Neil Russ, Director of New Zealand law firm Russ & Associates, will add to the conversation around anti-money laundering (AML) and counter-terrorism financing (CTF) at tomorrow’s Queensland Law Society Property Law Conference.
Mr Russ has more than 35 years’ experience – including six as a banking, finance and tax lawyer with Clifford Chance in London, and more than 24 years as a partner in Buddle Findlay – the last 20 as head of that firm’s tax practice.
In 2019, in response to market demand, he established Russ + Associates as a group of senior lawyers specialising in tax and AML matters. Mr Russ is the convenor of the New Zealand Law Society’s Tax Law Committee, and a member of the New Zealand AML/CFT Industry Advisory Group.
He was recently instructed by the Law Council of Australia (LCA) to undertake a vulnerabilities analysis of the legal profession to AML and CTF.
While not able to appear at tomorrow’s Brisbane conference, his presentation will be played during the final session about the implications of Australian Government reforms.
Mr Russ sees the current vulnerabilities analysis engagement as a challenging and interesting intersection of all of his previous legal experience. He kindly took some time out from his busy Trans Tasman schedule to speak with Proctor about his latest challenge.
What drew you to tax/financial law?
“I was drawn to tax/financial law through my early experience as a banking lawyer in New Zealand and England. At that time (in the late ‘80s, and early ‘90s), there was a lot of tax structured finance work, and I was involved in that. I was also fortunate to spend 18 months on secondment to a US bank, and its investment banking arm, where I learned a lot about the reality of credit approval and pricing, secondary debt trading, swaps and derivatives, securitisations, asset financing, cross-border financing and the HNWI world.
“Tax considerations are absolutely key to enabling those transactions to work in an efficient way. Compliance considerations were also highly relevant. Once I became a partner in a large New Zealand firm, I specialised in tax in response to market needs. It’s a very satisfying area to work in – constant law changes and difficult interpretive issues for the lawyers, and real-world financial consequences for our clients.”
What are you hoping to achieve with the vulnerabilities analysis in Australia?
“The vulnerabilities analysis is an important project for the Law Council of Australia, because it represents a unique effort to establish, with reference to the real-world legal, regulatory and ethical environment in which lawyers work across the eight jurisdictions in Australia, the risks of money laundering and terrorism financing to which the profession may be subject.
“The Law Council has undertaken the vulnerabilities analysis as part of its response to the proposal by the Attorney General’s Department to extend Australia’s AML/CTF regime to the legal sector.
“Australia is currently an outlier internationally, in that it has been identified by the Financial Action Task Force (FATF) as one of the few jurisdictions which has not extended its AML/CTF regime to “tranche-two” entities (lawyers, accountants, real estate agents and certain high value dealers). There is significant political pressure for Australia to reform its AML/CTF regime prior to the next FATF Mutual Evaluation (expected in 2025-2027).
“The Law Council has sought our assistance to provide an independent analysis of those areas of Australian legal practice which are inherently risky, to consider the risk-mitigating features of the environment in which lawyers work, and to express a view on the resulting risks for the profession.
“Our work is not an exercise in advocacy or propaganda for the profession.
“We hope it will lead to an elimination, or significant reduction, of the risk that legal services are misused to facilitate money laundering and terrorism financing.
“We also hope the tranche-two measures introduced for lawyers are proportionate and appropriate, and do not impose an unnecessary compliance burden on practitioners.
“It will be important to maintain access to justice, and the rule of law, by balancing reforms against lawyers’ ethical duty of confidentiality and the clients’ right to legal professional privilege. Clients inevitably incur the costs of additional compliance, through increased legal fees or a lack of access to legal services.”
What has your experience been in NZ? What lessons can Australia learn from NZ?
“In New Zealand, the tranche-two reforms were rushed through in the wake of the Panama Papers revelations, and the Shewan Report in relation to the use of foreign trusts. Lawyers were first off the rank, followed by accountants and then real estate agents.
“The existing legislation (designed for financial institutions) was amended to accommodate lawyers, without (in my respectful opinion) a complete understanding of the risks relevant to the legal sector, or the special nature of aspects of the lawyer/client relationship.
“There was some needless duplication of regimes, some overreach (for example, including barristers sole in the regime, and requiring due diligence to be undertaken in relation to estates), and some unintended consequences (for example, treating fees paid in advance as “managing client funds” may have caused business practices to have changed, to the detriment of the legal profession).
“New Zealand has been steadily addressing the various problems for the past five years, by a combination of amendments to the legislation and regulatory exemptions.
“In my view, Australia has an opportunity to take its time and to endeavour to strike the appropriate balance for the legal sector, taking into account its wider national interests. The vulnerabilities analysis does not directly address how the Australian government best addresses the implementation of tranche two.”
Is the rise in AI accelerating the risks?
“The rise in AI is a very interesting topic. On the one hand, one can imagine AI being used to circumvent some common security practices (such as the practice of calling and having the client read back their account number), or to generate false documentation. That is clearly a threat.
“On the other hand, AI could be used to assist a legal practice to undertake a fast, cost-effective and comprehensive due diligence on a client or prospective client, including verification of identity, background checks and beneficial ownership checks, thereby de-risking the practice.
“I suspect that the use of AI will evolve rapidly – it isn’t inconceivable that we could resort to “old school” wet ink procedures to verify client information as part of the response to AI.”
The AML/CTF topic will be discussed at the conference by QLS General Manager – Advocacy, Guidance and Governance Matt Dunn, LCA Advisor Lana Nadj and panel chair Kristan Conlon, Chair of Partners, McCullough Robertson and member of the QLS Property and Development Law Committee.