United We Stand Divided We Fall. No Room For Complacency In The Fight Against Money Laundering

Dr AML: Alice Tregunna, CEO, The TIC Company


Back in April the FATF found New Zealand largely compliant in our fight against money laundering but even though we’re not on the naughty list like countries such as Albania or Barbados there is significant room for improvement. However, we didn’t need a report to tell us we could do better. The lack of public-private partnership, limited data sharing, and the fragmented regulation that exists in NZ already tells us we have some gaping holes in our compliance strategy that criminals will be only too willing to exploit.


So let’s not get complacent, we need to do better and move beyond compliance, be more agile in our approach to fighting money laundering, and work together to improve analysis, investigation, and prosecution of financial crimes.


The state of AML


According to the Basel Index there are four main compliance areas holding back the fight against money laundering. These include:

  1. Threats related to virtual assets

  2. Non effective AML/CFT compliance implementation

  3. Weak application of AML/CT preventative measures by non-financial entities

  4. Slow and ineffective beneficial ownership registers (something that also didn’t go unnoticed by the recent Pandora Papers when it highlighted New Zealand’s lack of a beneficial ownership or trust register).

The Sub Saharan Africa region showed the highest risk rating, with the European Union and Western Europe having a generally lower risk rating. New Zealand fairs pretty well, just slipping into the top 10 of best ranked countries but we’ll hold off the celebrations for the time being as our overall region - East Asia and Pacific - has a higher risk score than the global average.


This is important to note as we cannot look at New Zealand (or indeed any country) in isolation if we truly want to shut down organised crime money flow. We have to collaborate, not just within New Zealand but extend collaboration to an industry level in the form of KYC utilities such as the one created by Belgium based SWIFT - the international secure financial messaging service.


This type of collaboration is starting to happen in our region with the Reserve Bank of New Zealand, Australia, Samoa, Fiji, Tonga, Vanuatu, Papua New Guinea, and other Pacific Islands currently working together on creating a regional ‘know your customer’ service to help meet AML compliance requirements. This reflects how collaboration and partnerships are evolving and will materially enhance the fight against financial crime. We need to continue this type of collaboration and remove the rigid structures which are preventing us from creating true public-private partnerships.


What’s preventing true collaboration?


Open dialogue and trust can be challenging to develop and information sharing is complicated but we need to take the plunge and bring the public and private sector together and drive developments through shared expertise.


Some of the realities we need to overcome to support collaboration are:

  • Limitations on data sharing, especially across borders

  • The understandable authority dynamic between regulators and those being regulated

  • Capacity constraints among intelligence and law enforcement authorities in being able to focus on and investigate financial crime

  • Private sector non-reporting entities creating solutions which undermine the risk-based frameworks which are being aimed for. There should be some regulated expectations for behaviour of outsourcing companies.

Keys to success


A statutory review is underway by the Ministry of Justice which is taking the opportunity to examine the last eight years of the AML/CFT regime and questions whether or not it is working well and what could be done better. This is a good start, however, we can’t sit back and rely solely on reviews to solve our problems.


A review can only do so much and we should consider that the entities represented will more likely to be banks, commercial entities and real estate companies who may not necessarily have the time, resource or expertise to provide a 360-degree view. And it is likely to exclude intelligence outputs from payroll outsourcing providers and smaller entities.


There are other opportunities to shape the AML landscape in New Zealand which require collaboration and action now. We can:

  • Move beyond the niceties and grand pronouncements to real substance. This could have a significant impact.

  • Develop more trust between key stakeholders and encourage a shift to substantive collaboration.

  • Organise more frequent, substantive consultations to lower regulatory costs and improve crime fighting effectiveness.

  • Create positive feedback loops between regulators and financial institutions.

  • Enhance AML/CFT literacy at all levels of society.

  • Support compliance officers – provide the backing, education and tools to effectively support the application of truly risk-based approaches.

Without this fundamental evolution, progress in fighting financial crime and its predicates will be marginal at best, or its impact relative to growing financial criminal activity will get proportionately smaller with time.


Now’s the time for talk to move to action. We have the opportunity to be the apex predator against organised crime and money laundering, so let’s not restrict ourselves by a lack of willingness to collaborate and instead support public-private partnerships.


Alice Tregunna, CEO, TIC. Co.

Read more from Dr AML in 'Your time is up: AML fines & penalties will become more commonplace in NZ if we don't raise our game.'




 

Sources

https://baselgovernance.org/basel-aml-index