Money Laundering – What is it and why do we care?

Money laundering is the process whereby funds generated illegally or in support of terrorism, are put through a series of transactions so the tracing of funds to the illegal activity is difficult or impossible.

  • Behind this activity are some of the worst crimes committed on the planet today – slavery, forced prostitution, drug trafficking, fraud, theft, and diversion of aid or government funds.
  • The OECD estimates that 2-3% of the worlds GDP is tied to these activities. To provide perspective, that’s about the same as the total economy of Russia or Australia.
  • The New Zealand dollar is the 10th most traded currency globally. As a highly traded currency we have our part to play as it is certain the New Zealand dollar is being utilised for money laundering both locally and globally.
  • New Zealand is committed by several international agreements which have required us to both enact and enforce legislation relating to Anti-Money-Laundering.

How do we do this?

Reporting Entities are specific business groups conducting activities as specified under Section 5 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. It is these activities which have been identified globally as have a risk factor for anti-money laundering.

It is these reporting entities which need to be familiar with the obligations imposed by the AML/CFT Act. All AML reporting entities who identify any suspicious activities or transactions must file the appropriate report to The Financial Intelligence Unit (FIU).

The FIU is a specialised unit within the New Zealand Police tasked with collecting, analysing and disseminating all financial intelligence relating to suspicious transactions or activities, money laundering and the financing of terrorism.

FIU utilise the goAML application which was developed by the United Nations Office on Drugs and Crime (UNODC) for Financial Intelligence Units worldwide to counter Terrorist Financing and Money Laundering.

goAML Web is the prescribed method by which reporting entities must submit Suspicious Transaction Reports (STRs), Suspicious Activity Reports (SARs) (from 1 July 2018) and Prescribed Transactions Reports (PTRs).

Suspicious Transactions and Activities

  • A suspicious transaction will generally be one that is inconsistent with the customer’s known activities and profile, or with the normal business expected for that type of client.
  • A suspicious activity is one that could also provide valuable intelligence where a transaction may not have been completed but the reporting entity has reasonable grounds to suspect that activity may relate to specified money-laundering or terrorism offending, or the proceeds of a crime. Note the word ‘may.’

Beneficial Ownership or the ‘Controlling Mind’

A key to making this all work and a focus of the New Zealand regulations is aimed at ensuring the beneficial ownership or controlling mind behind any financial transaction is transparent, so the risk of money laundering can be assessed.

  • Most individual customers, beneficial owners and persons acting on behalf of customers, are required to provide evidence of their identity and residential address.
  • Reporting Entities are required to ensure that all documentation supplied for customer due diligence purposes satisfies the standard set out in the AML/CFT Act and the Identify Verification Code of Practice 2013.

AML/CFT Supervisors

Each set or grouping of Reporting Entities has a government AML/CFT Supervisor that sets detailed rules for how the AML/CFT legislation is to be implemented.

These supervisors are also responsible for messaging and information, monitoring compliance, and prosecuting non-compliance. The departments currently acting as AML/CFT Supervisors are as follows:

  • Department of Internal Affairs.
  • Reserve Bank of New Zealand.
  • Financial Markets Authority.