Year in review: Anti-money Laundering in New Zealand

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Year in review

Public reaction to increasing organised crime has favoured the strengthening of law enforcement powers. Illegal motorcycle gangs are growing in size and number, accelerated by Australia's '501' deportation policy. International criminal groups are progressively extending their networks into New Zealand. Some of these deploy extreme violence, extortion and high-volume drug trafficking.

Law reform continues to improve the tools available to law enforcement to confiscate criminal proceeds. These proceedings are now commonplace, as are criminal prosecutions of money laundering.

The findings of the 2021 FATF Mutual Evaluation Report and the subsequent review of AML/CFT laws by the Ministry of Justice (July 2021–June 2022) have generated additional AML/CFT legislative reforms.²

The FATF and the Ministry concluded that New Zealand's overall AML/CFT effectiveness was high, but that gaps remain, including the inability to access adequate, accurate and current information about beneficial ownership of entities.

In March 2022, the government announced the introduction of a beneficial ownership information register. It also proposed an identification number regime for corporate role holders. The Corporate Governance (Transparency and Integrity) Bill was promised for consultation, although at the time of writing, this has still not occurred.

A wider package of regulatory amendments has also been under planning and consultation for some time. The first tranche of changes came into effect on 31 July 2023 (mostly bringing regulatory relief) and the second and third tranches will take effect on 1 June 2024 and 1 June 2025, respectively. They amend an array of regulatory provisions to strengthen and streamline the AML/CFT regime.

Two amendments in July 2023 provided new tools to enforce the CPRA's purposes.

First, the High Court can now make disclosure of source orders. These invite a person located outside New Zealand to inform NZ Police about the ownership of certain property on pain of that property being deemed tainted – and therefore susceptible to forfeiture – unless the person provides adequate ownership information within two months.

Second, property may now be restrained where the High Court has reasonable grounds to believe that the apparent owner is an associate of organised criminals who have unlawfully benefited from significant crime and it can be shown that the owner cannot have acquired the property legitimately.

Although New Zealand historically has a low terrorism threat environment, the 2019 Christchurch mosque attacks pushed the national terrorism threat level to 'high'. The attacks destroyed the country's collective illusion that its remoteness and social cohesion would continue deflecting the global tide of disinformed extremism.

In the wake of the attacks, New Zealand demonstrated capacity and effectiveness in conducting and supporting investigations into terrorism financing.

The 2022 occupation of Parliament intensified concerns about the country's interconnectedness to extremist and conspiracist influences.

Nevertheless, the threat level has now returned to 'low' (meaning a terrorist attack is considered 'a realistic possibility'), and AML reporting entities appear to be encountering no material evidence of terrorist financing or property in their due diligence; therefore, the legislative requirement to report terrorist property remains essentially unused.

The FATF Mutual Evaluation Report recommended stronger enforcement. Subsequently, AML supervisors are seeking more formal warnings and civil penalties for non-compliance.

While larger and more sophisticated reporting entities can better afford to consider and comply with AML rules than the smaller entities, enforcement action has been taken across a variety of sectors and sizes of entity.

Most of the country's banks have now been subject to public criticism if not more severe enforcement action.

Virtual assets service providers' (VASPs) compliance obligations have been evolving, and they are still developing their understanding of their ML/TF risks and how AML/CFT obligations apply to their business. In 2023, refinements to the AML/CFT regime have included:

1. making clearer that VASPs are covered by the AML/CFT Act, including by defining virtual assets in regulations in line with FATF guidance;
2. bringing additional VASPs, which only provide safekeeping or administration of virtual assets but do not facilitate exchanges or transfers, under the regime;
3. implementing the FATF's travel rule to improve transparency and traceability by declaring virtual asset transfers to be international wire transfers – unless the reporting entity is satisfied that all parties to the transfer are in New Zealand; and
4. declaring virtual asset transactions (whether to or from fiat currency or virtual asset to virtual asset) that occur outside a business relationship to nevertheless be caught as 'occasional transactions' under the Act where they equal or exceed NZ$1,000.

Designated non-financial businesses and professions (DNFPBs) were only brought within the scope of AML/CFT regulation in 2018/2019. Some are still struggling with their obligations. Particularly for lawyers and accountants, template-based compliance documents remain a common cause of failed audits and inspections – even after two audit cycles. The DIA has found widespread non-compliance in their risk assessments, treatment of politically exposed persons, failures in customer due diligence (CDD) and enhanced customer due diligence (EDD), inadequate staff training and suspicious activity reporting.

Enforcement action is starting to increase across the range of reporting entities, and the full range of enforcement tools have now been used (see below).

Notably, the first criminal prosecution under the AML/CFT Act, Jiaxin Finance, came to the end of the appellate road in November 2022 when the Supreme Court refused to hear a second-tier appeal by a mother and son convicted in 2020 of criminal breaches of the AML/CFT Act.³ They were the first people in New Zealand to be criminally charged under the Act. A company, in which the prominent businessman had been a director, had failed to keep adequate records of, or report, suspicious transactions exceeding NZ$53 million that the businessman had made through the company. The company, its director and his mother were each convicted and fined.

Civil fines under the Act have been more frequent. In June 2023, for example, Tiger Brokers (NZ) Limited was fined NZ$900,000 for failing to conduct proper CDD for 3,768 customers, failing to terminate business relationships despite defective CDD, failing to report suspicious activities and failing to keep appropriate records. The firm is a subsidiary of Tiger Fintech (Singapore) PTE Limited and provides share brokering services through online trading platform Tiger Trade. The non-compliance related to transactions totalling NZ$61 million over eight months.