AML checks: why your lawyer asks for so much information

Most clients are now used to being asked for identification when they see a lawyer, bank, accountant, real estate agent or other professional. It can still feel frustrating, especially where you have dealt with the same firm before, or where the work itself seems simple.

For many people, the frustration is not just the identity check. It is the amount of information now required, the need to verify documents, the extra forms, and the feeling that each institution asks for something slightly different. This is particularly noticeable when a trust is involved.

The reason for this is AML.

What does AML mean?

AML stands for anti-money laundering. In New Zealand, it is usually referred to together with CFT, which means countering financing of terrorism.

The purpose of the AML/CFT regime is to make it harder for people to use ordinary businesses and professional services to disguise the source of money, move funds for unlawful purposes, or hide who really owns or controls assets.

Law firms are part of that regime when they carry out certain types of work. This includes many common private client matters, such as property transactions, trust work, company work, estate administration involving funds, and other transactions where lawyers may receive, hold, transfer or arrange movement of money or assets.

When did AML come in for lawyers?

The AML/CFT Act was passed in 2009, but it did not apply to lawyers straight away. Lawyers became reporting entities from 1 July 2018.

That timing explains why many people remember a different process from years ago. Before AML applied to lawyers, there was still a need to identify clients, but the process was usually lighter. There were fewer formal verification requirements, fewer records to keep, and less information required about the source of funds or source of wealth.

Since 2018, lawyers have had to complete customer due diligence before carrying out certain work. In practical terms, this means your lawyer may need to identify and verify who you are, who you are acting for, who owns or controls an entity, and where funds or assets have come from.

Why does it feel like there is so much more paperwork now?

AML is one part of a wider change in the way legal and financial transactions are recorded.

For trust and property work, there may also be bank requirements, LINZ requirements, IRD information, tax statements, bright-line considerations, trustee records and reporting obligations. Where a trust is buying, selling, borrowing, refinancing, changing trustees, or dealing with bank accounts, several systems may need to be updated at the same time.

This is why a matter that once involved a deed and a signing appointment may now involve identity verification, trust information, bank forms, AML questions, tax details, account mandates and sometimes further enquiries about where funds came from.

It is understandable that clients ask whether trusts are still worthwhile when the administration has become more involved. The answer depends on why the trust exists and whether it is still serving a useful purpose. What has changed is that trusts can no longer be treated as informal family arrangements with very little paperwork. Trustees, banks and professional advisers all have more obligations than they used to.

What is customer due diligence?

Customer due diligence, often shortened to CDD, is the process of identifying and verifying the relevant people or entities involved in a matter.

For an individual, this will usually include confirming their full name, date of birth and residential address. A lawyer will also need to understand whether that person is acting for themselves or on behalf of someone else.

For a company, trust or estate, the process is more involved. The lawyer may need to identify the entity itself, the people who control it, the people acting on its behalf, and in some cases the beneficial owners or beneficiaries.

In trust matters, this can mean collecting information about the trust, the trustees, any person with power to appoint or remove trustees, and sometimes beneficiaries or classes of beneficiaries. The level of information required depends on the work being done and the risk assessment for the matter.

Standard CDD

Standard CDD is the ordinary level of due diligence required for many clients and matters.

For an individual, standard CDD will usually involve obtaining and verifying identity information. This might include a passport or driver licence, confirmation of date of birth, and residential address information. Your lawyer may also ask about the nature and purpose of the work being carried out.

For example, if you are instructing a lawyer to update your Will, sign an enduring power of attorney, or deal with a straightforward personal matter, standard CDD may be enough unless there are other risk factors.

Standard CDD is not a sign that anything is wrong. It is the baseline process your lawyer must complete for relevant work.

Enhanced CDD

Enhanced CDD is a higher level of due diligence. It is required in certain situations, including where the client or matter presents a higher AML risk.

Trusts often require enhanced CDD because they can hold assets for the benefit of others and may involve different people in different roles. Enhanced CDD may also be required where there is a politically exposed person, offshore elements, complex ownership, unusual transactions, large movements of money, or other features that require further checking.

Enhanced CDD does not mean the lawyer suspects you of doing anything wrong. It means the law requires a deeper level of enquiry because of the type of client, structure, transaction or risk involved.

In many cases, enhanced CDD will include asking for information about source of funds or source of wealth.

Source of funds and source of wealth

These two phrases can sound similar, but they are not quite the same.

