Ongoing legal battle aims to plug money- laundering loopholes
Flipping expensive houses, or buying the latest model of luxury car with cash, as a way of cleansing dirty money is much harder in New Zealand but criminals will still find a way around any rules.
Expensive art, jewellery, coins and other collectable items are also on the radar, Crowe Horwath audit and assurance associate principal Martyn Solomon says.
Overseas investors now need an IRD number to buy a property, making it harder to avoid identification of where funds were sourced.
Money laundering is the process criminals use to clean their profits from crimes such as fraud, drugs and tax evasion. By making the money look as if it came from a legitimate source, they can cover their tracks and avoid detection.
The Anti- Money Laundering and Countering Financing of Terrorism Act 2009 took full effect in 2013. Under section 59( 2), the Financial Markets Authority ( FMA) required reporting entities to submit their audit of their risk assessment and programme by November 25 last year.
The FMA requested the information from 77 reporting entities, just under 10 per cent of the entities it supervised and a risk- based approach was adopted.
Twelve reporting entities were found to be non- compliant with the law.
Nine failed to provide their audit, two did not respond to the FMA's request while one did not submit an annual report as legally required.
Solomon said police estimated $ 1.35 billion of domestic proceeds was laundered in 2015- 16, excluding tax evasion and transnational laundering — primarily drug offending and fraud.
“You don't have nearly $ 1.4b sitting under mattresses. This money was being integrated into the economy in some way or another.”
More than 8400 suspicious transaction reports ( STRs) were received by the police in the same period. Crimes indicated included tax evasion, drug dealing, machine learning, fraud, theft, people smuggling, online child exploitation, customs offences, immigration offences and terrorist financing, Solomon said.
Terrorist financing was similar but different — source funds might well be legitimate and values were often very small — and could be funded through New Zealand even if there was little home- grown activity.
Solomon believed the next step in New Zealand was a crackdown on illegal activities.
Until now, many entities had just been warned about complying and given help identifying where they needed to improve.
Reporting STRs had been low in New Zealand compared with Britain. Annual STRs for New Zealand lawyers were 16 compared with the UK average of 3917, remembering Britain had about 15 times the population of New Zealand, Solomon said.
New Zealand accountants had an average of one STR compared with 5417 in Britain, real estate agents had an average of three compared with an average of 180 in Britain.
The total New Zealand average was 20 compared with 9514 in Britain.
FMA director of regulation Liam Mason said the regulatory regime to tackle money laundering and the financing of terrorism had been in place for more than three years.
“Firms and individuals have now had sufficient time to meet the legal requirements, as we stated in our recent monitoring report. We have taken proportionate action to ensure all reporting entities are clear about their obligations under the law.''
The names of the 12 formally warned companies and individuals were not published. All were either small businesses or individuals and to do so would have a disproportionate effect, he said.
Of the nine that failed to provide an audit, all were now taking steps to comply by ensuring the audit of their anti- money- laundering/ countering financial terrorism programmes.
Solomon said that if customers turned up to buy a car or a house with a wad of cash, the agent was obliged by law to verify the customer's identity and report the transaction.
Prescribed transaction reports were required for $ 10,000 of domestic cash payments and $ 1000 international wire transfers.
Buying a car for $ 20,000 through four $ 5000 cash transactions would also need verification and reporting.
At September 30 last year, the New Zealand police had $ 229 million under restraining orders and $ 138m forfeited to the police asset recovery units since the Criminal Proceeds Recovery Act 2009 was enacted. Mostly, it was property but Solomon questioned whether the returns were enough on the money spent.
The Financial Intelligence Unit estimated every restrained dollar resulted in $ 3.30 in crime disruption and every forfeited dollar in $ 3.50 for a total estimate of $ 1.2b.