New Zealand will face scrutiny from an international watchdog on money laundering and financing of terrorism next month as one expert warns there are still gaps in the system that criminals could exploit.
The Financial Action Task Force (FATF) - an inter-governmental body that sets the standards for combating money laundering, terrorist financing and other related threats including financing of weapons of mass destruction will carry out an on-site visit of New Zealand in March to undertake its first assessment in 11 years.
Last time the taskforce visited, in 2009, New Zealand was found to be deficient in some areas which were subsequently addressed through a law change pushed through that year.
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In 2013 the first phase of legislation came into force bringing banks, financial institutions and casinos under the law - those seen as the highest-risk sectors.
Then in 2017 a second wave came into force include lawyers, accountants, real estate agents, the New Zealand Racing Board and high-value dealers.
Those entities must all now undertake assessments of all their customers and report any suspicious behaviour to police.
They are regulated by a combination of the Reserve Bank, Financial Markets Authority and Department of Internal Affairs depending on the type of organisation they are.
But there are concerns that gaps still remain.
A Cabinet briefing paper released publicly at the end of last year by the Ministry of Justice warned that: "there are some features of New Zealand's anti-money laundering/counter-financing of terrorism system that may attract criticism from the FATF [the taskforce] during the assessment process."
It also warned that the findings, when they are released in February 2021, may attract media attention.
The exact areas for potential concern were redacted from the document under the Official Information Act.
But Jenine Colmore-Williams, who runs a consultancy specialising in working with organisations to manage their AML obligations, says many smaller firms in the second wave were still struggling to get up to scratch.
"In 2018 when it first came in there was a lot of frustration. There wasn't a lot of clarity around how they do this. A lot did nothing for the first year."
Last year the market heated up with a lot more taking action but she said there were still some firms which had done nothing or had tried to use a template from the internet to meet their obligations.
"But you can't template this - you have to tailor it to your specific business. They don't know how to do that. They understand how to manage their customers' risks but not their own."
She said there was also a belief that lawyers would be able to do it easily - but that was not what she was seeing.
Time is running out for law firms to prove they are meeting the law with all lawyers required to complete internal audits by July 1 to assess the programmes they have in place.
Accountants have until October and real estate agents until January next year.
A spokeswoman for the New Zealand Law Society said it had prepared guidance for lawyers and law firms on the audit process and had also widely promoted to lawyers any information released by the DIA [Department of Internal Affairs] on its requirements and expectations.
"The Law Society recognises the importance of an effective AML/CFT management regime and has assisted the DIA in its supervisory role with a range of online resources, special webinars, specialist panel of friend members to provide individual guidance and a dedicated email address for inquiries from lawyers seeking specialist advice."
Colmore-Williams said those who had done nothing would likely find a sharp rebuke from the DIA.
"Those who have done nothing - it's not going to be a good conversation."
Those found turning a blind eye to money laundering can face substantial fines. In October last year an Auckland money remitter was fined $4 million plus costs for repeated non-compliance.
That followed another case in 2017 when another money remitter received a fine of $5.29m plus costs.
Since the AML legislation came into force in 2013 the DIA has issued 30 formal warnings and accepted four enforceable undertakings either for failure to meet a particular risk assessment or AML/CFT programme obligations or for failing to submit an annual AML/CFT report.
Colmore-Williams said it would become "very apparent" in the next 18 months how the DIA were going to boot-strap those not doing anything.
"They are very aware the market has been slow on the up-take of this."
Mike Stone, director regulatory systems at the Department of Internal Affairs, said to date it had completed over 250 monitoring reviews of accounting and legal practices which provided services that are captured by the AML/CFT Act.
"As a supervisor for the AML/CFT Act, our regulatory compliance tool kit includes desk-based reviews (to assess technical compliance of a business's written AML/CFT risk assessment and compliance programmes) and onsite inspections that test the implementations and effectiveness of the businesses' AML/CFT compliance programme."
Stone said the AML/CFT Act contained several tools for non-compliance from remediation through to court action.
"We will work with businesses where we have identified areas of non-compliance. In extremely serious court proceedings, the AML/CFT Act allows for penalties of up to $2m for civil liability breaches."
Colmore-Williams said she believed there was a lot more money laundering done in New Zealand than Kiwis were aware of.
"AML is designed to protect the country. But what it does is open the financial sectors' kimono."
New Zealand is rated one of the easiest countries in the world to do business but that had also made it easy to set up shell companies that could be used to launder money through, she said.
"The more we peel the layers of the onion - we are seeing a lot more there than we initially thought."
Colmore-Williams said it was too soon to know if the law change was making a difference here yet.
In Australia AML has been legislated for some time but issues are still appearing.
Last year Australian regulator Austrac launched legal proceedings against Westpac alleging 23 million breaches in anti-money laundering law, including transfers potentially linked to child exploitation.
In 2018 Commonwealth Bank of Australia, the parent of New Zealand's ASB bank, agreed to pay Austrac A$700m ($732m) to settle a similar action against it in which the regulator alleged more than 53,000 breaches of AML-CTF laws.
Colmore-Williams said there was a possibility there were also issues in the banks here.
"I don't think it is blatantly happening. The tier 1 banks in New Zealand have been under this for some time."
Colmore-Williams said she believed there were still gaps in regulation here and felt the non-profit and faith sectors should also come under the law.
"It would be hugely controversial but might be naive not to want to tackle that."
She said both non-profits and faith groups were two areas that still attracted large cash-based donations.