Bill tackles money laundering, financing of terrorism

A bill to enhance measures to counter money laundering and the financing of terrorism was introduced to Parliament today.

Justice Minister Simon Power said the Anti-Money Laundering and Countering Financing of Terrorism Bill will also help New Zealand tackle financial and drug-related crime by detecting, tracing, and seizing profits of domestic organised crime groups. 

"The Bill is an essential component in New Zealand's ability to investigate organised crime, to follow the money trail through financial systems, and to enable Police to use the Criminal Proceeds (Recovery) Act passed by the government in April to attack those profits.

"New Zealand cannot be seen as a target for organised criminals and terrorists.

"This bill will allow us to better contribute to the international fight against money laundering, tax evasion, and terrorism financing."

The Bill sets out regulatory changes to enable New Zealand to comply with the Financial Action Task Force (FATF) - an inter-governmental body that sets international standards for combating money laundering and terrorist financing. 

"Most of New Zealand’s financial trading partners are included in the task force, and not implementing its measures puts our international reputation and our access to international financial markets at risk," Mr Power said.

"This move will ensure we have a good reputation as a sound place to do business.

 "Last year, at the request of Australian authorities, New Zealand froze assets worth nearly NZ$29 million from one group of Australian tax evaders.

"The reform needs to be widened beyond the financial sector. 

"There will be two phases of coverage. The first will cover financial institutions and casinos, and the second will include other industries and professions where money laundering could occur - including lawyers, accountants and real estate agents.

"The Government does not want to tie the financial sector up in red tape.  We recognise that the financial sector is best at assessing the risks posed by its environment and its customers.  Our approach is flexible and enlists the skills of the sector to help to manage money-laundering risks," Mr Power said.

Businesses will be required to make more robust checks on customer identity and verification, and have better systems in place to identify and track suspicious activity.

"Most people will not be directly affected in their ordinary financial transactions and will not notice any significant changes."

Q & A

What is money laundering?

Money laundering is where criminals attempt to conceal the true origin of money or property they have obtained through criminal activities.  In New Zealand, most money laundering takes place in relation to drug crime, organised crime and fraud.

What is terrorism financing and how is it different from money laundering?

Whereas money laundering is about hiding the profits of crime, terrorism financing is where money is applied to fund terrorism activities.  A large amount of terrorism financing comes from fundraisers whose contributors may not be aware of the actual intended purpose of their fundraising activities.

How large of a problem is money laundering in the world today?

This is hard to estimate.  The International Monetary Fund has stated that the aggregate size of money laundering in the world could be somewhere between US$725 billion and US$1.8 trillion. In New Zealand it is estimated that annually, crime generates proceeds of $500 million – $1 billion.  

What is the relationship between money laundering and organised crime?

Organised criminal groups, such as gangs, are, by definition, about making a profit from their illegal activity such as drug cultivation and manufacturing.  Money laundering allows them to turn this illegal profit into legitimate money, which allows them to use this money without fear.  In short, organised crime launders money so that crime does pay.

What is the Financial Action Task Force?

The Financial Action Task Force is an international governmental organisation established in 1989 to combat money laundering and terrorist financing.  It was founded on the premise that in order to combat money laundering a coordinated and global approach is required.  New Zealand firmly supports international efforts to eradicate the laundering of money and terrorist financing and has been a strong supporter of the FATF.  New Zealand is an original and active member of the FATF.

Why has new legislation been introduced?

Preventing criminals from being able to launder money restricts their ability to profit from crime. Ultimately, this will make it much more difficult to engage in organised crime in New Zealand. Likewise, reducing opportunities for terrorist financing will reduce the ability for terrorists to carry out terrorist acts.

The FATF has developed international standards to prevent and deter money laundering and terrorist financing.  These standards are considered the ‘best practice’ and all countries in the world are recommended to implement them.  The new legislation will replace the Financial Transactions Reporting Act 1996, which no longer reflects this international best practice.

What businesses are affected by this law?

The bill uses the word ‘reporting entity’ to refer to those businesses that must comply with the new regime.  Reporting entities include all businesses in the financial sector and casinos, for example:

• Banks.


• Finance companies and credit unions.


• Currency dealers or exchanges.


• Issuers, sellers, and redeemers of travellers checks, money orders, or stored value products.


• Money transmitters and remitters.


• Life insurers.


• Stockbrokers.      

Which businesses are not covered by the bill?

Certain businesses already covered under the Financial Transactions Reporting Act 1996, including lawyers, accountants, real estate agents and the Racing Board.

Am I included in the bill if the financial services I provide are incidental to my business?

Yes.  When your business undertakes those services you would need to comply with the obligations outlined in the bill.

How does the bill affect businesses in the financial sector?

The bill recognises that businesses that deal with the public are best placed to identify and manage money laundering and terrorism financing risks.  As such, the aim of the bill is to enlist financial institutions in the fight against money laundering.  It does this by creating customer due diligence obligations and an obligation to review ongoing transactions.

What are the new obligations?

The bill requires reporting entities to:

• Undertake due diligence on customers, or any person transacting on an    account.


• Undertake transaction and account monitoring.


• Report any suspicious transactions to police.


• Have an Anti-Money Laundering/Countering Financing of Terrorism (AML/CFT) compliance programme.

What does the AML/CFT programme involve?

At a minimum, a companies’ AML/CFT programme must:

• Incorporate policies, procedures and internal controls reasonably designed to assure compliance with the bill including verifying customer identification, detecting suspicious activity and reporting that activity to police, creating and retaining records, and responding to law enforcement requests.


• Designate a compliance officer to ensure the programme is implemented.


• Provide for ongoing training of appropriate personnel concerning their responsibilities under the programme, including training in the detection of suspicious transactions.


• Provide for an independent review to monitor and maintain an adequate programme. 

When will businesses have to comply?

It is proposed to enact the bill by October 2009.  Following enactment, the intent is that reporting entities will have two years, although further discussions with industry are required to ensure the feasibility of implementation timeframes.

What does an AML/CFT supervisor do?
The Reserve Bank, the Department of Internal Affairs, and the Securities Commission are the AML/CFT supervisors.  They will help business understand the obligations by issuing guidance and codes of practice.  They will also be responsible for ensuring that businesses comply with the regime.

How has the Government minimised implementation costs?

The Government is concerned that the costs of complying with the new regime are not onerous.  The bill includes a lot of flexibility in designing and AML/CFT programme and in complying with the core customer due diligence obligations.  This will ensure that small businesses can comply with minimal cost.

Why should New Zealand put in new regulations during the current financial crisis?

It is very important for the private sector that New Zealand meets the FATF standards.  Money laundering and terrorist financing undermines the economy and creates instability in the financial sector.  Unchecked money laundering promotes crime and terrorism, and highlights New Zealand as a weak-link internationally, more attractive to money launderers and terrorist financiers. More directly, failure to comply with the FATF recommendations can result in the FATF declaring New Zealand a high risk country for money laundering and terrorist financing.  This would impact on the cost of borrowing for New Zealand, as countries attach a premium to doing business with New Zealand, or stop doing business with New Zealand altogether. 

What does the AML/CFT bill mean for customers of financial institutions?
Once enacted, financial institutions may ask for more information about you when you open an account or change the type of business you do with them.  In some cases, this may include asking questions about the source of your income or wealth.  A lot of financial institutions already ask for this extra information. The bill protects your information by including a number of restrictions about how businesses use any details obtained about you.