Anti-Money Laundering and
Countering the Financing of Terrorism

Submissions on the third discussion document (Supervisory Framework)

New Zealand Casino Industry

SKYCITY Entertainment Group Limited, Christchurch Casino Limited, Dunedin Casinos Limited and Otago Casinos Limited (together "the industry") present this submission in response to the FATF Inter Agency Working Group's ("the Working Group") Third Discussion Paper "AML/CFT Supervisory Framework" ('the paper").

REQUIREMENTS TO REGULATE AND SUPERVISE (R's 23 and 24)

Consultation Question:

Do you agree with the proposed approach to regulating financial institutions for the purposes of FATF Recommendation 23? Why/why not?

Comment

The industry agrees with the general approach to regulation and supervision of financial institutions.

SUPERVISORY FUNCTIONS AND POWERS

Consultation Questions:

(i) Do you agree with the Working Group's recommendations regarding supervisors' functions? Why/why not?

(ii) Do you agree with the Working Group's recommendations regarding supervisors' powers? Why/why not?

Comment

The industry agrees with the Working Group's recommendations regarding supervisors functions and powers.

Consultation Questions

(i) Do you agree that the FIU should be required to provide formal feedback to reporting entities in relation to suspicious transaction reports? Why/why not?

(ii) Do you agree that the FIU or Police on behalf of the FIU should have express production powers to enforce statutory requirements for the filing of STR's and to ensure such requirements are being complied with? Why/why not?

Comment

Requirement to provide feedback

The industry agrees that it is highly desirable that the FIU provide formal feedback, regarding specific outcomes from suspicious transaction reporting, to reporting entities in relation to STRs.

Production powers for FIU/Police

The paper states that "the purpose of the proposed production power is to ensure that the statutory requirements for filing of STR's are being complied with, and to enforce those requirements" (emphasis added). It proposes that the powers would be exercisable either by way of written notice or on-site visits to entities (subject to legal safeguards).

In principle, the industry agrees with the need for an information gathering power proposed in the paper. The industry has a positive working relationship with the FIU and other law enforcement agencies. When it has been requested to provide information relevant to criminal investigations, casinos have co-operated fully and in accordance with their legal obligations under the Privacy Act and other relevant legislation. The industry expects this approach to continue.

The industry has already had some experience where the Serious Fraud Office (SFO) has exercised production powers under its legislation. Based on the description in the paper, the industry has assumed that the proposed FIU power and related legal safeguards are intended to be similar to those associated with the existing production power held by the SFO.

SUPERVISORY MODELS - OPTIONS

Consultation Questions:

(i) Do you support the multi-supervisor model? Why/why not?

(ii) If you prefer an alternative model, please explain your preference.

Comment

The industry agrees that it is logical to utilise existing industry knowledge and expertise held by government agencies that exercise oversight functions for specific sectors.

TWO STAGED IMPLEMENTATION OF SUPERVISORY REFORMS

Comment

The industry has two concerns about the proposed phased approach to implementation of the AML/CFT regulatory framework.

Firstly, as an industry that has been included in the first tranche of business activities to be brought within the new regulatory regime, it is concerned that sufficient time be allowed for those affected businesses to implement the new requirements.

In previous discussion documents officials indicated that the government expected that its package of legislation might be introduced in 2007 and be passed before the next FATF Evaluation scheduled to occur in 2008. In the Second Discussion Document a lead-in period for implementation of 18 months was intimated. The industry considers that a 24 month implementation period is the minimum required for its members to implement the new AML requirements, regardless of whether it is in the first tranche of business activities to be brought within the new regulatory regime.

Secondly, the industry is greatly concerned at the potential commercial impact of any proposal that contain different time-frames for the transition to the new AML regulatory regime for similar competing business activities. The industry is greatly concerned at any proposal that would subject casinos as the first "cabs off the rank" to the increased compliance burden required to meet the new AML requirements, while deferring the imposition of similar burdens on other competing gambling operators.

Due to the entertainment and recreational nature of gambling activity the creation of any perceived obstacles to the ease or enjoyment with which patrons can access these services is likely to have a substantial negative financial impact on those operators having to apply heightened controls. It is difficult at this stage to quantify the extent of this potential financial impact. However, taking into account the annual revenue of the gambling sector, particularly that of the casino sector, the impact of a one to two year difference in time-frames within which competing operators will become subject to the new framework for AML regulation and oversight could be substantial.

While the paper acknowledges the potential competitive imbalance that the proposed two-stage approach to regulatory coverage carries, it contains no analysis on whether this factor affects the viability of this approach in some instances. Furthermore, it offers no suggestions about how any competitive disadvantages the approach creates might be addressed or mitigated.

In the case of the gambling sector one possible solution would be for the Department of Internal Affairs to assume responsibility for supervising compliance with AML obligations across all gambling providers. This would mean that all affected service providers would be required to implement the systems and procedures necessary to meet the new AML standards within identical time-frames thereby avoiding the anti-competition risks identified in the paper.

PROPOSED AML/CFT SUPERVISORY FRAMEWORK

Consultation Questions:

(i) do you agree with the role proposed for the FIU in relation to developing legislation? Why/Why not?

(ii) what role do you think the supervisors should have in relation to developing legislation?

Comment

The industry agrees that as the primary government agency responsible for receiving, analysing and disseminating STR's it is important for the FIU to be consulted and have input into the areas identified in the Paper.

Regulators and Supervisors

Comment

The industry notes the functions already carried out by the Department of Internal Affairs (the proposed AML supervisor for casinos) in respect of casinos and agrees that these should include oversight of AML/CFT requirements. It agrees that the FIU should retain oversight of STR's.

AML/CFT Advisory Group

Officials propose that the Advisory Group (chaired by the Ministry of Justice) be comprised of regulators and supervisors, the FIU and other agencies affected by AML/CFT initiatives. A sub-set of the Group, comprised of MOJ, regulators and supervisors and the FIU will consider each sector's regulations, rules or industry guidance material before it is approved by the supervisor.

Consultation Question:

Please indicate whether or not you agree with the composition and role of the AML/CFT Advisory Group and why.

Comment

The industry agrees with the proposed establishment and functions of an AML/CFT Advisory Group.