What is Money Laundering?
Money laundering describes the process by which criminals make money obtained from their criminal activities (“dirty”) look legitimate ("clean").
They aim to introduce their "dirty money" into the financial system without detection or arousing suspicion. Once their "dirty money" is in the financial system, it can be transferred between different bank accounts or financial products in New Zealand or abroad, or used to purchase goods and services.
The aim of money laundering is to make this "dirty money" look like it has come from a legitimate source, and therefore difficult to connect the money with its criminal past.
What is Terrorist Financing?
Terrorist Financing is the financial support of terrorists, or those who encourage, plan or engage in terrorism.
Terrorist financing may involve funds raised from legitimate sources, such as personal donations and profits from businesses and charitable organizations. It may also be drawn from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping or extortion.
People who finance terrorism often use similar methods and tools to those used in money laundering.
Is Money Laundering really an issue in New Zealand?
Money laundering is happening every day across the country.
It’s estimated about $1.35 billion from fraud and illegal drugs is laundered through legitimate businesses in New Zealand each year.
However, the true cost and impact is many times that figure when you factor in all the crimes that generate “dirty” money and the suffering they cause.
For example, tax evaders and international criminals try to take advantage of our clean reputation to launder funds through New Zealand businesses. Crimes like fraud and illegal drug dealing take a human toll on victims, their families and the wider community.
New Zealand is also exposed to threats relating to financing of terrorism, including the potential for financiers of overseas groups within New Zealand, and overseas based groups who may seek to use New Zealand as a channel for funds. While the frequency of terrorism financing is low, the potential consequences are significant. It is important for businesses to watch for ‘red flags’ that may indicate terrorism financing activity.
When did the new AML/CFT rules take effect?
The Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act) was passed in 2009. The Act and regulations came fully into effect on 30 June 2013. From here multiple phases have been rolled out to capture different industries into the scheme, for instance the AML/CFT regime applies to real estate agents from 1st January 2019.
How do criminals Launder Money?
Criminals exploit weak points in the financial network. For example, they target businesses or professions that don’t confirm customers’ identities, or don’t have the right checks and balances in place to detect suspicious activity, activities, behaviour or financial arrangements (the financing of terrorism uses similar techniques).
Criminals use different methods to launder the proceeds of their crimes. They may buy and sell assets like property and expensive goods like cars or jewellery, or channel funds through financial structures such as companies or trusts.
Money laundering often involves complex series of transactions. By moving funds around different parts of the financial system, they disguise who and where it came from – making their illegally earned ‘dirty’ money appear legitimate or ‘clean.’
Criminals may:
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try to hide their identity by using companies and trusts to own or buy assets
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carry out a series of transactions with a bank or business that are below the monetary thresholds that trigger money laundering ‘red flags’
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buy foreign currency or send money overseas to move it through accounts and financial products, which makes it hard to trace
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pay cash for a house or car, then sell it and use or bank the money
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buy gambling chips then redeem them in different currencies or denominations.
If I don't comply with the Act, what are the penalties?
If supervisors have any concerns about a reporting entities’ systems and processes or if REs don’t comply with the law, reporting entities will be expected to fix issues that need attention.
Reporting entities might be given a warning, which may be made public in some circumstances.
There are penalties if reporting entities seriously breach the law. For breaches of civil offences, individuals can be fined up to $200,000 and companies can be fined up to $2 million. Repeated failure to comply with AML/CFT obligations, providing false or misleading information and other criminal offences can result in fines up to $5 million for businesses, while individuals can be fined up to $300,000 or sentenced to up to 2 years in prison.
How will your Research Institute impact the AML industry?
There are many new and emerging entities operating within the AML and CFT sector, and substantial knowledge gaps are being identified. It has become apparent that the lack of research and reliable data creates the risk that the AML/CFT industry is headed in the wrong direction.
ATTIC seeks to balance the commercial elements of the business with 'doing the right thing', with a view to utilising research, education and training as valuable tools in driving correct behaviours. By relying on the strength of their research outputs and collaborations’, ATTIC will contribute to maximise the extent and significance of their research. In turn, this will help TICC to positively shape local, regional, national and international social and economic development.
The research being undertaken by the Institute will inform the training and education activities of ATTIC and assist us in constantly improving our own CDD policies, procedures and controls. By using the research conducted and ATTIC’s real-world experience to inform training and education products and services, ATTIC is able to effect change whilst benefiting culture, the economy, society, public policy or services, attitudes, awareness and understanding, beyond academia.
Why do I need to provide my identity documents?
Money laundering is carried out by hiding identities. The heart of the law is to see through these layers to find out who is behind the funds, and where they came from.
This means you are required to identify yourself, and show who the ‘controlling mind’ is in the case of what are called artificial persons (companies, trusts and so on). You will sometimes be required to demonstrate where funds came from.
All of this is invasive, but is necessary for the maintenance of law - this is a term used to describe the purpose of the information requests, and with it comes obligations on the organisation asking these questions. Information can only be held for a certain period (usually 5 years) and must be secured.
Why should I outsource to the TIC Company?
Outsourcing alllows you to focus on your core functions and redirect your organisation's internal resources towards your critical activities.
By handing over your AML obligations to us, you can focus back on your primary concern - the area in which you are the expert.
Our dedicated team of AML experts ensures greater consistency, and operational efficiencies for your reporting entity.
Lastly, the penalties for non compliance are significant, they can lead punitive fines and possible civil or criminal proceedings, as well as long term reputational damage. By using us as your AML experts, we help in mitigating this risk for you.