence of money– laundering and the financing of terrorism, thereby enhancing our international reputation and confidence in the financial system. The Bill requires financial institutions and casinos to establish measures to assess and manage AML/CFT risks and report any suspicious transactions. The Bill establishes a supervisory regime to monitor, assist and enforce compliance through supervisory state agents, mainly the Security Commission, the Reserve Bank of New Zealand and the Department of Internal Affairs. The Bill also extends the cross- border reporting regime administered by the New Zealand Customs Service.

3. The Bill raises the following issues under the Bill of Rights Act:

3.1 The information gathering powers, which include warranted searches (clauses 114 and

115), and warrantless powers including compelling production of documents (clauses

129(2)(a) and 137(a)) and on-site inspections (clause 129(2)(b)), and the mandatory reporting of suspicious transactions requirements (clauses 37 and 38). These raise issues with the right to be free from unreasonable search and seizure affirmed by s 21.

3.2 The Bill provides for a number of offences for failure to comply with various obligations without reasonable excuse (clauses 104, 105, 108 and 109), thereby placing an evidential onus on the accused, contrary to the presumption of innocence protected by s 25(c).

3.3 The Bill provides for a civil pecuniary penalty in respect of civil liability acts (clause 88). As this penalty is similar to other penalties in the Bill that are expressed as criminal, it raises the issue as to whether proceedings seeking a pecuniary penalty in respect of civil liability act ought properly to be characterised as criminal for the purposes of ss24-26 and are thereby inconsistent with the criminal procedural rights protected by those sections.

3.4 The Bill provides for persons defined as "politically exposed persons" (certain individuals who hold prominent public positions in New Zealand and other countries, including the Prime Minister and judges of the Supreme Court) and their immediate family members, to be subjected to enhanced due diligence requirements compared to other persons before they can establish a business relationship or conduct certain transactions with any entity covered by the Bill (clauses 21 and 23). This raises an issue with the right to freedom from discrimination on the grounds of family status as affirmed by s 19.

4. I conclude, however, that none of these issues give rise to an inconsistency with the Bill of

Rights Act.

Search and seizure powers

Warranted search and seizure powers

5. The Bill provides for search and seizure powers pursuant to a warrant issued by a District

Court judge [1] and sets out conditions as to the exercise of these powers, (clauses 114-

126). The requirement that the warrant be issued by a judge or other independent officer allows for prior and independent verification that the exercise of the given information- gathering power is justified in the particular context. Further, additional safeguards as to the exercise of these powers is provided by the various express conditions as to when and how these powers are to be exercised.

6. The provisions in the Bill governing warranted search and seizure powers are therefore not inconsistent with s 21 of the Bill of Rights Act. Warrantless search and seizure powers

7. The Bill also provides warrantless search and seizure powers for on-site inspections of reporting entities' business premises, and compelling production of or access to reporting entities' records as follows.

7.1 The power to conduct on-site inspections of reporting entities is provided to AML/CFT supervisors (defined to be the Security Commission, the Reserve Bank of New Zealand or the Department of Internal Affairs, depending on the entity [2]), including the power to request information to be provided and questions to be answered (clauses 129(2)(b) and

130).

7.2 AML/CFT supervisors also have the power to require reporting entities, to produce or provide access to records, documents or information relevant to their supervision and monitoring (clause 129(2)(a)).

7.3 The Police Commissioner may order the production of or access to records, documents or information from any reporting entity that is relevant to analysing a suspicious transaction report already received by the Commissioner (clause 137(a)).

8. Such inspection powers amount to a warrantless search and/or seizure and lack the inherent prior safeguard afforded by independent verification through the warrant process. AML/CFT supervisor's powers

9. Powers of inspection of information in order to check that commercial activities are compliant with a regulatory scheme are generally regarded as reasonable[3]. There is a limited privacy interest in information produced during the ordinary course of a regulated commercial activity [4]. Accordingly, any privacy interest in the information is outweighed by the State's interest in the provision of that information in the course of inspecting for compliance.

10. In respect of the on-site inspection power in the Bill it is limited to reasonable times, is not available in respect of a private residence or a marae, no person is required to answer any question if it would incriminate them, and nothing requires any lawyer to disclose any privileged communication. The on-site inspection powers to confirm compliance are therefore not unreasonable in terms of s 21.

11. Requiring the production of or access to information is less intrusive than an on-site inspection and provides an effective means of monitoring compliance with the regulatory regime that does not involve entering premises. The power of AML/CFT supervisors to require production of information is accordingly also not inconsistent with s 21. Police Commissioner's powers

12. Clause 137(a) provides the Police Commissioner with the power to order production of or access to records, documents, or information from any entity that is relevant to analysing a suspicious transaction report that has been received. The Commissioner's functions

include analysing such reports to assess whether they should be referred for criminal investigation (clause 136(e)).

