Anti Money Laundering

Improving New Zealand’s ability to tackle money laundering and terrorist financing: Ministry of Justice Consultation Paper on Phase Two of the AML/CFT Act

At the invitation of the Ministry of Justice, Transparency International New Zealand Inc. (TINZ) has reflected on and documented its thoughts on Phase 2 of the AML/CFT Act. TINZ strongly advises that there be an extension of the Act to address high risk sectors of industry and society, as proposed in the Consultation Paper prepared by the Ministry.

TINZ also supports a “risk based approach”, to paraphrase the Paper, ensuring that “efforts are proportionate to the risks”. The approach to managing corruption and crime in New Zealand must focus on taking preventative steps. Through education and transparency, the inherent respect for integrity by the public of New Zealand, whether as business owners, professionals, employers, employees, consumers or citizens, will be a powerful preventative force.

It is clear to TINZ that the different business sectors covered by the AML Phase 2 extension are valid and an integral and supportive part of New Zealand business and society. It is important that AML Phase 2 encompasses as many financial institutions and individuals that deal in money as it can. Evidence of money laundering in New Zealand via high-value goods as set out in the consultation paper demonstrates why these sectors require coverage.

A particular area for focus here is residential property and high value vehicles – cars and motorcycles. A feature of our banks is that they have been developing systems to combat money laundering for some years. This has forced criminals to develop more cunning ways of hiding ill-begotten gains including the purchase of cars and houses.

Amongst its recommendations is on-line Corruption Prevention Training aimed at identifying and preventing corruption, backed up by channels for proper identification documentation being passed on to the appropriate authorities.

TINZ main recommendations are as follows:

  1. The AML Phase 2 is extended to fully cover all professionals (including lawyers, accountants, real estate and conveyancing) and those involved in trading high value goods, in gambling and who are engaged in setting up and managing New Zealand any form of high value transaction, be it in the form of legal tender or goods and services. This also includes coverage any of these goods at the point of entry into New Zealand. TINZ recommends that the widest scope of coverage should be made to detect illegal funds at the placement stage of the money laundering cycle.
  2. That there be regular assessments and reports about the integrity of the financial system based on the proposed TINZ 2017 New Zealand Financial Integrity System Assessment (FISA), which already has wide conceptual support from the finance sector. This would cover government and industry financial activities, roles, responsibilities and activities. In doing so, a wider understanding of the current state of various aspects referred to in the Consultation Paper can be assessed, including the quality of Information sharing and the quality of supervision at both national and industry levels.
  3. Ensure that “Know Your Customer” procedures are compliant for all sectors covering all service providers, based on best practice that is regularly reviewed as knowledge is gained about the nature of laundering activity and financial crime.
  4. That the Act be aligned with setting of financial thresholds while providing guidelines and training to ensure proposed requirements are working. Its provisions should be designed to enhance the outcomes for all New Zealanders instead of being a stumbling block to normal economic activities
  5. Increase coverage to in-house professionals employed within large organizations and ensure their national associations provide professional development to sole traders.
  6. Ensure the registry of beneficial ownership and identified settlors covers all relevant New Zealand enterprise structures (trusts, companies, co-ops, charities) to enable review and audit by law enforcement and compliance bodies. Additional effectiveness will be achieved if this is consistent with international initiatives.
  7. Revise the current list of entities subject to simplified due diligence based on an updated risk assessment of these types of entities.
  8. Develop an on-line training tool (Corruption-Prevention Training) that includes guidance about money laundering and can be used by existing and new residents to support New Zealand’s reputation for strong integrity systems.
  9. Include provisions to report suspicious transactions that are occurring outside New Zealand but involve New Zealand entities and persons as illegal activity which enriches persons in this way is hard to detect and if an instrument is put in place, it could pick up this illegal activity. Example could be a NZ Trust or company holding funds in overseas bank accounts which can be operated through emails to transfer funds.
  10. Expansion of the Act on information sharing to allow departments such as Inland revenue to interrogate the database held by the FIU which contains suspicious transaction reports to allow early detection of money laundering activity. This also has the advantage of widening the number of law enforcement investigators who are working in this field.

In summary, TINZ regards the improved clarity achieved through well considered legal standards, guidance, professional development and training about money laundering will improve AML Phase 2 application and compliance, while avoiding the perverse risk avoidance and non-acceptance of normal economic transactions. This will address the unintended consequence of burdening smaller and medium sized operators in favour of the larger economic actors. These larger, often global organisations, are where the material financial portion of irregularities are evidently perpetrated.

TINZ has provided further evidence in support of the above recommendations in its full submission.

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