Holes in anti-laundering net

The introduction of a new anti-money laundering regime is a step forward, but New Zealand's regulatory landscape still offers convenient hiding places for shady international business, a leading fraud expert says.

The relative weakness of at least some of our regulations has been highlighted as authorities investigate the illegal arms shipment from North Korea seized in Thailand late last year linked to a New Zealand-registered company.

Alex Tan of PricewaterhouseCoopers said that Vanuatu-based GT Group - which registered the NZ shell company SP Trading that was in turn linked with the shipment - was touting New Zealand shell companies to potential Eastern European clients just six months ago.

Company registrations is likely to be the next area for focus once the new anti-money laundering regime is in place.

Anti-money laundering legislation was passed in October last year but will not take real effect for some time. The process of drafting and seeking industry consultation on the regulations which will give the law its teeth has been delayed a number of times. A discussion document is likely to be published in late March or early April with a view to having the regulations come into force in the second half of the year, a spokesman for Commerce Minister Simon Power told the Business Herald last week.

The Business Herald understands the finance industry will have two years after the introduction of the regulations to become compliant. It sounds like plenty of time but Tan says it isn't.

"New Zealand's one of the last countries to implement enhanced anti-money laundering legislation ... The key message that comes through is this takes longer and costs more than you think to implement it so you always do well to start early."

Compliance with the regulations will be overseen by the Reserve Bank, Securities Commission and Department of Internal Affairs.

"All of them are saying don't wait for the regulations, there are things you can do now."

While the benefits to businesses themselves of implementing the new regime will be minimal, Tan says relevant government agencies involved "are very concerned" about the resulting burden of compliance.

As the legislation was being formulated there were some fears the new rules, by making it more onerous to change banks, might favour industry incumbents over smaller newer players. However Tan believes that as every finance institution has to comply no one will be at a competitive disadvantage.

The effect on customers will vary. Those remaining with their existing bank, financial adviser and so on should notice very little.

However if there is a material change in the relationship they have with their bank there will be further "due diligence" requirements, says Tan. "They will have to proffer more information about themselves, their business, and their source of money. That is a paradigm shift for the banks' customers in New Zealand. Things are currently very easy."

The passing of the anti-money laundering legislation last year brings New Zealand into line with much of the rest of the world.

However the task force has also picked up on the ease of setting up a company in New Zealand without the need to provide much in the way of identification.

Tan points out that GT Group about six months ago conducted a roadshow which went around Eastern Europe extolling the benefits of setting up companies in New Zealand.

"I don't know but why would a whole load of people from Russia and Belarus want to open up companies in New Zealand that never trade here?"

NEW RULES

* Business must put in place systems which prevent or detect money laundering.
* New rules put new record-keeping obligations on financial institutions.
* It also obliges the financial sector to report all suspicious activity.
* Banks have said compliance costs for them could be more than $350 million.