13. The inspection power under clause 137(a) of the Bill is accordingly specifically for law enforcement and regulatory purposes. However, the power is necessarily limited to those records, documents or information required in addition to the report (if any) sufficient to allow an analysis to be undertaken as to whether a criminal investigation is warranted. Further, the search and/or seizure is minimally intrusive. Given these factors and the important societal interest in preventing reporting entities from being used for money- laundering and terrorism purposes the Commissioner's power to require production of information without a court order is not unreasonable in terms of s 21.

14. In contrast, where, the predominant purpose of the search or seizure is the determination of penal liability then a warrant should be obtained in order to further the investigation. Mandatory reporting of suspicious transactions requirements [5].

15. The mandatory reporting of suspicious transactions requirements in clauses 37 and 38 are the precursor to the exercise of the Commissioner's powers in clause 137(a) discussed above and themselves could arguably come within the rubric of s 21. Requiring the provision of private banking information to be disclosed to the State for law enforcement purposes may be a search or seizure for the purposes of s 21.

16. The Canadian Supreme Court has held the right against unreasonable search and seizure protects informational privacy [6] and the Court appears to have accepted this extends to an

individual's banking information [7]. In contrast the United States Supreme Court has held the Fourth Amendment does not extend to protect an individual's banking information [8].

17. However, even if the mandatory reporting requirements could be said to be a search or seizure for the purposes of s 21 they would not be unreasonable for the reasons set out above in respect of the Commissioner's inspection powers.

Pecuniary penalty for civil liability act

18. The Bill provides in clause 88 that an AML/CFT supervisor may apply to the High Court

for an order that a person pay a pecuniary penalty if the person has engaged in conduct that constitutes a civil liability act [9]. The penalty is payable to the Crown or to any other person specified by the Court. The maximum pecuniary penalty is $200,000 in respect of an individual and $2,000,000 in respect of a body corporate [10]. The matters the Court must have regard to when determining the appropriate penalty include the nature and extent of the act, the likelihood, nature, and extent of any damage to the integrity or reputation of New Zealand's financial system because of the act, the circumstances in which the act occurred and whether the person had previously been found by the Court in proceedings under the Act to have engaged in any similar conduct.

19. The Bill expressly provides that a proceeding for a pecuniary penalty for a civil liability act is a civil penalty proceeding and that the standard of proof is the civil standard (clause

69). Proceedings for a civil penalty can be brought against a person for more than one civil penalty in respect of the same conduct and similarly criminal proceedings in respect of the same conduct can also be brought (clause 70). A person is however only required to pay one penalty, whether civil or criminal, arising out of the same conduct (clause 71).

20. Given the civil penalty proceedings are similar to proceedings in respect of penalties in the Bill that are expressed as criminal [11], the issue arises as to whether the proceeding ought properly be characterised as criminal. If the civil penalty proceedings are properly characterised as criminal the Bill would potentially be inconsistent with the criminal procedural rights affirmed by ss 24-26 of the Bill of Rights Act [12].

21. The European Court of Human Rights has found some regulatory "civil" offences to be criminal [13]. However, the jurisprudence in respect of relevant provisions in the European Convention of Human Rights is such that the definition of "criminal" in that context remains unclear [14]. To determine whether a proceeding is truly civil or criminal the European Court of Human Rights focuses on the nature of the offence (in particular whether it applies to a specific group or is of a general binding character), whether there is a punitive or deterrent element, whether imposition of the penalty depends on the finding of culpability, and the severity of the penalty. The criteria are alternative and not cumulative, although if there is not a clear conclusion cumulative approach can be taken.

22. The Canadian Supreme Court's approach to determining whether proceedings are truly criminal focus on the nature of the proceeding (in particular whether it was designed to address a wrong to society), not the nature of the conduct giving rise to the proceedings. Whether the proceedings are criminal or civil/administrative depends on the objectives of

the provision, the purpose of the sanction and the process leading up to its imposition. If proceedings lead to a truly criminal consequence, such as imprisonment or a very substantial fine that by its size appears to be imposed for the purpose of addressing wrong to society, then the proceedings will be criminal [15].

23. There are factors that support a view that the civil penalty proceedings in this Bill ought properly be characterised as criminal. In particular, criminal sentencing principles are to be taken into account in determining the appropriate penalty. Further, the fact that only one criminal or civil penalty can be imposed in relation to the same conduct could indicate the civil penalty equally has a punitive purpose.

