AML/CFT Infringement Fees: The New Middle Ground in Enforcement

New Zealand's AML/CFT enforcement framework is about to gain another tool. The proposed infringement regime is designed to deal with the space between a formal warning and full civil or criminal enforcement. The proposed regime is expected to become operational in 2028, subject to the progress and final form of the legislation.

Why is an infringement regime being introduced?

At present, there is a gap in the AML/CFT enforcement framework. A reporting entity may have a compliance failure that warrants more than another warning, but is not serious enough to justify resource intensive civil or criminal proceedings.

The Ministry of Justice describes this as an enforcement gap.

For relatively straightforward and lower level non compliance, the supervisor may currently be left choosing between issuing a formal warning or taking court action. A warning may not provide sufficient deterrence, while litigation may be disproportionate to the conduct involved.

The proposed infringement regime is intended to give the AML/CFT supervisor another option.

In practical terms, it creates a middle ground between a warning and formal court enforcement.

The objective is to allow the supervisor to respond to minor misconduct and lower level offending in a way that is proportionate, timely and does not unnecessarily involve the courts.

A graduated enforcement response

The intention is not to treat minor compliance failures as serious criminal offending. Infringement offences are intended for conduct of relatively low seriousness and do not result in a criminal conviction. Instead, the regime gives the supervisor a more graduated enforcement toolkit.

Warning → Infringement notice → Civil or criminal enforcement

That allows the regulatory response to better reflect the seriousness of the non- compliance.

What kinds of failures could attract an infringement notice?

This is where the proposal becomes particularly relevant for reporting entities. The proposed offences are not confined to dramatic cases involving suspicious customers, unexplained funds or deliberate facilitation of money laundering.

They include failures relating to some of the fundamental obligations underpinning an AML/CFT framework.

Examples include:

• failing to designate an AML/CFT compliance officer

• failing to undertake the required written risk assessment

• failing to provide an annual report by the required date

• failing to produce transaction, identity or business relationship records when required

• failing to provide information required during an onsite inspection

• failing to have a written AML/CFT programme

  
  

These are clear statutory obligations.

That is significant because the infringement regime is aimed at situations where the obligation itself is established and the reporting entity has simply failed to meet it.

The annual report example explains the policy well.

The Ministry uses failure to file an annual report as an example of the current enforcement gap. The requirement is straightforward. A reporting entity must submit its annual report by the appointed deadline. The supervisor generally provides reminders before the deadline and may provide further reminders after it has passed.

But what happens if the reporting entity still does not file? Another warning may achieve very little.

At the other end of the scale, civil proceedings would involve significant cost and court resources and could result in a penalty that is disproportionate to the nature of the breach.

An infringement notice gives the supervisor another option between those two extremes.

What could the fees look like?

The Ministry is currently consulting on two possible fee structures.

Under Option One, proposed fees range from $5,000 to $20,000.

Under Option Two, proposed fees range from $2,500 to $10,000.

For some familiar compliance obligations, the proposals look like this:

Compliance failure	Option One	Option Two
No designated AML/CFT compliance officer	$20,000	$10,000
No written AML/CFT programme	$20,000	$10,000
Failure to undertake the required written risk assessment	$12,500	$7,500
Annual report not filed on time	$7,500	$5,000

These amounts are proposals only and have not yet been finalised.

Why does the level of the fee matter?

The proposed infringement offences are strict liability offences.This means the supervisor would not need to prove that the reporting entity intended to breach the law.

For that reason, the Ministry recognises that infringement fees need to be fair and proportionate to the particular offence.

There is also a practical balance to strike.

If fees are set too low, they may provide little deterrence. If they are set too high, reporting entities may be more likely to challenge infringement notices, which could undermine the purpose of having a quick and proportionate alternative to court proceedings.

What does this mean in practice?

The important message is not that every AML/CFT mistake will suddenly result in a fine.

It is that the supervisor is likely to have a more graduated enforcement toolkit.

Where a clear statutory obligation has not been met, particularly where there has already been an opportunity to comply, the supervisor may no longer have to choose between issuing another warning and commencing court proceedings.

For reporting entities, that makes the fundamentals increasingly important.

• Is your AMLCO properly designated?

• Is your risk assessment actually in writing?

• Is your AML/CFT programme documented and current?

• Are annual reporting deadlines controlled?

• Can required records be located and produced when DIA asks for them?

These may sound like administrative questions, but they relate to statutory obligations.

Greater flexibility does not mean less accountability

The infringement regime also needs to be viewed alongside the wider direction of New Zealand's AML/CFT reforms. Reporting entities are increasingly being given greater flexibility to apply AML/CFT requirements according to risk.

But greater flexibility does not mean that the core framework becomes optional. The infringement regime reflects the other side of that equation:

Greater scope to exercise judgement, but clearer consequences where fundamental obligations simply are not met.

The proposed regime is expected to become operational in 2028, subject to the progress and final form of the legislation. There is therefore time for reporting entities to prepare.

And perhaps the most useful preparation is also the simplest:

Make sure the foundations of your AML/CFT framework are not only understood, but are actually documented, completed and capable of being demonstrated when the supervisor asks.