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Associate Minister of Justice Nicole McKee sets sights on reforming anti-money laundering laws

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Associate Minister of Justice Nicole McKee sets sights on reforming anti-money laundering laws
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Reforming the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act is "one of my priorities this parliamentary term," Associate Minister of Justice Nicole McKee says.

McKee, an ACT Party MP, says she's working with other ministers in the Coalition Government "to develop a work programme to improve the effectiveness and efficiency of our AML/CFT system as a whole."

"I have not made any decisions yet as I am currently still discussing the scope of the AML/CFT work programme with my ministerial colleagues," she says.

McKee's comments come in answers to questions from interest.co.nz about job cuts in the Department of Internal Affairs' AML/CFT supervision team, and broader questions about the AML/CFT Act.

Neither the National-ACT coalition agreement nor the National-NZ First coalition agreement, released when the Government was formed last November, mention anti-money laundering or the AML/CFT Act.

'The world’s least effective policy experiment'

In 2021 ACT sought feedback from people dealing with the AML/CFT Act about how to make complying with it less burdensome whilst also protecting NZ from money laundering. Interest.co.nz spoke to ACT leader David Seymour about this at the time.  McKee says this initiative led to an ACT policy ahead of last year's election.

In a press release from September 30 last year Seymour said AML regulations have been described as "the world’s least effective policy experiment, with compliance costs possibly to the order of 100 times higher than the amount of laundered money seized."

"The laws were created with casinos and banks in minds but has since been widened to include smaller businesses who don’t have dedicated compliance teams and are put in a difficult position to comply within strict deadlines and face major fines for delays. ACT would implement a more risk-based approach, tailored to the size, nature, and risk level of various entities," Seymour said.

“Specifically, he said ACT would; reduce compliance costs associated with the AML/CFT Act, provide clear guidelines on how to comply with the legislation instead of a wait-to-prosecute approach, simplify customer due diligence processes for low-risk customers or transactions, including relaxed rules for low-risk trusts, allow reporting entities to certify the identity, source of wealth, and source of funds for clients with whom they have an established relationship, allow scanned copies to be accepted, and extend timeframes for small businesses to submit reports to Police.

"Cutting through AML red tape is one example of ACT’s approach. Too many rules are created by bureaucrats in Wellington who don’t have a proper understanding of what impact they have. To them it’s just words on a form, to the business owner having to comply it is time and money spent on something that might not be doing anyone any good. ACT’s Minister and Ministry for Regulations would get rid of unnecessary regulations and prevent more from being added," Seymour added.

The Paris-based Financial Action Task Force (FATF), an inter-governmental body that sets international standards and is considered the global money laundering and terrorist financing watchdog, issued its latest country assessment, or mutual evaluation, of NZ in 2021. FATF said NZ’s measures to combat money laundering and terrorist financing were delivering good results, but the country needed to focus more on improving the availability of beneficial ownership information, strengthening supervision and implementation of targeted financial sanctions.

"New Zealand faces money laundering threats from proceeds of crime generated both domestically and internationally. The country’s large scale terrorist financing risks are mainly in relation to overseas-based groups," FATF said.

It also said the oversight of NZ banks didn't adequately reflect the risk and complexity of the banks partly because the Reserve Bank wasn't well resourced enough, and suggested the Government introduce a register of all domestic trusts. The Reserve Bank's response to FATF's assessment is here and here. Commerce and Consumer Affairs Minister Andrew Bayly told interest.co.nz in March the Government wasn't currently considering improving disclosure on the beneficial owners of NZ companies and limited partnerships.

NZ currently has three AML/CFT supervisors; the Department of Internal Affairs (DIA), Reserve Bank and Financial Markets Authority.

DIA 'committed to being an effective regulator'

Interest.co.nz recently ran an article by AML/CFT consultant and auditor Martin Dilly and barrister Fiona Hall about what they described as the "absolute travesty seemingly occurring at the DIA" via job cuts including of key, experienced staff.

"The proposed cuts to the DIA will, in our view, have a substantial effect on the supervisory effectiveness of NZ’s AML/CFT framework, putting us at risk of an overall view of low supervisory effectiveness. This puts us at significant risk of increased monitoring by FATF, i.e. being grey listed," Dilly and Hall wrote.

A DIA spokesman says the job cuts are part of DIA's response to the Government's "Fiscal Sustainability Programme," through which DIA must reduce baseline costs by 6.5%. Although 19 of 51 AML/CFT roles are "proposed to be disestablished," the spokesman says 10 are currently vacant.

"Balanced against that reduction, we also propose the creation of three new senior roles in the AML operations team, and three specialist senior AML investigation roles. Based on the proposed changes, we expect to have positions for almost all of our senior staff. However, no decisions have been made yet, so we cannot comment further on this," the spokesman says, adding final decisions are expected in June.