24. There are also factors to the contrary. The objective of the provision is not criminal, to address a wrong done to society. Rather, the provision has a deterrent purpose, directed at protecting the public in accordance with the policy of the statute that regulates a limited group who voluntarily engage in a regulated activity. While the penalties are potentially substantial, in the context of the regulated activities, they are not extreme and are lower than the maximum criminal penalty in the Bill ($300,000 for an individual and $5,000,000 for a body corporate) [16]. Further, and importantly, there is no criminal stigma attached to this type of civil penalty action. 25. On balance, in my view proceedings for a pecuniary penalty for civil liability act under clause 88 of the Bill are properly characterised as civil and are not criminal for the purposes of ss 24 -26.

Reverse onus provisions

26. The Bill contains a number of provisions that place a reverse onus on the accused person

[17] and accordingly limit the right to the presumption of innocence affirmed by s 25(c):

26.1 A person is guilty of an offence who, without reasonable excuse, fails to make a cash report as provided for in the bill in respect of cash over the applicable threshold value that the person had moved in or out of New Zealand (clause 104).

26.2 A person is guilty of an offence where, without reasonable excuse, they fail to make or cause to be made a cash report in accordance with the bill concerning cash over the applicable threshold value that the person has received in New Zealand from overseas (clause 105).

26.3 A person is guilty of an offence where, without reasonable excuse, a person makes a cash report knowing it is false or misleading (clause 108).

26.4 A person is guilty of an offence where, without reasonable excuse, the person fails to answer questions from a Customs officer (clause 109(2)).

27. It can be a justifiable limit in terms of s 5 of the Bill of Rights Act to place such an onus

on to a defendant where the defendant is voluntarily involved in a regulated activity such as here [18]. The point was noted with possible approval but not decided in R v Hansen [2007]

2 NZLR 1 [19].

28. Here, the matters of excuse in respect of the failure to comply with regulatory requirements in the Bill are likely to be peculiarly within the knowledge of the person concerned [20]. Further, the offence provisions relate to certain defined specific acts which in themselves are regulated activities [21].

29. For those reasons I conclude that no issue of inconsistency arise in relation to these reverse onus offence provisions.

Enhanced customer due diligence for family members of politically exposed persons

30. The Bill requires "politically exposed persons" (defined as including certain individuals who hold prominent positions in New Zealand or in any other country, which include the Prime Minister and judges of the Supreme Court) and their immediate family members to be subjected to enhanced due diligence requirements compared to other persons before they can establish a business relationship or conduct certain transactions with any entity to which the Bill applies (clauses 4 and 20-23). In particular, information must be obtained as to the source of the funds or the wealth of that person and a senior manager's approval given.

31. The additional requirements for immediate family members of politically exposed persons compared with other persons appears to amount to differential treatment on the basis of family status, a prohibited ground of discrimination for the purposes of s 19. However, even if being exposed to greater scrutiny in this context could be said to cause disadvantage to those persons, it is not the type of disadvantage that s 19 aims to protect against (being that arising from prejudice and negative stereotyping that perpetuates legal, social or political disadvantage faced by a marginalised group in our society). Accordingly, in my view no prima facie limit on s 19 arises.

32. Even if the provisions were prima facie discrimination on the grounds of family status, it would be justifiable under s 5. The rationale for FAFT recommendations having enhanced scrutiny in respect of politically exposed persons and their families arises out of the concern that if persons holding prominent public positions are exposed to corruption or abuse this can have significant societal consequences. The scope of definitions of politically exposed persons always include immediate family members, the rationale being, internationally, that immediate family members may be used to conceal the fruits of corruption or abuse of the public position.

33. For these reasons I conclude that no issue of inconsistency arises in relation to s 19 of the Bill of Rights Act.

34. In accordance with Crown Law practice, this advice has been peer reviewed by Victoria Casey, Crown Counsel. Hamish McLachlan, Assistant Crown Counsel, has also assisted in the preparation of this advice.

Yours faithfully

Jane Foster

Associate Crown Counsel

Footnotes

1 Or Justice of the Peace, Community Magistrate, or Registrar.

2 Clause 127

3 See Thompson Newspapers v Canada (1990) 67DLR (4th) 161, 236 (SCC), R v McKinlay Transport (1990) 68DLR (4th) 568 68 (SCC), Comité Paritaire de l'Industrie de la Chemise v Potash (1994) 115 DLR (4th) 702, 735 (SCC); British Columbia Securities Commission v Branch (1995) DLR (48) 462 (SCC) and R v Jarvis (2002) 3SCR 757 (SCC).

