Matt Nippert is a business investigations reporter.

Police and officials warn of property laundering

Police estimates of the amount of locally-generated dirty money being laundered annually -mostly from drug dealers, fraudsters and tax evaders - had risen to $1.6b. Photo / Doug Sherring
Police estimates of the amount of locally-generated dirty money being laundered annually -mostly from drug dealers, fraudsters and tax evaders - had risen to $1.6b. Photo / Doug Sherring

Police research concludes a loophole is seeing lawyers, accountants and real estate agents being increasingly used to launder $1.6 billion in dirty money annually - including into New Zealand's booming property markets.

"Recent police investigations have exposed the fact that professional services and the real estate sector are closely linked to organised crime and drug offending," officials said.

That research, sampling freezing orders obtained to seize the proceeds of crime, found 26 per cent of cases involved unpicking the work of accountants and lawyers, and more than half (56 per cent of cases) involved property deals where "offenders were ultimately successful in integrating criminal proceeds by purchasing real estate".

Reports released under the Official Information Act - and only provided to the Weekend Herald following a complaint to the Ombudsman - show Justice Minister Amy Adams was briefed last June about police concerns but substantive policy work to close the loophole was only begun a year later.

Adams yesterday said this briefing was the first time the matter had been brought to her attention, and while she went against the "preferred option" of officials to begin policy work immediately she had requested scoping work to get to grips with the scale of the reforms required.

"I wanted to move quickly, but quickly bearing in mind this it not an area you want to get wrong," she said, citing tens of millions of dollars in expected compliance costs for businesses.

Adams insisted her decisions had not slowed down the policy process. "At no point has the envisaged date of being in force been delayed."

News of the study come from documents covering long-running discussions over when to remove a contentious exemption of professional services firms - mostly lawyers, accountants and real estate agents - from being covered by anti-money laundering laws passed in 2009.

The document also show police estimates of the amount of locally-generated dirty money being laundered annually -mostly from drug dealers, fraudsters and tax evaders - had risen to $1.6b.

The revelations sparked a political debate with Labour Party leader Andrew Little saying Adams had rebuffed official advice to move quickly on the matter and the Government was "dragging the chain" despite police and officials raising "very serious concerns".

"When you've got a red hot property market, as we do at the moment, for criminals laundering money it's like bees to a honey pot. You put in dirty money, and in the current market you can get it back clean quickly - and with interest," Little said.

Little said John Shewan's report into issues raised by the Panama Papers had also called for an immediate end to the exclusion of professional services from anti-money laundering regulations, but this call for action had also been ignored by Government.

Ron Pol, of AMLassurance.com who is undertaking a doctorate thesis studying the involvement of professional services, said the exemption was a mistake but moving urgently now was not the answer.

"To stop the obvious 'displacement effect', where criminals turn to easier places to launder money, the professions should have been included from the outset. But it is complex, and will take some time to get right. Rushing it now won't make it better," he said.

The regime was first applied to banks and casinos in 2013 - with professional services firms to be brought in at a later date - and broadly requires organisations to ensure they know who their clients are and to actively monitor and report suspicious transactions to Police.

In a briefing to Adams in March which included police concerns, officials said the mismatch in coverage meant the professional services sector was now more attractive to criminals and "potentially provides a 'road map' for would-be money launderers".

This noted officials had long-wished to progress work to close this gap, but these preferences had been overruled. "Work was due to commence in 2014, but was deferred to competing priorities," officials said.

Adams said this juggling of priorities was not her responsibility. "I wasn't the Minister at that time, so can't speak to that."

The removal of the exception was anticipated by officials to attract resistance from the legal, accounting and real estate sectors as it was estimated to impose annual compliance costs of at least $76m.

Police Association president Greg O'Connor yesterday said the exemption was unsatisfactory and the revelations in briefings to the Ministers should be no surprise.

"I think most New Zealanders will very quickly realise if you are going to have any sort of sophistication about hiding assets you are going to have to involve the professionals. And if you're going to have meaningful asset seizure legislation, you've got to be able to get behind screens," he said.

Asked about the series of delays, O'Connor agreed opposition from the sector was the most likely cause: "Naturally enough, they'll fight this tooth and nail."

However this week industry bodies for the three professions, who all declined to talk on the matter and instead issued written responses through spokespeople, accepted they would lose their special status.

The Real Estate Industry of New Zealand said it was "accepting of appropriate vigilance of Ministry of Justice and support the establishment of suitable compliance provisions".

The Law Society said it "always recognised the case for lawyers being reporting entities under the [Anti-Money Laundering] legislation and we have not opposed that."

Chartered Accountants Australia and New Zealand said they had not lobbied to delay the policy, but while they supported the regime being extended this "support is contingent on the regime being practical, cost-effective and not imposing excessive compliance costs."

Requests to interview police over their research and concerns were this week declined. In a written statement the police noted a process of public consultation to extend the regime was now underway and closed next week.

"Police look forward to working with those professionals offering financial and real estate services in order to prevent and reduce money laundering, terrorism financing and financial crime generally," the statement said.

The world is watching

Officials pushing for faster action closing loopholes in our money-laundering have expressed concern our international reputation may be at risk if changes aren't implemented quickly enough.

Members of the Paris-based Financial Action Task Force - a multinational group formed to fight financial crime - face regular inspections and officials have warned New Zealand could get a ticking off.

Briefings last year to Minister of Justice Amy Adams noted delaying work on the policy until 2016 - as was eventually decided - made it "less likely to meet FATF's timing for a positive report, resulting in negative impacts on our trading reputation."

Officials noted Australia last year suffered reputational damage following a critical assessment by FATF, partly for allowing exemptions to its anti-money laundering regimes New Zealand is also grappling with.

A similar finding that New Zealand was non-compliant raised the possibility of an increased cost of borrowing for the government and private sector, difficulties doing business overseas and reduced overseas investment in New Zealand.

Ron Pol, of AMLAssurance.com, said some people in the industry had speculated a delay in New Zealand's next scheduled inspection, which had been pushed out to 2020 - may explain why the government had been apparently been slow in acting.

For her part, Minister of Justice Amy Adams dismissed the possibility of an adverse finding. "That will all be in place well in advance of that goal: Well within that deadline."

- NZ Herald

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