Is money laundering a problem in New Zealand?

The recent news of New Zealand’s largest ever drug bust has thrown the realities of drug trafficking and money laundering back into the limelight, less than a year before “Phase 2” of New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act comes into force. 

The New Zealand Police’s five-month investigation cumulated in the seizure of 46kg of cocaine worth approximately $20 million and uncovered a “sophisticated money laundering operation involving hundreds of thousands of dollars”. Police seized cash, assets and money lodged in term deposit accounts as the alleged proceeds of crime.

New Zealand’s position at the top of Transparency International’s Corruption Perception Index is both a blessing and a curse. While it may encourage legitimate offshore investment, it could also increase the country’s appeal to those engaged in criminal activity. Establishing a ‘front company’ for criminal activity in New Zealand lends respectability to a business and might protect it from additional scrutiny if it were established in a country with a lower rating on the Index.

Another challenge arising from our perceived lack of corruption, is the arguably false sense of security it creates among organisations here. It can make us less conscious of, and less responsive to, the risks of money laundering and less stringent when it comes to implementing the controls necessary to mitigate it.

We need to be aware that it is not just financial institutions that can be used to clean ‘dirty’ money. Criminals may use dirty cash to purchase assets such as property, expensive cars or jewellery which can then be sold, with the proceeds of that sale later appearing as a legitimate source of funds. In addition, front companies, often involved in high cash activities, such as restaurants, tanning salons, ice cream trucks, and trades services, can be used to integrate and hide the cash obtained through illegal activities with that earned through legitimate business.

Phase 2 of the AML/CFT Act seeks to further address money-laundering risks by extending AML/CFT legislation to non-financial businesses:

• Lawyers;

• Accountants;

• Real estate agents;

• High value dealers, including those who buy/sell jewellery, watches, motor vehicles, boats or art and accept or make cash payments of $15,000 or more (whether in one or related transactions); and 

• the New Zealand Racing Board.

It is important that the businesses captured in Phase 2 understand the AML/CFT and associated Regulatory risks they face and treat the new legislation as more than a tick-box exercise.