4 Supra. That the privacy interests of business records is limited was acknowledged by the Court of Appeal in TranzRail v Wellington District Court [2002] NZCA 259; [2002] 3 NZLR 780

5 See R v Jarvis (2002) 3SCR 757 (SCC) where the Supreme Court of Canada held that once officials were not engaged in verifying tax liability but rather the determination of penal liability the powers of compulsion were not available and search warrants were needed in order to further the investigation.

6 See R v Plant [1993] 3 S.C.R.281 at 293, where the Court held that "informational privacy protects a biographical core of personal information which individuals in a free and democratic society would wish to maintain and control from dissemination to the state. This would include information which tends to reveal intimate details of the lifestyle and personal choices of the individual".

7 See Schreiber v Canada [1998]1 SCR 841 where the majority in finding the government's request to Swiss authorities to search and seize an individual's banking information did not amount to a search or seizure by the Canadian government, appeared to accept that a request for an individual's banking information could amount to a seizure. Iacobucci J in dissent held the request was subject to the Charter and was an unreasonable seizure.

8 ere not information of a personal and confidential nature protected by the Fourth

Amendment.

9 Defined in clause 76 as failure to comply with any of the AML/CFT requirements.

10 For civil liability act specified in clause 76(a), (e), or (f). The maximum pecuniary penalty for a civil liability act specified in clause 76(b), (c)(d) or (g) is $100,000 in respect of an individual and $1,000,000 in respect of a body corporate. See clause 88(2) and (3).

11 I note the civil penalty proceedings in the Bill are similar to the pecuniary penalty proceedings under the Commerce Act 1986, which the Court of Appeal described as a hybrid, having some analogy to criminal proceedings and some to civil proceedings, Port Nelson Ltd v Commerce Commission [1994] 3 NZLR 435 (CA) at 437. Whether those proceedings are criminal for the purposes of ss24-26 of the Bill of Rights has not been considered.

12 In particular, the presumption of innocence (affirmed in s 25(c)) and the right not to be tried twice for the same offence (affirmed in s 26(2)).

13 See Societe Stenuit v France [1992] ECHR 34; (1992) 14 EHRR 509 (in respect of a fine under anti- competition legislation) and Bendenoun v France [1994] ECHR 7; (1994) 18 EHRR 54, Janosevic v Sweden (2004) 38 EHRR 22 and Jussila v Finland [2006] ECHR 996; (2007) 45 EHRR 39 (in repect of an administrative penalty under taxation statues).

14 See Clayton and Tomlinson The Law of Human Rights, 2nd edition, para 11.368.

15 See Martineau v M.N.R. [2004] 3 SCR 737 the Canadian Supreme Court held demand by notice of ascertained forfeiture provisions in the Customs Act were not penal and did not have a true penal consequence. The provisions were found not to be criminal as they were not designed to punish but as a timely and effective means of enforcement and while intended as a deterrent that was found to be understandable in a self reporting system. In the Court's view nothing indicated the objective was to address a wrong done to society. Relevant factors were the difference in process from penal proceedings (in that case it was a ministerial decision subject to appeal to the Court), payment was forced by the way of civil action only, there was no stigma arising as there was no criminal record and the provision

did not include the principles of criminal liability sentencing.

16 That can be imposed in addition or instead of a term of imprisonment of not more than 2 years (clauses 98 and 103).

17 See s 67(8) of the Summary Proceedings Act 1956

18 See for example R v Wholesale Travel Group [1991] 3 SCR 154 (Supreme Court of

Canada) and AG v Malta (ECtHR, App 1664/90).

19 See paragraphs [43], [66] and [227].

20 See, for example, Sheldrake v Director of Public Prosecutions [2005] 1AC 264.

21 R v Wholesale Travel Group [1991] 3 SCR 154 (Supreme Court of Canada)

In addition to the general disclaimer for all documents on this website, please note the following: This advice was prepared to assist the Attorney-General to determine whether a report should be made to Parliament under s 7 of the New Zealand Bill of Rights Act 1990 in relation to the Anti-Money Laundering and Countering-Financing of Terrorism Bill. It should not be used or acted upon for any other purpose. The advice does no more than assess whether the Bill complies with the minimum guarantees contained in the New Zealand Bill of Rights Act. The release of this advice should not be taken to indicate that the Attorney- General agrees with all aspects of it, nor does its release constitute a general waiver of legal professional privilege in respect of this or any other matter. Whilst care has been taken to ensure that this document is an accurate reproduction of the advice provided to the Attorney-General, neither the Ministry of Justice nor the Crown Law Office accepts any liability for any errors or omissions.