The Builder With a Cash Habit
You are the AML/CFT compliance officer at a small Auckland law firm. A conveyancing matter settles next week: a first-home purchase of $870,000. The purchaser is a New Zealand resident who has been a client for six years. The deposit of $95,000 arrived in the firm's trust account in four separate cash deposits over nine days, each just under $10,000, described by the client as 'savings from my building jobs'. The client is a sole-trader builder. When asked for source-of-funds evidence he produced a handwritten ledger and three months of bank statements showing irregular cash deposits. He became irritated, said 'you've known me for years', and asked whether the firm could 'just get on with it'. The lender has already issued loan approval. Partner pressure is mounting to settle on time.
1. How should you characterise the four cash deposits under New Zealand's AML/CFT framework, and what does that mean for the firm's obligations before settlement?
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Characterisation. Four cash deposits each just below $10,000 within nine days is a classic structuring pattern. Under the AML/CFT Act, cash transactions of NZ$10,000 or more (or the foreign equivalent, whether a single transaction or several linked transactions) are prescribed transactions. Critically, the threshold applies to aggregated linked transactions, so deliberately splitting cash to sit under the threshold does not avoid the reporting obligation - it strengthens the inference of structuring.
Consequences.
- The firm must consider a prescribed transaction report (PTR) for the cash activity if the aggregated value meets or exceeds the threshold. The four deposits total $95,000, well above $10,000, and are clearly linked to one matter.
- Structuring to evade the threshold is itself a strong indicator of suspicious activity, independent of whether the funds are legitimate. A suspicious activity report (SAR) to the FIU should be considered on the structuring alone.
- The firm cannot rely on the six-year relationship to skip scrutiny. Long-standing relationships do not lower the CDD standard in a higher-risk scenario.
- There is a tipping-off prohibition: do not tell the client the firm is considering a SAR, and do not let the partner's settlement pressure override the reporting decision.
- Consider whether to continue the relationship at all, and document the decision.
2. The client's source-of-funds evidence is weak and he is resistant. What should the firm do procedurally, and can it still settle?
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Source of funds is not satisfied. A handwritten ledger plus three months of statements showing irregular cash is not adequate evidence of how $95,000 in cash was accumulated. The firm should:
- Seek further, independent evidence: tax returns, IRD records, invoices, contracts, or a longer statement history that reconciles the cash deposits to declared income.
- Record the enhanced scrutiny applied, because the combination of cash, structuring, and a sole-trader cash business raises the risk rating.
Can it settle? Only if CDD (including source of funds where required) is satisfactorily completed, or a permitted deferral applies under the Act for the limited circumstances allowed (e.g., where completing CDD before the transaction is essential not to interrupt normal business practice, with CDD completed as soon as practicable afterwards and ML/TF risk managed). That deferral is narrow and must be documented - it is not a general escape hatch for partner pressure.
If evidence is not forthcoming, the firm should decline to act or cease the transaction, and consider a SAR. The partner's commercial pressure is not a lawful basis to proceed. Document the escalation and the reasons.