LAND OF THE CLEAN WHITE CLOUD

The 2009 Anti-Money Laundering Act wants to keep our money immaculate.

The goal of the Keep Your Money Clean campaign, run by the Department of Internal Affairs, is to help people understand that New Zealand is not immune to the world of international drug dealing, fraud and terrorism. The messages - an unspoilt paradise for us, not for money launderers; a sanctuary for wildlife, not for tax evasion; an oasis for native species, not for financing terrorism - drive home the reasons behind the 2009 Anti-Money Laundering and Countering Financing of Terrorism Act (AML).

Currently, an estimated $1 billion a year is being laundered in New Zealand. Funnelling money through legitimate sources such as real estate means criminal organisations and people who finance terrorism can cover their tracks and avoid detection.

So from January this year, the AML Act has extended protection of New Zealand’s reputation and economy to the real estate market.

Which is why, from now on, if you’re selling your house, your real estate agent must ask for more information before they take your listing and begin marketing. This is because under the second phase of the AML, all real estate agents are required to identify all the entities known as beneficial owners - involved in selling the property.

“The thing to remember is that they are not doing it because they think you are laundering money,” says Barfoot & Thompson managing director Peter Thompson. “They are doing it to help protect everyone, and because they are required to under law.

“Even if you have been our client for a long time, the law, which came into effect January 1, requires us to help confirm who you say you are, and even, in some cases, say where the money has come from.”

Agents are required to report suspicious activity to the police which, sadly, is not exciting cloak and dagger stuff from your favourite spy novel. It’s paperwork, mostly.

Max House, who looks after compliance for the entire Barfoot & Thompson

Currently, an estimated $1 billion a year is being laundered in New Zealand. Funnelling money through legitimate sources such as real estate means criminal organisations and people who finance terrorism can cover their tracks and avoid detection.

group, says that what needs to be provided varies for individuals, companies or trusts.

“It affects all of us, as we can’t list or sell a property until we’ve completed the due diligence,” he says. “It’s a riskbased programme, so it has an impact on the listing process.”

He points out that for 70 to 80 percent of residential listings, the owners are individuals, so it’s a relatively simple matter of confirming personal identification. Sometimes that requires more time if the sellers are out of town, or out of the country, as their identification needs to be verified by someone authorised to take a statuary declaration (say, a JP or equivalent). Sometimes there’ll be a simple family trust that is not on the property title, so that takes some teasing out.

Where it gets a little more complicated is with transactions that are with formal trusts or more layered companies.

“For some companies, it’s clear who the beneficial owners are, such as company directors or people in the constitution,” he explains.

“For trusts, however, it is the Department of Internal Affairs’ view that there is the potential for these structures to be used to disguise the criminal origins of funds or the true ownership and effective control of the trust, particularly where these are sophisticated or complex.

“The process of identifying beneficial owners of both companies and trust is a challenge for the industry.”

Barfoot & Thompson has a very clear escalation process if an agent feels uncomfortable with the answers he or she is getting - particularly around where a person who does not appear to have much in the way of assets (a foreign student, for example) buys an expensive property and sells it within months. While it’s too early to say how many “alarm bells” have rung in the first two months of operating under the AML, House is clear that agents are erring on the side of caution.

Once an issue has been escalated, the company makes a Suspicious Transaction Report to the Police Financial Intelligence Unit (FIU). This is where the market intelligence comes together, says House, as reports from agents are checked against others that may be coming in from lawyers, accountants or other parties to the Act. This is merged with general intelligence the FIU has already collected, so a picture starts to emerge of potential money laundering.

It’s all about making it harder for criminals to launder money, which is a significant disincentive to carrying out the criminal activity in the first place.

“We need to keep in mind why we’re doing this,” says House. “We’re not doing it to make life difficult, there is a higher purpose.”