"We’re committed to being an effective regulator and will continue working with other government agencies to manage the broader AML system. We do intend to review how we are working to ensure we’re continuing to tackle the biggest risks to keep New Zealand safe."

"The work we do is of high value and, in conjunction with our cross-government partners like Ministry of Justice, Police, Reserve Bank and the Financial Markets Authority, we’re confident that we make it much harder for organised crime to exploit New Zealand businesses. A review of NZ’s AML/CFT system conducted in 2021 by the Financial Action Task Force found NZ’s system overall to be generally effective, and we continue to work closely with our government partners to increase our effectiveness," the DIA spokesman says.

McKee referred questions on the DIA job cuts to the Minister of Internal Affairs, ACT's Brooke van Velden. She has yet to respond to a request for comment.

Meanwhile, asked whether she supports the idea of moving from three AML/CFT supervisors to one, McKee says; "I have not made any decisions yet as I am currently still discussing the scope of the AML/CFT work programme with my ministerial colleagues."

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12 Comments

Talk to any professional who has to deal with AML/CFT compliance. They will all agree. The system is an incredible burden on businesses - especially SMEs. It's simply the most insane cost-benefit ratio of any regulation. 

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"It's simply the most insane cost-benefit ratio of any regulation."

There's huge competition in that category 

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Nice to see the Libertarians taking this one on. It might be the first example of compliance regulations being streamlined. 

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Well if its anything like the way Europe's going the bank or ATM won't dispense more than $200 in cash. The Netherlands banks are already querying cash withdrawals more than Euro 200 and I think UK is already on that path.

This cross party investigation is just the forerunner of digital "cash" only under the guise of AML.

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The Westpac already asks very nicely what you want the cash for, so I give a meaningless answer.

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Why do they even ask ? It is your money.

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I have to agree, anyway US will tell them to stop and that will that. Lets not pretend we have any sway over these things.

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compliance costs possibly to the order of 100 times higher than the amount of laundered money seized.

Thats not a bad thing is it.?  If compliance costs remained constant and the money seized became a pittance wouldnt that actually be proof of the absolute effectiveness of the policy in place, where virtually no-one ever attempted to launder anything again.?

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Nice point, except it's a little worse than that, based on the work Seymour appears to have referenced, which joined policy effectiveness and compliance costs for the first time - long resisted by the compliance industry, which for decades insisted costs are irrelevant. [And also remains profoundly and systemically opposed to ordinary principles of policy effectiveness and outcomes science].

Specifically, by global measures using UN metrics the effectiveness of AML/CFT controls appears around 0.05% impact on criminal funds (ie up to 99.5% of the proceeds of serious crime is retained by crims), despite annual compliance costs more than 100 times the amounts recovered from criminals each year. [The findings were conservative, as they must in peer-reviewed journals, but it is actually worse even than that, by orders of magnitude, because other research indicates few criminal recoveries are actually triggered by AML controls vs good old-fashioned policing].

This means that AML is in effect a tax on businesses and households, not criminals - except for the few hapless sods surprisingly entangled in the most expensive net ever constructed, with mesh a mile wide and built from papier mâché.

So, rather than being a good thing, despite 40 odd years and trillions of dollars siphoned from businesses, taxpayers, and households (ironically, laundered through banks and governments) into the insatiable black hole of the surveillance-compliance complex, AML's impact appears not even remotely to approach a tax on crime, nor even scarcely a rounding error on criminal accounts.

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A contrarian view. Is this just the free for all created under the John Key government, being restarted under the Luxon Government. We all know that this is a government by the landlords for the landlords, and they will do whatever they can to allow the gravy to keep flowing. The benefit for NZ is irrelevant, benefit for politicians pesonal bank balances is what is driving this. Nothing else.

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Some banks are out in space with the 'anti money laundering gibberish'. I know of an elderly person that was asked to bring in a second form of identification because their drivers license was not sufficient ID to transfer from their savings account to a term deposit with the same bank in the same name . Bank wanted passport or birth certificate...for funds generated from wages over the years...Yet same bank has no problem with them spending the money via eftpos or credit card...It is a bad joke when legitimate interests are affected and folk are taken advantage of...my guess is such an action ticks a few % check boxes so the baddies can slide under the rug....

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Google the Amended Identity Verification Code of Practice, it states that a Drivers Licence on it's own isn't reliable, which is why they asked for a secondary form of ID...like a Birth Certificate, or you can rely on a single Primary form like a Passport. The bank probably realised they had insufficient ID on file which is why they required it to be updated. 

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