Source of funds usually means the specific money being used for a transaction. For example, if a trust is buying a property, the source of funds might be sale proceeds from another property, savings, a bank loan, an inheritance, or funds advanced by a family member.

Source of wealth is broader. It looks at how the person, trust or entity built up their overall wealth. This may include employment income, business income, investments, property ownership, inheritance, relationship property settlement, or long-term savings.

A lawyer may need to ask for supporting documents. This can feel intrusive, but the purpose is to verify the explanation, not simply record it.

What information might be requested?

The information requested will depend on the client and the work being done. Common examples include:

• passport or driver licence;

• date of birth and residential address;

• proof of address, if required;

• trust deed and any deeds of variation;

• details of current trustees;

• details of appointors, protectors or others with control powers under the trust deed;

• information about beneficiaries or classes of beneficiaries;

• company constitution, company extract, shareholder details or director details;

• bank statements showing funds available for a transaction;

• sale and purchase agreement for a property being sold;

• loan documents or bank confirmation;

• evidence of inheritance, gift, relationship property settlement or distribution;

• explanation of how funds were accumulated;

• information about overseas connections, tax residency or foreign entities, where relevant.

Your lawyer should only ask for information that is relevant to the matter and the required AML assessment. In some cases, the initial information provided is enough. In other cases, further questions are needed because the documents do not yet show the full picture.

Using APLYiD for electronic identity verification

Many firms now use electronic identity verification, or EIV, to make the identity process easier. APLYiD is one provider used by New Zealand professionals for this purpose.

Instead of bringing original ID documents into the office, you may receive a secure link asking you to complete an identity check on your phone. This usually involves taking a photo of your identity document and completing a biometric or “liveness” check so that your identity can be matched against the document.

For many clients, this is faster than arranging certified copies or attending an office in person. It can be particularly helpful for clients who live outside Auckland, are overseas, have mobility issues, or are helping elderly parents complete legal work.

APLYiD assists with electronic verification of an individual’s identity. It does not remove the need for the lawyer to complete the wider AML assessment. If the matter involves a trust, company, estate, source of funds, source of wealth, or bank lending, further information may still be required.

Why can’t my lawyer just rely on the bank?

Clients often ask this when they have already completed AML checks with their bank, accountant, real estate agent or another lawyer.

In some situations, one reporting entity may be able to rely on work completed by another. However, this is not automatic. Each reporting entity remains responsible for its own AML obligations and must be satisfied that it has enough information for the particular matter.

That is why you may be asked for similar information more than once. It is frustrating, but it does not necessarily mean anyone is being difficult. The bank, lawyer and accountant may each have separate obligations and different risk assessments.

Why this matters for trusts

AML requirements have made trust administration more formal.

Where a trust owns property, has bank lending, receives funds, sells property, changes trustees, or updates bank mandates, the trustees may need to provide more information than they expected. If there is a mortgage, the bank will usually have its own AML process as well as its lending requirements.

This can add time and cost. It may also mean that a trustee change or trust transaction cannot be completed in one simple signing appointment. The bank may need to consent, update its records, complete AML checks, revise lending documents, and arrange its own signing process.

For people who remember trust administration before AML, this can feel like a significant change. It is. There is now more compliance, more recording, and more need to keep trust information current.

Is having a trust still worthwhile?

The extra administration has led many people to ask whether having a trust is still worth it.

For some families, a trust remains a useful structure. It may still assist with succession planning, asset management, blended family arrangements, vulnerable beneficiaries, business or relationship property planning, or holding assets for more than one generation.

For others, the trust may no longer serve a clear purpose, or the cost and administration may outweigh the benefit.

The important point is that a trust should be reviewed properly. The answer is not the same for every family. AML has not made trusts useless, but it has made it harder to ignore poor records, outdated trustee arrangements, unclear purposes, or old trust structures that no longer fit the family’s circumstances.

A practical way to look at it

AML checks are now a normal part of legal work. They can be inconvenient, and they can feel repetitive, but they are part of the legal and financial system lawyers must work within.

If you are dealing with a trust, property, bank lending, estate funds or a larger transaction, it is best to allow time for AML requirements at the start. Providing clear information early can help avoid delay later, particularly where a bank, accountant or other adviser also needs to be involved.

For trustees, AML is also a reminder that trust records need to be kept up to date. Current trustee details, signed deeds, resolutions, IRD information, bank mandates and records of major decisions all matter.

The process may involve more paperwork than it once did, but it is easier to manage when everyone understands why the information is being requested and what role it plays in completing the legal work properly.