By Gary Hughes*
The first week of May is already gone. That means only a few working days remain before New Zealand’s bold experiment with outlawing large cash transactions comes into force.
This significant but largely unpublicised law change takes effect on Thursday, May 11, and will have the effect of preventing any business that regularly deals in certain specified commodities from buying or selling them for cash in future.
A few long-established Kiwi traditions may be consigned to the past, such as young folk saving up wages for an engagement ring with which to propose, or buying a car in cash to ensure you can take possession and drive it home immediately. At least, that is, if your intended purchase is NZ$10,000 or more.
What’s no longer permitted?
Ten grand is the threshold set in law now, at which point certain cash transactions move from being considered unusually large (and therefore currently reportable under Anti-Money Laundering law) to banned outright. That list of certain products covers: jewellery and watches, gold and silver or other precious metals, diamonds and sapphires or precious stones, motor vehicles including motorcycles (not mopeds/scooters), and all yachts and boats.
The various categories of goods on the newly-banned list are those where trading and consumer habits may have commonly used cash over the years. But equally, they are the high risk areas where criminal cash, under the table tax avoidance, or gang money laundering may have flourished too.
These new prohibitions have largely snuck up through the back door as part of significant organised crime group (anti-gang) reforms rushed through Parliament at the end of last year.
That resulted in the grandly named Criminal Activity Intervention Legislation Act 2023 being passed in April.
One effect of this is an amendment to the Anti-Money Laundering & Countering Financing of Terrorism Act 2009 prohibiting persons “in trade” from buying or selling in cash articles in one or more of those categories, if the total value of the transaction is equal to or above $10,000. Or if a series of related transactions reaches that threshold value.
“In trade” is a term used in other areas of law, such as the Fair Trading Act. It will tend to focus on dealers carrying on a business, not one-off or private or irregular backyard sales. Dealers in trade must not only refrain from buying or selling these articles by way of cash transactions (as it will be a civil liability breach to conduct such a transaction), but potentially face a criminal offence too. That might carry penalties up to two years in prison or a $300,000 fine (for individuals) or up to $5 million (companies & partnerships) - on a strict liability basis, regardless of intention or knowledge.
Why is this happening?
It’s hard to disagree with the thrust of law changes that attack organised crime groups, especially on the back of rising gun crime and methamphetamine markets that are proving more resilient than housing markets. Meth in New Zealand was estimated by Ministry/Police officials to be a $300m industry in 2021.
Drug dealers have a propensity for cash, and vehicles, toys, and bling. Working in a cash- intensive illegal area, they seek to transfer and revolve the cash it generates into readily movable assets.
As a result, law enforcement agencies here and abroad have held a growing animosity towards cash transactions in recent years. Australia kicked around a similar proposal to restrict cash a few years ago, but it did not proceed. A few scattered nations, such as Malta and Jamaica, have banned large cash transactions. But the need for a sweeping set of updated anti-gang laws provided an opportunity for government agencies to accelerate what is now a novel Kiwi experiment.
Many of these traders were already captured for AML purposes as reporting entities, because they are high-value goods dealers who transact in larger sums of cash. However they were given only a very limited set of obligations under the AML laws from August 2019 (as explained below) and it appears those obligations can only be now seen as a failure.
Despite positive intentions, the process adopted by Parliament was disappointing. A draft bill moving at pace in December, extremely short select committee consideration, and industry consultation processes being bypassed - altogether, often a recipe for poor law-making.
The few submitters who managed to engage in time raised reasonable questions about whether transaction privacy or Bill of Rights Act freedoms were being unduly trampled upon, and how this all fits with other stated aims like improving the problems around de-banking and financial exclusion. Answers were not readily forthcoming.
Nevertheless, without fanfare or effective consultation, the law was changed as part of the rapid anti-gang package.
Making part of AML law redundant?
When some high value dealers came under AML/CFT coverage for the first time, regulators were aware there were a very large number of new reporting entities. As a significant compromise, those dealers were given much reduced legal obligations. Compared to a financial institution or bank, casino or law firm, they did not have to create an AML compliance programme or risk assessment, or have a compliance officer, or need to make mandatory suspicious activity reports to police. That was only voluntary.
There’s been no data to reliably show whether since 2019 many car dealers and yacht brokers were in fact making voluntary reports.
At the same time, many of them may have remained ignorant of the AML law change, and many do not need to be registered or licensed in any financial sense. So as the Ministry departmental reports now make clear:
“the supervisor (the Department of Internal Affairs) is required to expend substantial effort to determine whether a potential business should be supervised, which means that non-compliant high-value dealers can escape attention and that supervising the sector is more resource intensive than it otherwise could be. The amendments that the Bill makes to the Act means that there will be less resource-intensive investigations that need to occur.”
In other words, adding a large number of new AML reporting entities with only voluntary compliance processes has been too difficult to regulate. So now the lever has moved firmly to the other end. The core of the problem – acceptance of large cash sales – is now illegal and banned outright. If you can’t by law do it, you will no longer need be regulated for the money laundering risk of it.
Those outside the cash ban categories, who will be left in the AML net, are a much smaller group – mostly dealers and auction houses handling art, antiques or protected objects and artefacts.
*Gary Hughes is a leading regulatory barrister at Britomart Chambers, and Chair of the International Bar Association AML & Sanctions Experts committee.
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